Good morning. This is the conference operator. Welcome, and thank you for joining the full year 2024 conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. 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. 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.
If we move to slide number three, 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. Finally, an outline of our Route 27 strategy. By the end of the presentation, the line will be open to questions from the audience. If we move on to the next slide, slide number four, 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 five 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 growth 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 and Ocean Organization, and effects related to the AGL earnout provision release all together 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 and 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 and Ocean called CargoEyes, which is a key enabler of the strategic initiatives within the Air and Ocean Division going forward. Lastly, we have announced our full year guidance for 2025 of DKK 575 million-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 will keep this slide brief as I believe you are all aware of our active M&A efforts throughout the last year. I wanted to highlight that in January, we closed the acquisition of ITC Logistic and Tortons, as shown on the left-hand side of the slide. 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.
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. Please flip to page six. 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 and Ocean Division delivered an increase in transport volumes compared to last year, driven by organic growth and startup activities. Meanwhile, the Road and 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. If we flip to the next page, you see the highlights for the Road and Logistics Division. As said, we saw for the second consecutive year a declining rate and soft volumes due to the soft macroeconomic environment in Europe. As a result of another challenging year, the high haulier costs squeezed our gross margin and yield. To offset the higher costs, the market responded with the prior-mentioned price increase during Q4 2024. The Road and 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 Smart Insurance 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 Smart Insurance cost base. You see the Air and Ocean. The global Air and Ocean freight market were impacted by uncertainty and significant rate volatility, with volume showed a positive trend compared to previous years.
In ocean freight, the conflict at the Red Sea that started in late 2023 continued into 2024, resulting 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, but also gain of new volumes. The acquisition growth was 3.4% due to the impact from freighting and Smart Insurance. The higher freight rates had a negative impact on margins, resulting in a gross margin of 19.2% in 2024. Adjusted EBIT was positively affected by the higher gross profit from organic growth and acquisition, but also set by the earnout provision released from the AGL transaction and the one-off building sale in Germany last year.
The cost base was negatively impacted by startups' activities in the US, some one-off termination expenses in Germany. Our projects department across the division had a very strong year. If we flip to the next page, please, you will find an overview of other key figures. The development in the sea was primarily impacted by local challenges in the US entities, networking capital development, and after several initiatives were initiated to secure a normalized level going forward. With Smart Insurance coming in, Q4 had a negative impact on our networking 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 2021. Excluding the effects of IFRS 16, the net interest bearing debt would have been DKK 429 million.
Net interest bearing debt was mainly affected by the acquisition of Smart Insurance, and the leverage ratio, including effects of IFRS 16, ended up at 2.0 if it died before special items. If we move to the outlook, we expect an adjusted EBIT in the range of DKK 575 million-DKK 650 million. The outlook assumes a slight volume growth in both divisions, but with continued pressure from soft macroeconomies and muted consumer confidence. In the European road and logistics market, we expect the growth in line with European GDP growth. The freight rates environment is expected to see slight increases to the rate adjustment announced in October 2024. For the Ocean Division, we anticipate moderate growth in transport volumes, offset by declining freight rates due to an 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 2024, as well as ITC Logistic and Tortons, which we completed in January 2025. 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. 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 the 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 continues to develop the business, establishing startups, and executing on its M&A agenda. That was all from me, so I will hand the word back to Mathias.
Thank you, Christian. If we move on to slide number 11, we will now provide a short introduction to our recently finalized strategy, which we refer to as the Route 27 strategy. In September last year, we launched a strategic review following more than a decade of rapid expansion, both size-wise and geographically. 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. 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-à-vis today. 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.
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 and Ocean, Logistics, and groupage activities as well. 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. 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. With this development in mind and moving onwards to slide number 13, we highlight the reason for launching a strategic review.
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. 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.
To thrive in today's uncertain market environments, we must adapt our operating model to maximize the benefits of our decentralized structure while simultaneously addressing its complexities and the opportunities that it presents to us. 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. We thus see a significant potential to establish an additional kicker of long-term growth and resilience. The components of this kicker are illustrated on the right-hand side of the slide. With the Route 27 strategy, we outline 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 four key pillars that underpin our midterm target of DKK 1 billion by the end of 2027. We'll briefly elaborate on each of these pillars on the next page. 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 differ across each of these stages, and so do our avenues for further value creation. We move on to slide number 14. We boil down our strategy into an ambition, where to play, and how to play.
There are obviously many steps and initiatives that go below the slide you see in front of you, but unfortunately, we do not 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 and logistics, and the three core lanes in Air and Ocean being the transatlantic, the trans-Pacific, and the Far East-Westbound. In Air and Ocean, basically the East-West trades. We will 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.
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. To leverage the strengths of this decentralized model, we need it 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. We have therefore identified the four 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.
When we say, as topic number one, 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. We will do so by establishing a global and regional organizational blueprint to align and promote best practices and improve transparency across the markets we do business in. With a 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 are part of NTG today. Data is a key enabler of operational and commercial excellence.
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. For 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. 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.
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. On slide number 15, you see a high-level timetable of the strategy execution. We are well on the way with the mobilization and execution on select additions that are key to the strategy, enabling a wider launch during this year and actual results of the initiatives kicking in by the end of this year and the beginning of 2026. 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. With those words, it's now time for Q&A.
Thank you. This is the conference operator who will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Dan Togo at Carnegie. Please go ahead.
Yes, good morning. Thank you. 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. You seem to be optimistic that this is sticky going into 2025. How should we think of revenue on an organic basis in road into 2025? 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 2025 in the road business? You exit 2024 again in road with a gross margin of around 23%. Is that now the level that we should look for going into 2025? 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 first of January. I would expect to see that price increases have the full effect, actually first from quarter two, but already you should see a better effect from Q1. Therefore, I think unless we see the whole year's coming and asking for higher prices, you would see that the gross margin is pretty sustainable. Please remember that price increases is mostly in the north of Europe. We have seen less on the continent of price increases.
Okay. When I think at road as a business area, we are talking low single-digit volumes likely, 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 peak of 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 much pickup. Please be a little cautious on the volumes. The low single-digit price increases that we're talking about is mainly in the Nordics.
Okay. On Air and Ocean, you mentioned project development here having, so to say, a meaningful impact in 2024. How should we think of that in 2025, and what would be the delta when I try to bridge the two years in 2025 compared to 2024 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. That is expected to decline as we move further into 2025. Now, there's also quite a few dynamics that go in the other direction. Please keep in mind, for instance, the German Air and Ocean Organization and the impact on the financial results in 2024 and the fact that the restructuring was successfully completed by the end of 2024. There's also been a fairly significant startup 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. All in all, we expect sort of these effects to balance each other out to a certain extent.
You add the impact of the acquisition of Smart Insurance, 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, so to say, you will focus more on larger acquisition rather than grow alone through, so to say, the partnership model. Has the partnership model, so to say, is that going to be a bit sidetracked going forward, at least as part of the, so to say, the whole growth? I guess you will probably do some going forward, but the majority of the acquisition and growth through acquisitions will be through, so to say, outright acquisitions rather than doing partnership models. Is that a correct, so to say, interpretation?
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 five years, and that will be exercised sooner or later if the entities are successful, and they usually are, right? 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.
It is 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? I would say it is 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 drop out. Are you considering new verticals as well? I mean, you've had a few along the way in order to, so to say, either diversify or to have new income streams, so to say, more or less to stand on. Are new verticals, could that potentially also be on the agenda?
It's a very good question. 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.
Okay. Understood. Thank you.
Next question is from Lars Heindorf, Nordea. Please go ahead.
Yes, morning. Also a few questions from my side. If we start with Smart Insurance, when you acquired it last year in August, you stated round about DKK 1.1 billion, slightly above that in yearly revenue. That was in 2023, and round about close to DKK 80 million in EBIT, equal to an EBIT margin around close to 7%. 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 by around about 60%. The contribution last year, DKK 33 million, which is quite a bit below what it was in 2023. The question is actually, what do you expect going forward from Smart Insurance? Is this the EBIT level that we should expect in 2025?
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.
[crosstalk]
Please remember that they also, there's this IT project that we have to do, and that means we are at the moment also, they are paying for some group costs. That is where they take their fair share of the group cost. Therefore, when you see that figure, you can't compare it 100% to the real contribution of Smart Insurance. It was a very hard quarter, and I also think we have said that these groups and logistics companies with the December is very, very low. It looked like December Christmas was already starting on the 7th of December this year in Germany. It has been really also seen a lot of the big companies having to survive, and people were sent home. December was very, very slow.
Yeah. That was also why I mentioned the full year numbers and not just the fourth quarter contribution, which I know was very low because of the seasonality. I am not sure I understand your answer. Do you expect that the 33, whether that is pre or post group costs, is that going to be the earnings contribution roughly the same level for 2025?
I don't think we are giving a guidance on each company.
Okay. And then maybe just a status, Mathias, you mentioned a little bit about it when Dan here asked about the CNR. The development there, which has been very closely 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. 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 and Ocean EBIT?
Listen, Lars, I think every market participant is dependent on the spot market because either you sort of procure at spot or you benefit from any potential discrepancies between the spot and the contracted rates, right? I think the dependencies will continue now. In terms of having multiple avenues of procurement, 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. 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. Given the decline in the rates, both in particular in seafood, just maybe also to some extent in air freight that we see at the moment, do you believe that you can deliver organic EBIT growth in 2025 versus 2024 in the Air and Ocean business?
Yes, we do. I think there's multiple sides of the yields. I mean, if we disregard the cost base for a second and just look at the 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. 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. That we have confidence in will contribute positively to the results.
I think I'm going to 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, Smart Insurance and also ITC, which we haven't seen in the 2024 numbers, I admit that, but we will see here in 2025, how much will they contribute in terms of lift in GP margin?
I think it's something around 0.7%.
Okay. All right. Thank you.
The next question is from Ulrik Bak, Danske Bank. Please go ahead.
Yes. Good morning. Hi, Mathias and Christian. Also a question on this Smart Insurance 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? If you could quantify that would be great. Thanks.
I don't think we could quantify, but they are weighing on that. Please remember that Smart Insurance has a group, it's set up where they need to implement a new group IT system. It is something new where we had to invest as a group in new capabilities. 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 specialized. We have a higher cost base in group with that.
Okay. Any comments, just high level on Smart Insurance, ITC, whether they have performed or developed as you had expected when you entered those transactions last year?
I think they are as everything in Germany under pressure. It is a pressured market in Germany. We had 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. The macroeconomic environment in Germany is challenged.
Understood. 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 facing in price increases? 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 2024. 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. Of course, it will have an impact, but on the main part, it has already been negotiated.
Okay. A follow-up question on your comments around projects in Air and Ocean. Can you elaborate on what those projects are and also what the contribution was to EBIT in 2024?
We do not give any projects, but 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. We have brought projects set up, and therefore, yeah, we had some tailwind in several of these companies.
Understood. And then final question, this reorganization that you did in the Air and Ocean organization in 2024, can you quantify how much that weighed on your earnings in 2024? And also the roughly quarterly phasing, if you can provide that too.
Yeah. It is a very low double-digit impact on EBIT.
That's very clear. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
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.