Earnings Call: Q4 2020

Mar 12, 2021

Thank you. Welcome to our full year 2020 webcast presentation and thank you very much for dialing in. First, I need you I need to ask you to read Page 2 carefully and then let's move on to Page 3. Here you see the presentation team for today. My name is Mark Larson, and I'm the Group CEO of NTG Nordic Transport Group. And with me today, I have Christian Jacobsen, our Group CFO. If we then flip to the next page, Here you see the topics that we intend to go through on the presentation today, including an overview of key highlights during the year, A review of the financial performance for the group and for each of the divisions and a presentation of the outlook for 2021. We will then end the presentation with a Q and A session where the line will be open to questions from the audience. Let's move on to Page number 5. These are the highlights for the full year 2020. 2020 was an eventful year, both internally and externally. I will not dwell too much On the COVID-nineteen situation, as I believe you are all aware of its implications, but there's no doubt that It did have a significant impact on our business in 2020. That is also why I'm very pleased We managed to deliver a net revenue in line with 2019, while seeing profitability as measured Our adjusted EBIT increased by 25%. The profitability increase was driven by a number of factors, which Christian will come back to shortly. But one of them was the coverage overhaul we completed in 2020 That resulted in restructuring, closed down or divestment of nonperforming activities in Germany, Sweden, Switzerland, Estonia, Vietnam, Australia, Croatia and Turkey. The increasing profitability was also supported by a positive development in the former Gontran activities, following significant restructuring in both 2019 2020. The activities contributed positively to adjusted EBIT in the 3rd Q4 of the year. Despite the uncertainty and turbulence, We managed to complete 3 acquisitions and establish 4 greenfield startups in 2020, which strengthened our existing footprint across Europe and also in the U. S. 2020 was also a year of change internally As the management team was reorganized when I joined as group CEO back in May, Peter Gruber joined as Executive Vice President in October And Shawn Hoch Peppen was announced as CEO of the Air and Ocean division in November last year and Shawn started in NTG in January this year. And with these additions, the management team is now officially complete. For the year 2021, we expect net revenue in the range of DKK5.5 billion to DKK6 billion and adjusted EBIT in the range of DKK 300,000,000 to DKK 350,000,000. But it should be noted that Visibility is lower than normal and these range reflect an increased level of uncertainty. If we then move on to Page 6, Here we have provided an illustration of the historical financial performance. 20 20 was up in terms of growth as net revenue remained constant compared to the year before. The development was driven by negative organic growth due to the general activity decline that was offset by the acquisition of EBRICS, SEGATONZ and TB International. What is worth noting though is that we managed to increase the margin by 100 basis points to 4.9% in 2020, driven by a combination of an increasing gross margin and conversion ratio, primarily driven by the Road and Logistics division, but also the Air and Ocean division towards the end of the year. And the strong operating performance resulted in an all time high adjusted free cash flow. Christian will now take you through the financial performance in a more detailed manner. Christian, if you would please? Thank you, Mario. If you flip to Page 7, please. And as Michael mentioned, we are generally very pleased with the financial results for 2020 that we believe illustrate our agile business model. On Page 7, you see the main highlights for the group. Net revenue remained constant at DKK 5,300,000,000 And the strong growth of a decline in organic growth of 4.9%, offset by an equivalent Positive impact from the acquisitions of eBreach TV International and SEGATRUNS. The negative organic growth was driven by a decline Inactivity in the existing business of that accounted for minus 3.1 percent and the discontinuation of Low performing activities of minus 2.4%. Start ups had a Partially offsetting the effect of 4.7 percent. Adjusted EBIT increased 25% 261,000,000 in 2020 corresponding to a margin of 4.9%. In the Q4 alone, we generated an adjusted EBITDA of DKK82 million corresponding to a margin of 5.8%. I'll dive into the contribution from each division shortly. But before doing so, I would like to highlight Gondron for the last time. Gondron positively contributed to the unit in both the 3rd and 4th quarter with DKK1.8 million and DKK3.8 million, respectively. KONVAN has now been restructured, Integrated into our existing activities, we will not report on the performance in the former contract activities from Q1 2021 and onwards. Well, of course, we will continue with the VoIP. And then if we move to Page 8, then we have presented the LoRa and Logistics division. Net revenue in the division totaled DKK 4.3 representing a growth Of 3.7% compared to 2019, the growth was primarily driven by the effect of acquisitions, Which more than offset the negative organic that was primarily driven by the restructuring, close down and divestment of low performing activities in Germany in 2020 and the close down and divestment of activities in Czech Republic and Italy in the late 2019. Adjusted EBIT increased 36% to $247,000,000 Corresponding to an operating margin of 5.8 percent in the 4th quarter alone, adjusted EBIT totaled DKK 74 million corresponding to a margin of 6.7%. This is an extraordinary achievement of the division. The increase in adjusted EBIT was primarily driven by the gross margin increase of 3.9% Improved prices due to the pandemic driven by improved prices due to the pandemic in fixed bottlenecks and On certain trade lanes, an inflow of new customers in the Nordics, a favorable development in the direct cost and the acquisition of Abert And the increased conversion ratio driven by restructuring and efficiency initiatives completed during the year. And then if we flip to Page 9, we have presented the Anosin division. The division We realized a net revenue of DKK1.1 billion corresponding to a total growth of minus 12.8% compared to 2019. The combination of COVID-nineteen and the significant overhaul of the division to reach top on the growth in 2020 And the contribution from the existing businesses was minus 12.8%, while closed down divestitures on restructuring of Non performing activities in Germany, Switzerland, Estonia, Vietnam, Australia, Croatia and Turkey in 2020. And Italy and Czech Republic in 2019 contributed with minus 2.5%. Start ups in the U. S. Had a positive, partially offsetting an effect of 2.5% 20.20. Adjusted EBIT decreased 50.1 percent to DKK 12,100,000,000 Corresponding to an operating margin of 1.1percent2.0, respectively. The decrease was driven by Declining gross margin due to the challenging market conditions and mix effects and the negative contribution from Startups in the U. S. In the 1st 6 months. The decline was partially offset by turnaround in China and improved Performance in Sweden, Finland and the Netherlands. Because of the deteriorating performance in the division, significant restructuring And cost saving initiatives were implemented. These initiatives started to materialize Towards the end of the year and the division reported an increasing operating margin and conversion ratio despite gross margin contraction in Q4. Following the redefined focus on core activities within a limited number of geographies and the introduction of Son Holp Eber as the new CEO in the division, expect the division to be able to return to growth and increase profitability in 2021. And then if you flip to Page 10, we presented So on the key figures, in the top left, you see that the net working capital decreased to minus 208,000,000 By the end of the year, as a result of our very strict cash management, And we have an impact of payment schemes from certain public support programs of around CHF 10,000,000 at the end of the year. The increase in adjusted EBITDA and decline in net working capital, specializing cost and purchase Our property, plant and equipment contributed to a strong cash flow generation that was approximately 3x higher in Q4 compared to the year before. In the bottom, you see the net interest bank debt excluding our FX of IFRS 16 That went further into negative territory and total minus €196,000,000 by the end of 2020. And then if you flip to Page 11, then we have the full year outlook. We expect revenue in the range of DKK 5.5 billion to DKK6 billion corresponding to growth of approximately 3% to 13%. On adjusted EBIT, we expect a result between DKK300 million to DKK350 million cost volume to growth of 15% to 34%. And as Michael mentioned, the guidance We remain subject to more uncertainty than usual, and we base it on the range of assumptions that's provided on the slide, Including a stable recovery, a gradual reopening of countries following COVID-nineteen, including the lockdown. And then we also do not expect materialities in trait patterns. And that was all what we have prepared for you. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. The first question comes from the line of Markus Berlanda from Nordea. Please ask your question. Thank you. I have a handful of questions. If we start with Q4, I noticed that revenue in Air and Ocean was up About 30% quarter on quarter. Was that mainly driven by higher freight rates in Ocean? Or what's going on there? Yes. It definitely has had its impact, but we also saw that some of the Scale advantage the big guys have on the ocean, that is at the moment to a less degree than what we saw Earlier, so we are at the moment competing of some customers that we were not able to get before on, for example, from China to Western Europe and to the U. S. So it's a mix, both And then we had a couple of countries, Sweden and Finland, who did particularly good into Q4. So it's a mix of more things. Okay. That's interesting. And why do you think that is? Why is the bigger guys' Scale advantage is diminishing now. I think that the carriers I'm not that dependent on the big guys at the moment. So they are maybe not offering them the same Conditions as before, we are seeing that we were getting some space, which We put one of the big guys had problems getting. So that is, I think, the market condition at the moment. Okay, okay. Thank you. And then I'm just curious, it looks like minorities in Q4 It constitutes a slightly bigger share of the net profit than it As done in the past few quarters, is there anything extraordinary there? Or what level should we expect going forward? We can say that, in particular, our Polish And the business in the Netherlands did extremely good, where they have a relatively high minority. And then the problems are countries are sitting in group, and that's why we have this. Then we also see that the startups are gaining traction and they are also normally so that negative inflect They have on the minority interest, that's also being lower. So there's a lot of wheels moving on that one. Okay. Okay. Understood. And then if we move on to your guidance for 2021, I'm a little puzzled, I guess, about the revenue and EBIT guidance. I had imagined that revenue would be or you would guide slightly higher on revenue because So my thinking was that fuel prices are up, freight rates are up. You've made some acquisitions. And supposedly, you'll also grow organically in 2021, yet you're only guiding for, I think, it's 7% or 8% Growth in revenue, is there anything that's sort of holding it back? I mean, if your revenue has been 5.3% in 2020 and the mid range of our Of the future, then it's 5.7%. That's close to 10%. And then please also remember, we will have a full year effect of the close down. So that means that We will see that some of this we closed down the last thing We closed down in the end of 2020. That will also have an effect, but not as significant as we saw. That's all. I think we have guided a decent growth in the revenue. All right. And then your EBIT margin guidance, which on the other hand That's pretty strong or at least it seemed like that to me. The midpoint of the EBIT guidance range and the midpoint of the revenue guidance range implies, I think it's 5.7 percent EBIT margin, which would Obviously, it'd be a very strong print. But you're keeping your midterm EBIT margin guidance at 4% to 5%. Does that mean that 2021 will be completely extraordinary in terms of profitability? Or Are you sort of warming up to a revision of the midterm EBIT margin target? We do not see 2021 as a special year, so that you can put in what that concludes. But I mean, we didn't reach we didn't I think you should there's 2 things. Midterm guidance is also something which is based on And more years and some years, you can maybe be above and sometimes you can be below. And then you have this We didn't come over in 2020. And I mean, in my point of view, you should We set one target before setting a new target. So of course, we will look at things when we know where we will land in 2021. All right. Understood. I'm looking forward to that. Next question about It's gone run. And I know we'll stop talking about it in a little while. But I'm just wondering how much more there is to do when it comes to that Turn around because there was a you phrased it in a way in the announcement that made me think it was But there was a lot of sort of improvements still to harvest. I think you wrote that The impact of the restructuring initiatives are starting to materialize. So if you could add some color on that. But I fully believe that there's still a lot of potential to work with. Now we have created stable platforms all around. And now we are ready to build on these platforms and work even more with them. So even though that we have reached a level where They are bringing positive EBIT to the group. Then of course, we still believe that there's A big potential in that part of the business also. Okay. Okay. That's good to hear. And finally, last question, just on net working capital. Net working capital Has been very low for 3 quarters now. Is this a new normal? Or should we expect it to reverse At some point during 2021. I definitely you also know that, For example, Easter will come on a very bad timing for our net working capital this year. So Then I will expect that our net working capital will be a little bit more will worsen a little bit. And we see that in general, as we have always said, we do believe that we will come closer to 0. That is the situation. But obviously, you ought to know that we're fighting this trend every day. And we will definitely do that also. We have also already been visiting some of our suppliers To see whether they would be interesting in giving us more days. So this is an ongoing battle where the customers want more days And we try to move it over to our suppliers, but we will not be able to keep the nicotine capture on that page For the year, we will probably see some Hi, Lipponen Capital. Throughout the year, that is my expectations. But yes, unfortunately, I can't Give you an exact figure on that. Of course, of course. That's great. This has been very helpful. Thank you very much. Thank you. The next question comes from the line of Michael Rasmussen from Danske Bank. Please ask your question. Yes. Thank you very much. And well guys well done guys on some very good results here. So a couple of questions from my side. I think I'll take them 1 by 1. First of all, On the Air and Ocean division in 2021, can you give us a little bit more insight into kind of how you think Of kind of the improvement, both in growth and also in terms of margins just for modeling purposes. And on that division, do you guys consider giving both air and ocean volume and yields? I think that as far our expectations and that's also what we have seen For the 1st couple of months, which we, of course, have put into our guidance that we see, the trend in the Anogen The vision keeps moving. So we expect that the volumes and turnover will be higher. And we also see that at the moment that our markets are going up. So on this, something special will happen on the market. And then We do believe that we have a stronger position after we did this overhaul of the division. And we have Many strong countries that will perform. That is definitely our expectation. And on the volumes and yields? I think that the volumes will increase in the year also a little bit. Okay. But do you guys consider giving that out on a quarterly basis? You're Sorry. No. No, not for the moment. We will We still consider that to be this SON has now, I think. So I wouldn't expect that to be before in 2022. So because now we Well, Sean, he wants some things a little bit different than what we have done. So to be able to compare 2 years and Show the development and I would expect that we will start giving it out from Phase 2. Do you have any numbers that you could share with us, maybe GP per tonne for ER? I will rather not. Okay. So moving on to the Road division. Now you mentioned, Christian, that you had a pretty good first couple of months in Air and Ocean. Do you see something similar in road? I mean, when we look at the bridge data, the road toll data, When we look at Danske's Freight Forwarders Index, it seems like you've had a pretty good start to 'twenty one here. In. And also in combination with that, are you seeing any gross margin pressure from your sub suppliers in the Vogue division, please? We definitely see that as I must say, I'm impressed by Well, you can find all the data because you are spot on with your annualized book with the volumes. So we are definitely seeing that and we were also a little bit Cautious when we had this discussion where we will be and then confirmed our guidance based on that. We do see a good start on 2021 on the volumes. And If you then of course, some of the buildings because of the very cold climate in the Northern Europe Of the building material, they have been slower than anticipated. But we do see Good volumes. And we also see that the margin pressure will come a little bit on we are seeing that our hauliers are Expecting that the diesel price will due to the diesel fuel prices, then we will see a bigger margin pressure. But probably not as a little bit later in the year. That's at least my expectation. Great. Okay. So just jumping back on the Air and Ocean division. You mentioned the Sernholm paper It's now well underway. And he's got big plans. It sounds like we're really looking forward to that. On the M and A side, it's been a while since you've done M and A in that division. What is Saan's experience On the matter. And what are you thinking here? I mean, are you thinking from a group perspective that you just once the Division stabilized and then you'll start to add on M and A and just do M and A in the road and logistics? Or is Soren just Ready to kind of move full speed ahead both fixing the underlying business and as well as doing M and A? So I have been part of NTG now for 55 days. So I believe that we'll give him a couple of days more before he has made a full Picture of how the Air and Ocean division looks. He's working really hard and no doubt about that. I have a Huge expectation, but I think before we start talking about that, we need to give him a couple of days more to take his own impression about what we need and what we're going to do in the An Ocean division. That's great. I'll give room now if another analyst have any questions. So I'll jump back later. Thank you. Thank you. The next question comes Again from Michael Rasmussen from Danske Bank. Please ask your question. Okay. I'm back again. So Just in order so I understand it fully, on slides number 8 and number 9, where you did the divisional breakdown of Q4 well, both Q4 and full year actually in terms of revenue growth. Am I missing something? Or where is Currency impact in those bridges? We don't put that into the bridges. Okay. But I mean, if revenues, for example, in Aeronotion is down by 7.5% total, Then FX must have had some impact on that? Or is it something I'm missing here? But we do not Put that in. You have to realize that if you this effect is always difficult because You can have one country working with an FX, but actually paying everything in dollars. So the FX is Something which we put into our tool. We do not feel sure what the effects would be. Okay. So that is that basically is a little bit in each of these breakdowns here. Could you give us an update on the pads? Where are we in terms of Performance, status, anyone wants to exit or move on? Or if you could just give us kind of the general PETs run through. We do not see any big movements on our passage. It's pretty stable with the partners. Of course, some of the close downs there were some partners which have lifted, but that's what we have chosen. So in. And then we have not seen any significant partners wanting to leave us. But of course, we have a good fluctuation that I think that is quite normal. So but nothing big to report on that. Great. Okay. In. And the 4 greenfield startups, is that new pads or? Yes, that's new pads. That's new question. Okay. Okay. Just to get clear on that. Great. I think that was All from my side. Yes. Thank you very much. Yes. Feel free to call us. Absolutely. Dear speaker, there are no further questions at this time. Please continue. Okay. But I think that was all from us. Then we will go back and Welcome to deliver some good results for the Q1. Thank you very much for listening.