NTG Nordic Transport Group AS
CSE:NTG
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NTG Nordic Transport Group AS
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Hello and welcome to all of you who are participating today in our Q1 2020 analyst call. We are very pleased to have all of you with us on this call today. We have been looking very much forward to presenting our Q1 results for you today.First, I will ask all of you to flip to Page 2, which I encourage you all to read carefully. And then after that, we'll move on to Page 3, where I will introduce myself and Christian Jakobsen, who will be joining me here today. My name is Michael Larsen, and I'm the group CEO of NTG since 1st of May 2020. As this is the first time I'm participating in a presentation of our quarterly results, let me start with a brief presentation of myself. I have been with NTG ever since the beginning, back in 2011, and I'm one of the founding partners of NTG Nordic, which is still the largest NTG company. I have served on the Board of NTG from last year until April this year, and I have been in the freight forwarding industry for more than 20 years now. And like I said before, I'm joined today by our group CFO, Christian Jakobsen, who most of you already know.Then we go to Page 4. So we'll start with the topic on everybody's mind, how is COVID-19 affecting NTG. Then we'll move on and go into the numbers for Q1, first for the group and after that, for each of the divisions. And as always, we'll end up with a chance for audience to ask questions.We will today not be presenting anything specifically on Gondrand. It has been more than 2 years since we completed the acquisition, and the Gondrand companies are now an integrated part of NTG. Therefore, it doesn't make sense to view Gondrand as a separate company. Gondrand results are NTG results, and as with any other challenging business, we are working hard to improve the underperforming areas. We will, however, give a brief update on our most recent acquisition. Integration is progressing as planned, and Ebrex are delivering according to expectations.Then if we go to Page 5. When we published our annual report for 2019 on March 20, it was clear that the air and ocean market would be heavily impacted by the COVID-19. However, at that time, it was still unclear whether the impact would be to the -- how big the impact would be to the road and logistics market, which is about 80% of NTG's business.During March, our Road & Logistics division began to see the effects of the European lockdown. The market started to face some significant challenges with unpredictable volumes, shift in trade flows and the border restrictions. Overall, however, the impact on our Q1 results in Road & Logistics were much less severe than for the Air & Ocean. In April and May, we have seen this pattern to continue, with both divisions being affected but Road & Logistics to a much lesser extent than the Air & Ocean division.As the series of the situation became clear for us, we have adapted our cost base in each location according to local market activity. This includes layoffs and temporary savings and salaries and other cost items. And as a part of this, we have also participated in locally available government support programs.For now, we maintain our guidance for the full year, as stated in our 2019 annual report, with a revenue of DKK 4.5 billion to DKK 5.3 billion and then EBIT before special items between DKK 130 million and DKK 180 million. There is still a high degree of uncertainty in the market, and we will, of course, update our guidance if our expectations are changed.And now I'll hand you over to Christian, who will take you through the numbers.
Thank you very much. If you please flip to Page 6, then you see that our net revenue for the quarter was DKK 1.3 billion, which is a growth of 2.6% compared to Q1 2019. Of those was 0.3% organic growth, but with significant different trend for each division. We'll come back to that later.Please bear in mind that we divested the activity in Italy and Czech in the end of 2019. They contributed with DKK 35 million in Q1 2019.The acquisition of Ebrex was closed on the 27th of February and increased our revenue for the quarter with 2.3%. Regarding the integration of Ebrex, as Michael said, it's going as planned, and we still expect the synergies to be around EUR 1.5 million. We have presented that in our annual report and the company announcement for 3/19 and 01/20.If we look at the EBIT, the EBIT decreased slightly due to the negative contribution from Air & Ocean, and Ebrex had in Q1 an EBIT of DKK 8.8 million, of which the DKK 5 million from March was recognized in our groups. We have made some reductions of our employees in Q1, but please bear in mind that we still expect integration costs regarding Ebrex of EUR 1.5 million, which will be recognized as special items later in the year.And then if we flip to Page 7, then we have the Road & Logistics. Road & Logistics grew with 4.8% compared to Q1 '19 and achieved a net revenue of DKK 1.1 billion, of which 1.9% was organic despite the changing market conditions towards the end of the quarter. The organic growth was mainly driven by PADS in our core markets in the Nordics.Adjusted EBIT increased to DKK 46 million, and operating margin increased from 4% to 4.4%, which we are quite pleased with considering the current market situation.If we then please flip to Page 8, then we have presented Air & Ocean. As Michael said, we are challenged in the Air & Ocean division. Net revenue decreased 6.1% compared to Q1 2019, which are mainly coming from the very hard market conditions throughout most of the quarter. And the adjusted EBIT decreased DKK 5.5 million. And please also bear in mind that we had a lot of start-ups which negatively affected the Q1 results for the quarter. I think it was around DKK 3.6 million. We are normally seeing that start-ups take 6 to 12 months to reach breakeven, and they are very vulnerable in the start. And that is also the case that this crisis has hit them hard. But we also see that they are getting traction, most of them. At the moment, we are very -- been very [indiscernible] on those, and we will be very focused on turning them into products.And then if you go to the Page 9, then we have presented some other key figures. On the minorities, they are in line with the full year in 2019, 14% on the EBIT. We are still expecting 11% to 19% for the full year. On the net working capital, normally, we see that Q1 is having the highest net working capital, at a high net working capital than a [ year ]. Therefore, we are very happy to see that we have improved our net working capital. If you are looking to this, you can see that Ebrex has a higher net working capital than the old NTG, but we are very happy with the level. And that means, of course, also that we are able to keep our cash flow. We are producing the cash flow as expected, and that's what we are also seeing that our net interest-bearing debt is following the trend of the results.And then over to Michael.
And thank you for listening in. And now it will be time for the questions. So if you have any, we'll be happy to take them now.
[Operator Instructions] So our first question is from the line of Marcus Bellander from Nordea.
Yes. I have a bunch of questions. So I think I'll give them to you one by one. If we can start with the Q1 and Air & Ocean, it was quite a dramatic deterioration of the EBIT margin. And you say that it's -- you attribute, it seems, mostly to start-up costs or start-up units. But was there anything else in there that explained the deterioration of profitability?
Yes. We are -- we did also see that China was closing down and the -- in particular, the former Gondrand has a lot of Air & Ocean, and particularly, in Germany, they are trading a lot with China. So that was also -- I think it was not an excuse for that. But we did see on the start-up side and then we also see that the general business was slowing down but not as dramatic as the figures look at the moment.
Okay. I know that's understandable, of course. But there are no other extraordinary costs in there, so to speak?
We're dismissing [a person or 2 ] that's including in all our quarters. And that should not be considered as an excuse for the result.
Understood. And then second question on Gondrand. And then -- I mean I understand what you're saying that when you've owned the business for 2 years, it's hard to get the milk out of the tea, so to speak. But you did set a target only -- I think it was a few months ago for the Gondrand unit. You said they would break even in 2020. So I'm still a little surprised that you sort of not mentioned Gondrand at all. Have you reached that target? Or do you still expect to reach that target?
We must say that Gondrand is -- has a lot of Air & Ocean in the German and in China and in Europe. No, we didn't reach that target for the Q1. We didn't expect that, but we made an EBIT of DKK 3 million -- minus DKK 3 million in the Q1. But as Michael said, it is fully integrated, is like all our other units that we are working with that on a daily basis, and we don't see an excuse for that, that it was, in particular, some Gondrand. We are looking at our full figures and discussing them. And if you look at 4.4% in EBIT in Road, then it's also including some loss-making Gondrand units.So I think we are seeing that as a -- we're not looking at Gondrand as one, and then we have this with the COVID-19. We're working with all -- our challenged company is not only Gondrand, which are challenged by the COVID-19. All our companies are challenged with that. So we're not looking, in particular, on Gondrand on that. We are working on the same system and everything. So Gondrand is fully integrated, and we just need to work at that as all out. With the challenging Gondrand companies, they also have some positive Gondrand companies.
Okay. Understood. And then if I could, you mentioned -- you talked a little bit about what you were seeing in April and May. Is there any chance you can quantify any of that?
Yes. We are not very happy to quantify that. We are seeing the statistics as we are. And I think we are pretty much seeing what everybody else are seeing that, in particular, Air & Ocean was hit hard and Road was hit less.
Okay. And maybe if I can stay on Air & Ocean. How are you thinking in terms of succession in Air & Ocean now that the CEO of that unit has left the company?
But -- I mean it's so new, and we also had to involve the Board in that. At the moment, we are splitting the different countries of Air & Ocean to the 3 of us and the Executive Board. And then some of the strong local managers, they have also got a couple of companies that they are looking at and assisting. And then we are looking for the solution how that would be on a per month basis.
Okay. But are -- and are you looking internally or are there internal candidates? Or are you looking externally?
I can't comment on that. But of course, we are looking at both externally and internally.
Okay. Okay. And then on your guidance, which you maintained, the revenue guidance, I mean, I guess it's kind of a wide range. So maybe that's the answer here. But fuel prices have come down quite considerably. And I imagine fuel is not an insignificant part of your top line. So should we read anything into the fact that you reiterate guidance even though fuel prices have come down?
That is quite a good argument. No, I think you should do that. We are still -- it's too early to see. We're very happy with our guidance at the moment and don't see any reason for changing that at the moment.
Okay. Great. And -- yes, yes, also on Ebrex. I'm just trying -- I mean it's a new business, just trying to understand the dynamic of it. If memory serves me right, Ebrex has a lot of automotive exposure, but -- and automotives have struggled lately, but that business seemed to be doing fine in Q1. Is it just because the automotive sector hadn't been hit in Q1? Or is there something else there?
We must say that please bear in mind that Ebrex is mostly aftermarket in the automotive sector. So it will -- and it's not hit as hard as the other part of the automotive sector. And then we also think that automotive was also hit more in Q2 than in Q1. So we will definitely see that the automotive sector -- that is at least what we are hearing in the market, but the automotive sector was hit significantly hard up in Q2 than in Q1.
Okay. Understood. And the -- I think you stated in the report that Ebrex contributed with DKK 5 million to EBIT in Q1, but you assumed control of it on 27th of February and its total Q1 result was DKK 9 million. Is that normal seasonality for that business that more than half of the Q1 result is generated in March?
Yes. And we stated that because we didn't want you just to [ chime ] the DKK 5 million with DKK 12 million. So -- and therefore, we showed the seasonality, what was expected. They are very dependent on the number of working days and the seasonality. So therefore, we made sure that nobody interprets it wrongly and said that you could just take the DKK 5 million and [ charge ] it with DKK 12 million and then you had the Ebrex results. So that was why we stated like this.
Okay. Great. And then final question, and then I'll stop. Your share buyback program, I'm just trying to sort of get my -- wrap my head around what it is you're doing exactly. I mean, obviously, you're trying to hedge the exposure you have or the stock you hold to minority interests or will at some point. I'm just trying to get a sense for how much of the future exposure do you cover now through this buyback program that you're launching now.
That was a tricky question. I need to look that up, Marcus, and then we can come back to you on that one.
Okay. That's perfectly fair.
[Operator Instructions] Okay. Looks like there is no questions on the phone line. Please continue.
Okay. But then we'll say thank you very much for listening to us, and we will come back when Q2 is published and we can run you through the Q2. Thank you very much.