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

Good day, and thank you for standing by. Welcome to the NTG Nordic Transport Group First Half 2026 Conference Call and Webcast. [Operator Instructions] I will hand the floor to the to CEO of NTG Nordic Transport Group, Mathias Jensen-Vinstrup. Please go ahead.

Thank you, and welcome, everybody, to our conference call for the first half of 2026. And thank you for dialing in. My name is Mathias Jensen-Vinstrup, and I'm the Group CEO of NTG. I have Tinneke Torpe, our Group CFO, with me today. As always, we'll spend the next 15 to 20 minutes taking you through our highlights and results for the second quarter of 2026 and finish off answering questions from the participants on this call. And if we move on to the next page, we kindly ask you to read the forward-looking statements provided on the page. And on Page #3, you see the agenda for this conference call, which includes the highlights for the second quarter, a review of the financial performance of the group as well as each of our 2 divisions, the financial highlights and ratios, the outlook for the year, and finally, we open up for Q&A. Moving on to the highlights for the second quarter of the year for the group. We are generally pleased with the performance that we delivered. Gross profit increased by 8%, while adjusted EBIT increased by 23% compared to the same period last year. The performance was driven by strong organic growth across the business, supported by higher freight rates and continued market share gains, as well as the inclusion of the final month of the DTK acquisition as we illustrate on the slide. We continue to operate in an uncertain markets with big regional differences. But on a headline basis, market conditions improved during the second quarter. Germany, however, remained muted activity-wise, whereas most other markets, in particular, in the Nordic region developed quite positively. At the same time, freight rates were impacted by higher fuel prices and capacity constraints, which led to higher rates and thus revenue across both divisions. Within the Road & Logistics division, an important milestone was reached during the second quarter with the completion of the TMS rollout in the Southern region of Germany. And while the implementation continued to affect operations and also working capital during the quarter, we are encouraged by the progress made, and we remain confident in the long-term benefits of the direction that we have set out, especially in light of the valuable experience that we gained during the first 6 months of the year and also the organizational strengthening that we have made in preparation for the continued migration of our groupage activities. Within Air & Ocean, the restructuring and reorganization program progressed ahead of plan. And numerous initiatives have now been executed across the division, and we are gradually seeing these efforts translate into a lower cost base and improved profitability. Based on the performance in the first 6 months of the year as well as our current view on the market, we have narrowed our full year guidance range for adjusted EBIT to between DKK 625 million and DKK 650 million. [indiscernible] raising the floor by DKK 25 million. On the next page, we summarize the financial highlights of the group. And in the second quarter, we realized double-digit growth organically and including M&A of 14.8% and 16.6%, respectively. This was mainly driven by, as I mentioned before, higher freight rates across both divisions, while solid volume growth and continued market share gains, particularly in the Road & Logistics division, also had a notable impact in the first part of the second quarter, in particular. On the gross margin side, which decreased to 21.5%, the development reflected changes in our business mix, as well as the impact of the higher freight rates in the Air & Ocean division. And as we have communicated previously, increasing rates create revenue growth but typically dilute gross margins. The conversion ratio increased across both divisions, supported by operational improvements and cost-out initiatives, which drove the operating margin up to 5.4% during the second quarter. Special items amounted to DKK 12 million in the second quarter and DKK 24 million for the first half of the year, primarily related to the restructuring initiatives that we are currently implementing within the Air & Ocean division. If we turn to the Road & Logistics division on the next page, the division delivered yet another strong quarter and continued the positive momentum that we have seen over quite a few quarters by now. Growth in adjusted EBIT on an organic basis was 18%, supported by the higher freight rates, volume growth and generally a strong performance across the majority of our entities. In particular, we did experience a very strong performance across the Nordic region, where several of our larger entities delivered strong and significantly improving performance and continue to take market shares. As quickly mentioned before, Germany continued to be challenging. Activity levels were muted and the rollout of the groupage TMS also affected operation and the results in the second quarter of the year. But as I mentioned, we remain optimistic about the long-term prospects of the migration plan, not only in Germany, but across our footprint. So while there's still much work ahead of us, we continue to be confident in the long-term viability of the initiatives that we have set out across the division. If we move on to the Air & Ocean division on the next page, market conditions improved during the second quarter with higher volumes on the container on the ocean freight side, improving air freight demand and increasing freight rates across several of the key trade lanes. Operationally, our main focus was on the reorganization and the strengthening of the division and we continue to accelerate this trajectory as we introduced earlier this year, which included rightsizing initiatives as well as multiple new hires and team strengthening globally. Carsten, who joined us on the 1st of April, has now been with us for 4 months, and he has already had a significant impact on the pace of execution, which is also starting in the very early days to show in the numbers during the second quarter. During the quarter, we also opened a new branch in Charlotte, North Carolina, which we expect to be the first of many, not only in the U.S. but across our footprint, both as it looks today and also how we expect to see it in the years to come. And we also benefited from an even stronger intercompany collaboration and trade lane development, which is completely in line with the ambitions that we laid out in our Route '27 strategy. Our focus remains very clear. We are building a stronger and more profitable Air & Ocean platform through a combination of leadership changes, cost-out initiatives and commercial improvements and we are accelerating the investments in organic growth also as we move into the second part of the year. As I said, we started to see the first signs of effects on our numbers, as illustrated in the adjusted EBIT growth of 12.5%, which was mainly driven by the lower cost base. And with those words, I will now hand it over to Tinneke to take you through the detailed financial highlights.

Thank you, Mathias. So moving to the next slide, then I will start with the special items. As Mathias already mentioned, special items amounted to DKK 12 million in the second quarter and DKK 24 million for the first 6 months of 2026. This related to the restructuring program in Air & Ocean, which has progressed ahead of plan. And as we will continue this normalization program, our expectation is also that special items for that region will increase to a level of DKK 30 million to DKK 35 million for the full year of '26 versus the DKK 20 million to DKK 25 million we originally guided. Moving on to the financial -- net financial expenses, they amounted in the second quarter to DKK 31 million compared to DKK 57 million in Q2 last year. When we look at that comparative year '25, this was mainly impacted by the elevated foreign exchange effects we saw from the U.S. dollar in the second quarter of '25 as well as higher interest expenses. During the quarter -- the second quarter of '26, net financial expenses returned to a level that we consider closer to what is a normal quarter for NTG. Finally, I will address the tax in the P&L. Our effective tax rate amounted to 31.6% in second quarter compared to 46.2% in the same period last year, we continue to be impacted by unrecognized tax losses in Germany. And although the impact was lower in '26 than it was in second quarter last year, we still see an effect. We are pleased with the development that the tax rate remains elevated, and there is room for improvement compared to our long-term expectations. So this is a focus area for our group. Finally, looking at our cash flow, then our adjusted free cash flow amounted to DKK 225 million for the second quarter. It was slightly below same quarter last year, which was primarily due to contributions from our net working capital. The higher EBITDA that we delivered in the second quarter was partly offset by a lower working capital inflow. But overall, we are very satisfied with the cash generation that the group generated in the second quarter. I appreciate if you turn to the next slide, where we now will be focusing on the balance sheet and the key financial ratios. Returning back to the cash flow and the impact on the net working capital, then the development in our net working capital during second quarter was primarily a reflection of a normal seasonality of our business, but also an element of timing. Some of you might remember -- then we made in the first quarter of '26 an unusual early payment to a number of our holders ahead of Easter. And this move of payments from April into March had a negative effect on working capital in the first quarter, while the reverse impact being reflected in our second quarter. And this supported that we saw, yes, a positive cash inflow in -- from our net working capital. This was partially counter affected by our implementation of the TMS in Germany, which has caused some delays in our invoicing and therefore, had an unfavorable temporary impact on our net working capital. As we are coming close to finalization of the rollout in the southern region of Germany, we do expect that this unfavorable impact will gradually reduce over the coming months and will normalize most likely during Q3. If we then move on to our leverage and our -- yes, net debt, then our leverage ratio improved in the second quarter and reached a level of 2.25x EBITDA compared to 3.04 in the same period last year. This improvement was primarily driven by our rolling 12 month increase in EBITDA, but also offset partially by the ongoing share buyback program that has progressed during the quarter as well. And speaking of this program, then it is running in accordance with plan. During our -- the first 6 months of '26, we had a -- we acquired treasury shares for DKK 75 million. And the program will be running until November, reaching a total amount of the treasury shares bought back of DKK 200 million. Finally, if we look at the return on our invested capital, then our ROIC before tax reached 16.3% in second quarter compared to 16.5% last year. So basically on par year-on-year. The development that we've seen reflects that we have a higher average invested capital following the recent acquisitions but also offset by an equivalent increase in our EBIT. And that brings me to our outlook for full year '26. As Mathias has already mentioned, then based on the performance of the first 6 months of the year, we have lifted or narrowed the guidance that we provide to a full year adjusted EBIT in the range between DKK 625 million and DKK 650 million, which is also an indication that we had -- and we believe in a strong performance -- yes, for the rest of the year our assumptions behind our updated guidance are broadly unchanged. We continue to expect positive developments during the remainder of the year from both divisions. But we also foresee that we will be operating in a market characterized by elevated macroeconomic and geopolitical uncertainty. The higher freight rates that have supported our performance during the first half of the year are expected to moderate from the current levels during the second half of the year. We do expect to continue to see transport volumes slightly increase. But we also expect that the freight rates will gradually normalize as diesel prices resulting in available capacity returns to the market. At the same time, we are very focused on managing our cost base. And we -- yes, this is the background for why we have narrowed down the guidance. As I already mentioned, special items are in our recent guidance updated to end in the range between DKK 30 million and DKK 35 million. This reflects our accelerated pace of initiatives within the Air & Ocean and our ambition is to continue investing and strengthening both Air & Ocean performance and also the long-term profitability.

Thank you, Tinneke. So to summarize and as we've both alluded to, we are quite pleased with the development during the first half of the year and the second quarter of the year and we are increasingly excited for what comes next. With that, I'll hand the word back to the moderator to open the mic to questions from the audience.

[Operator Instructions] And now we're going to take the first question. The question comes from the line of Emilie Fung from Barclays.

I have 2, if that's all right. The first one I have is, as you mentioned in your outlook, you expect freight rates to normalize from 1H levels, how should we think about then the gross margin development year-on-year into the second half for both the Road and the Air & Sea division? And secondly, -- so how much of that Road 13.8% organic growth in 2Q came from share gains? And should we expect these recent customer wins to also contribute more meaningfully in 3Q?

So on the expectations to the gross margin in light of a potential normalization of the freight rate environment, we do not see any reason to expect anything else than what we usually see in terms of the higher level of pass-through revenue that we see when the freight rates go up. So should the rates come meaningfully down, we would expect to see a positive impact on the gross margins. Now I would say this effect is mainly clean on the Air & Ocean side, whereas on the Road side during the second quarter of the year, it was kind of a mixed bag of effects being one, a rather elevated spot market environment to a rather significant impact of the situation in the Middle East and the implied impact on the fuel prices, which also impacts both our revenue, gross margin and gross profit. And then as we mentioned, volume growth. Now coming back to the volume growth questions, I would say that the composition of volume vis-a-vis price did change over the course of the second quarter, whereas the first part of the quarter was mainly characterized by both volume and price drivers with volumes in the beginning, outweighing the price effect, whereas that ratio changed towards the second of the quarters, I would say with somewhat of a balanced impact but with rates coming out as the biggest driver by some but not a huge margin.

And the question comes from the line of Ulrik Bak from Danske Bank.

The first one will be on the rollout of the TMS system in Road. So, could you perhaps provide some more details when will it be fully rolled out? And also, you mentioned that it weighed on results in H1 by what magnitude and what that negative impact might be in H2? And trying to grasp, so what is the upside once this is fully rolled out, would be great if you could comment.

I mean -- thank you, Ulrik. We mentioned we did complete the migration in the southern part of Germany in the Baden-Württemberg area. And the next up is the western part of Germany, where we aim to be in a fully up and running state in the early days of 2027. As to the road map from that particular point forward, we are currently looking into which part of the Road & Logistics division to deploy the system next. We are fully committed to the system on the groupage side, but we do see a potential to investigate a potential broader application. So we will get back to this when we convene in a broader group at the Capital Markets Day in November. As to the financial impact, we should definitely expect to see a gradual improvement as we move further into the year. However, caveating that there is a rather pronounced seasonality pattern on the groupage side, in particular, in Germany with the summer holiday period kicking in as we speak and also a very low activity level towards the very late part of 2026. But sort of on a like-for-like on a cyclicality or seasonality perspective basis, we do expect to see improvements from this point forward. There's also a few effects as to how we adjust for the fuel key that comes with a delayed effect in Germany and that will also provide some support for performance in the second quarter, so -- I'm sorry, in the second half of the year. So all in all, we expect to see an improvement, but it will be a gradual improvement as we move further into Q3 and Q4.

All right. Perhaps just a follow-up. So if you decide to roll this TMS system out more broadly, could we see some more negative impact beyond 2026 on the operations?

We expect the adverse implications or the temporary adverse implications of migrating to the new TMS to reduce every time we move to a new location based on not only the experience and the lessons that we gain, but also because we have invested quite heavily in the organization that is taking care of the migration plan, both from a business perspective and also from an IT perspective. So the lessons that we learned in the southern part of Germany, and we must admit it took longer than expected, but we are quite comfortable with us being able to avoid many of the pitfalls that we fell into during this part of the migration. And that gives us a rather high degree of comfort in these temporary adverse financial impacts, reducing case-by-case or rollout by rollout.

Okay. Then a question about the restructuring in Air & Ocean. As we all know, you have attempted to restructure the Air & Ocean division, at least once before without too much success. Of course, now you have Carsten Trolle on board and has great -- have done it before. So what are you doing differently this time around in this restructuring phase compared to previously that makes you certain that this time will succeed?

The scope of the reorganization and strengthening of the organization is significantly different from anything we have ever done in the past. And if you look at the number of employees in the division, we have previously and as part of the DKK 20 million to DKK 25 million range on special items, expected somewhat in the range of at 10%. And based on the progress that Carsten and his team made since he commenced his endeavor at NTG on the 1st of April, we do expect to see a bigger scope for these reorganization initiatives. And then we have been fairly successful, and we have seen a good momentum on also not only rightsizing and initiating cost-out measures but also investing in organic growth, in particular in the U.S., but also in Denmark, where we made the announcement of a new person joining us. So we do expect the magnitude of cost savings to be significantly higher than in the past. So it is this duality of taking cost out of the equation while simultaneously strengthening the platform that we have and investing in expanding the platform together with a very seasoned team of individuals that makes us very comfortable and optimistic about the long-term implications also from a financial side of this journey that we are on.

All right. And then my final question here. On your guidance, you assume that freight rates will gradually decrease from the Q2 levels. Just for Road, can you perhaps just clarify where are spot rates currently and quarter-to-date compared to the Q2 average? Yes.