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Edited Transcript of NOBINA.ST earnings conference call or presentation 20-Dec-19 9:00am GMT

Q3 2020 Nobina AB (publ) Earnings Call

SOLNA Jan 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Nobina AB (publ) earnings conference call or presentation Friday, December 20, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Magnus Rosén

Nobina AB (publ) - President & CEO

* Pernilla Walfridsson

Nobina AB (publ) - CFO

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Conference Call Participants

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* Erik Paulsson

Pareto Securities, Research Division - Analyst

* Johan Sundén

Carnegie Investment Bank AB, Research Division - Research Analyst

* Johan Dahl

Danske Bank Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Nobina's Quarter 3 Report 2019/2020. (Operator Instructions) I must advise you that this conference is being recorded today on Friday, the 20th of December 2019. I would now like to hand the call over to your host today, Magnus Rosén, CEO. Please go ahead.

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Magnus Rosén, Nobina AB (publ) - President & CEO [2]

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Welcome to the Q3 presentation from Nobina. Net sales, SEK 2.8 billion, and that's a growth, currency adjusted, 6.1%. And we had an organic growth, 0.6%, and acquisition growth 5.5% in the quarter. EBITA, SEK 243 million; EBT adjusted, which is our main result target, SEK 209 million, down SEK 17 million from last year. But this is, however, the second best quarter that we have ever produced. Reason -- reasons for that is mainly because we have been able to have a fairly smooth contract migration, even though, of course, the contract migration are affecting the results for the second and third quarter. We will state it later, it's about SEK 47 million, but offset a lot about when it comes to efficiency, and also, of course, that we have acquired a company during last year that is now fully integrated in the group and is producing good results.

We have a cash flow of minus SEK 261 million, investments amounting to SEK 485 million, whereof we have changes from leasing to loan financing of SEK 19 million out of that in the last quarter.

If we look at the year-to-date, we have a net sales growth of almost 12%, adjusted for currencies. We have organic growth of 2.9% and acquisition growth of 8.8%. The EBITA SEK 573 million, EBT adjusted SEK 429 million. And that's the same story also for the full year that we have contract migration into the last 2 quarters, especially. We have been able to offset that quite a lot by higher efficiency, but also through the acquired companies.

We have a cash flow for the first 3 quarters of SEK 867 million negative. We have invested in mainly buses and equipment for SEK 2.3 billion. And out of that, we have about 1/3 of that amount that is changes from lease to loan financing. Basically, because of tax reasons.

Highlights during the quarter. Nobina has launched a new mobility service called Travis. It actually combines public transport with other ways of communicating as taxis, carpools and electric scooters. And you can also pay your ticket through this app. So it's something which is new on the market.

Samtrans has secured new contracts in Stockholm, especially for the wheelchair contract, and we continue with a strong position in Stockholm. Also looking for other possibilities into other areas. We are already operating special services or special transports in the Copenhagen area.

We were also, during the period, awarded contracts in Piteå, both for the city traffic and for the regional traffic, amounting to 25 buses and out of those, we will have 13 electric buses.

We have had an expansion of our short commercial traffic with the airport initiative, having a start-up trial with one of the lines going from Borås, which is a bit north of Gothenburg or north of Landvetter, going down to Landvetter and back again, and we have about 50 trips per day, 7 days a week.

And most recently, just a few weeks ago or so, we were -- or actually at the end of the period, I think it was end of November, we were awarded a contract in Malmö that we have been running before. It's an important contract for us, and it also contains a lot of electric buses, namely 80 buses out of some 100 buses or so. So there will be a lot of change in that contract in Malmö.

If we look at the tender situation, we have submitted 1,776 tenders. We have announced 1,536 out of those, and so there are still pending 240. We have a win of 355 tenders, which equals 23% of the amount announced so far, which is a little bit higher than our market share. And there are still 426 buses remaining for tenders in the fourth quarter.

During the period, and mainly the 2 last quarters, we have migrated over 1,000 buses. We have started more than 400 buses in different contracts, and we have actually ended almost 600 buses.

The main activity in this third quarter taking place in Örebro where we ended 1 contract. The average weighted contract length is shortened to 7.6 years at the moment, and we have a contract -- average contract age now at 4.3 years. And the average bus fleet is going down and will continue to go down when we launch new contracts and take out old ones, so that is now 6.3 years.

We will have a market growth next year as we have won more buses than we will have to defend. The activities that will take place from December now this month until the coming year and into November 2020 will be that we will start up 331 buses, and you can see the areas where we will start the buses, and we will take out 111 buses, meaning that the market share will grow for us. Okay.

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Pernilla Walfridsson, Nobina AB (publ) - CFO [3]

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My name is Pernilla Walfridsson. I started September 1 as CFO for Nobina Group, replacing Per Skärgård that has retired. And before this position, I was a CFO for Byggmax Group. So let's start with the results for the segments.

Net sales for Sweden increased, mainly due to the acquisition of Samtrans. EBITA negatively affected by contract migration, partly compensated by maturing contract portfolio and by the Samtrans acquisition. A significant increase in net sales for Denmark coming from acquisitions and new traffic. EBITA significantly higher due to the acquisition and increased traffic.

Net sales for Finland have decreased slightly versus last year driven by contract migration and currency effects. EBITA lower than last year due to contract migration.

Net sales for Norway increased due to positive effects from additional contracts and volume increase in current contracts. EBITA has increased significantly driven by performance improvements in existing contracts.

Overall, a strong result, driven by acquisition, positive development in existing contracts, but negatively affected by contract migration.

On Page 11, we show the explanation regarding the development of the results year-to-date. We have effects on price and volume positive, both regarding net sales and EBT, driven by a maturing contract portfolio and contract change. It also includes positive effects from acquisition and increased volume in Norway. We also have an effect of contract migration, minus SEK 47 million. And if you look at others, there was an increase and that is primarily coming from the result from the fleet operation and increased cost for central functions.

On Page 12, total cash flow in Q3 lower than Q3 previous year due to working capital swings. Total cash flow year-to-date lower than corresponding year. Then that is financed by the green bond issued in Q4 last year. Significant investment, both in Q3 and year-to-date compared to last year. This is a result mainly of the contract migration. And then we have the balance sheet. Balance sheet growth driven by new bus investments, equity ratio is picking up from Q2.

I hand over to Magnus, again.

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Magnus Rosén, Nobina AB (publ) - President & CEO [4]

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Very good. Just to summarize, we have an EBT, which is -- adjusted EBT, which is SEK 17 million lower than comparable quarter last year, but still our second best quarter ever. We have effects from contract migration into the result, but it has been offset by more efficient work into the existing contracts, but -- and also contribution from acquired companies that are now fully integrated to the group.

We have had a stable growth in the quarter. It's mainly coming from acquisition growth, but also from organic growth still. And that will pick up during next year as we are starting the organic growth -- I mean will pick up next year as we are starting more buses than we are terminating.

We have renewed contracts for Samtrans in the Stockholm area, and we are still looking to expand that business into other areas in Sweden and the Nordics.

We continue to lead the way into the mobility as a service area by launching the Travis app in October, and we now have more than 15,000 users in this app during just the first quarter, and that will very likely continue. We have also taken initiatives to start short-distance traffic. And in this case, we have launched LandvetterExpressen, which is the traffic between Borås and Landvetter that goes 50 times a day during 7 days a week. And that, of course, we look into possibilities to extend that kind of traffic.

And we have also secured our market share with further contract wins in Malmö and also for that matter in Piteå during the quarter. And there are a substantial amount of electric buses in both these 2 contracts.

Now we are -- operator, we are open for questions, if there are any.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We do have a few questions that have come through. And your first question is from the line of Erik Paulsson at Pareto Securities.

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Erik Paulsson, Pareto Securities, Research Division - Analyst [2]

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It's Erik at Pareto. I have a few questions here. First one is regarding your better development here in the quarter compared to market expectations underlying, and you highlight the continuous improvements in existing contracts as well as acquired companies, the contributions from that. Would you say that those are the main effects from the better development despite the tough environment that you are experiencing in terms of contract migration, et cetera? Or is it something else as well or what is the main explanation?

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Magnus Rosén, Nobina AB (publ) - President & CEO [3]

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Well, the main explanation is increased efficiencies. We have had processes in this company, and we talked about this. We have thorough processes in this company. But we work the company a little bit tighter together nowadays, between staff units and operational units. And I think that's one very good effect for the increase in efficiency. And of course, we have the acquisitions that are actually -- well, they are definitely turning out as expected and almost better in some cases. And that's the synergies that we are able to take out from these companies together with the existing business. If we look at it, especially, I would say, Denmark, where we have done a very good job in increasing both revenue and especially the earnings in that company.

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Erik Paulsson, Pareto Securities, Research Division - Analyst [4]

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And a follow-up to that. In terms of synergies, can you quantify those in terms of what you've early expected or how does it look?

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Magnus Rosén, Nobina AB (publ) - President & CEO [5]

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I'm just saying that they are -- I mean we are taking out a little bit more than we actually expected. We haven't really quantified the synergies in number, but the companies are now fully integrated and we expect to take this forward and be successful also in the future.

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Erik Paulsson, Pareto Securities, Research Division - Analyst [6]

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Okay. And then regarding Samtrans, you took this -- or got a renewed contract in Stockholm. Is it possible to quantify the amount of this, per year, this contract?

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Magnus Rosén, Nobina AB (publ) - President & CEO [7]

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It's a renewed contract, meaning that we stand with the same position as we had before, more or less. There is a growth -- general growth -- market growth in -- also in Samtrans, but it's not significant and I don't really want to quantify it, but it's still a renewed contract.

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Erik Paulsson, Pareto Securities, Research Division - Analyst [8]

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Okay. And my final one is regarding Samtrans. And you mentioned, which you have done earlier, that you want to extend this type of business into other geographic regions, and how long have you come in this process? And what are your plans here?

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Magnus Rosén, Nobina AB (publ) - President & CEO [9]

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We -- I mean we're both working on the organic track, which takes some discussions with the PTAs in various geographies as things are not working the same as they are in Stockholm, and it's not to say that it has to work exactly the same as it has to Stockholm, but it's a lot of taxi business integrated in this -- in other regions, and we have to work with the PTAs a little bit. And we are also looking at possible acquisitions here. And when we have anything to say about that, we will come back to you.

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Operator [10]

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Your next question comes from the line of Johan Dahl at Danske Bank.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [11]

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I was just wondering, given what you know now about contract start-ups, expiries in the next financial year, also considering where indexation is right now, also the migration to electricity, what sort of organic growth does that add up to the way you look at it right now, looking into next year?

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Magnus Rosén, Nobina AB (publ) - President & CEO [12]

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I mean what we state is that we have, during the next 12 months, don't count it from now, we are starting 331 buses and we're ending 111. So that's a significant start -- more starts than endings. Of course, the ones that we are ending are normally profitable contracts and so on. So you could probably say that the contracts that we are ending are affecting the results because of the maturity. On the other hand, it's -- I mean there is quite a lot of buses starting up. And it does have a little bit of a weaker earnings in the beginning. But it's -- we haven't really counted on, I must say, on the exact number of growth for next year. Of course, we have [above] the figure and so on, but there are other things into that also that we foresee...

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [13]

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But the migration to electricity and also indexation, is that negligible, if you look on sort of the contribution to growth next year?

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Magnus Rosén, Nobina AB (publ) - President & CEO [14]

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I would say that the indexation is never negligible, but because it's 1% or 2% or so, at least, depending where the inflation is and how the indexes look like. And we have said before that the electric buses carries more capital, but a little bit less gas cost for the -- when we drive them. But all in all, it's a little bit more expensive to drive or costly, if we say so. It affects our top line a little bit positively if we drive more electric buses compared to combustion engines.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [15]

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Also, just on CapEx, can you just mention how many gross new buses you've acquired 9 months, year-to-date, and sort of the plan for the full year in the current financial year? And also looking into next year, given what you know now regarding start-ups, et cetera, what's the sort of net addition -- or sort of what's the gross addition of new buses next year?

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Magnus Rosén, Nobina AB (publ) - President & CEO [16]

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We -- I mean we never buy buses on speculation. We buy buses for the contracts that we win. So you can easily transfer the figures that we have had here, and then it's about how expensive is the bus? It's between SEK 2 million and SEK 5 million depending or maybe up to SEK 7 million, depending. By the way, it's going to be based on the Malmö contract. I don't know when that started because it's BRT solutions there also, so then they get even a bit more expensive. But -- what was the other part of your question there? There was...

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [17]

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No. I'm just thinking if you can give some sort of CapEx number or sort of guidance for next year?

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Magnus Rosén, Nobina AB (publ) - President & CEO [18]

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We have that guidance. We didn't really have the guidance for CapEx. But of course, we have quite a few buses that we're going to start up. And if we look into -- depending a little bit what kind of bus it is, but it's the 331, and then you can -- basically, you can multiply that with SEK 2.5 million per bus or something like that...

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [19]

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Okay. Just final question on working capital. Can you explain what happened there? And if that will be recovered before year-end?

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Pernilla Walfridsson, Nobina AB (publ) - CFO [20]

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This is only timing effect and that we see historically also, it varies between quarters.

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Magnus Rosén, Nobina AB (publ) - President & CEO [21]

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Did you hear that?

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [22]

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Yes.

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Magnus Rosén, Nobina AB (publ) - President & CEO [23]

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Very good.

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Operator [24]

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Your next question comes from the line of Johan Sundén at Carnegie.

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Johan Sundén, Carnegie Investment Bank AB, Research Division - Research Analyst [25]

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A few questions from my side as well. First one on [Samtrans]. We touched upon this on an earlier question, but can you comment anything about the prices on the contract? Has the margins on the contract increased or decreased or how has that tendering environment developed?

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Magnus Rosén, Nobina AB (publ) - President & CEO [26]

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What I can say is that with the contracts that we have won, not only during this year, but also at least during my time here, we are content with the price that we're getting out of the contract. And I've said before that it's -- for the company, it's very important to avoid the bad contracts, meaning that when you get bad payments or you make mistakes or you engage in some market growth activities taking that ahead of earnings, then it's not good. But that's not happening. We are content with the price that we are getting. And we have a very thorough process for tendering in this company. So we are quite content, I must say.

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Johan Sundén, Carnegie Investment Bank AB, Research Division - Research Analyst [27]

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Okay. Great. And one last question. It's regarding central function and other items in your [EBT] bridge. It was a quite big increase on that item this year compared to the same quarter last year. Can you just explain what is driving that? And -- because it's quite volatile in between quarters.

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Magnus Rosén, Nobina AB (publ) - President & CEO [28]

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I think you have to repeat the question once again.

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Johan Sundén, Carnegie Investment Bank AB, Research Division - Research Analyst [29]

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Yes. Central function and other items in Page 6 in your report on the EBITA bridge, it was -- the cost there increased substantially year-over-year.

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Pernilla Walfridsson, Nobina AB (publ) - CFO [30]

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We include results from fleet operation. And as you can read in the report on Page 4, we also include there increased depreciation connected to buses. And that is one of the item that is rather big.

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Magnus Rosén, Nobina AB (publ) - President & CEO [31]

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And then we have also a slight growth in residual value losses as we have had so much migration. But that's -- normal figures with residual value losses, we have said before that it's around SEK 30 million, SEK 40 million. But obviously, this year, it's a little bit higher as we have taken out so many buses.

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Pernilla Walfridsson, Nobina AB (publ) - CFO [32]

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And also that report that is year-to-date also, so then you have the full effect, not only in the quarter.

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Operator [33]

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(Operator Instructions) You have a further question from Johan Dahl at Danske Bank.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [34]

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Yes. Can you just highlight a bit what you know about tendering activity next year? If you could just fill us in there what you know today?

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Magnus Rosén, Nobina AB (publ) - President & CEO [35]

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Repeat the question once again. We didn't hear you.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [36]

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Yes. I was wondering regarding available tendering activities, contracts that are coming out next financial year. Can you talk a little bit about that?

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Magnus Rosén, Nobina AB (publ) - President & CEO [37]

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Yes. I think we -- actually, we announced that in the fourth quarter, the exact tenders that are coming out for 2020. So -- and I don't really have all the details here. So you will have to wait for the exact figures for next quarter, then we will give you the forecast for the yearly tendering program that we have.

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Operator [38]

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There are no further questions at this time.

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Magnus Rosén, Nobina AB (publ) - President & CEO [39]

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Very good. Thank you very much, and I wish everyone a merry Christmas and a happy New Year.

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Operator [40]

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That does conclude the conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.