U.S. Markets open in 4 hrs 44 mins

Edited Transcript of NOBINA.ST earnings conference call or presentation 27-Sep-19 8:00am GMT

Q2 2020 Nobina AB (publ) Earnings Call

SOLNA Oct 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Nobina AB (publ) earnings conference call or presentation Friday, September 27, 2019 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Magnus Rosén

Nobina AB (publ) - President & CEO

* Per Skärgård

Nobina AB (publ) - VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Erik Paulsson

Pareto Securities, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and thank you for standing by. Welcome to today's Nobina's Q2 report 2019/2020. (Operator Instructions) I would like to advise you that today's conference is being recorded on Friday, the 27th of September 2019.

I would now like to turn the conference over to your first speaker today, Magnus Rosén. Please go ahead, sir.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen. This is Magnus Rosén. And in the room, I also have CFO, Per Skärgård.

Net sales for the second quarter grew 9.3%, and that's supported by acquisitions, while the organic growth was slightly negative during the quarter, less than 1%. We have an adjusted EBT of SEK 107 million, which is up from SEK 92 million last year. And it's due to performance improvements in existing contracts. It's also about the extra traffic that we have driven and it's also positive contribution from the acquired companies. The cash flow from operations before changes in working capital is SEK 421 million. And the total cash flow decreased to SEK 536 million, mainly because of investments in new buses. Investments amounted to almost SEK 1.2 billion. And we have changes from leasing to loan financing within this volume of SEK 224 million.

Highlights during the quarter. We have had a comprehensive contract migration during Q2. We have started up 395 buses in the quarter and we have taken out 378 buses from existing contracts. We have a European Commission decision, where it has been declared that subsidies to publicly owned operators are not permitted. And that comes from the filing that Nobina did about 8 years ago. And it says -- or the verdict says that a municipality owned company should repay about EUR 43 million in Finland. Nobina Sweden also have received Unionen's LGBT award for the most LGBT-friendly workplace in Sweden. And for that, we are proud and happy and goes in line with our values and what we are working for in general.

We have submitted so far during this year 1,490 tenders. Out of those, 1,200 and a bit more have been announced. And we have won 241 tenders, which is 20% out of the announced volume, still remaining 278 to be announced. And we have, for the rest of the year, still another 825 buses to tender, where there hasn't been any tendering done so far.

Contract migration is scaling up in Q2, definitely. And during the first half year, we have started 428 buses and we have ended 378. The average weighted contract length now is 7.7 years and the average weighted contract age, 4.6, and the average bus age is 6.4 years.

During next year, we have significant traffic starts. And I just went through the numbers we did before of what's left for this year to tender, about 800 buses. But we know that we are starting up 331 buses the coming 12 months. And at the same time, we know that we are ending 211 buses. And out of that, we have 100 buses in Örebro that we are actually ending this weekend. So we know that there will be a market share growth at least for next year. For this year, we have announced and we have said before that the market growth is negative because we won a little bit less buses last year than we are taking out from existing contracts.

--------------------------------------------------------------------------------

Per Skärgård, Nobina AB (publ) - VP & CFO [3]

--------------------------------------------------------------------------------

All right. Then we are then into the financials on Page 7, looking at the different segment's performance. Starting with Sweden, where we have a fairly strong increase of net sales compared to the same quarter last year. And here, it's primarily the acquisition of Samtrans that adds to the growth. If we look at the EBITDA -- EBITA, which also has an increase compared to last year. We see contribution, of course, from Samtrans. It's a fairly profitable operation, also from efficiency improvements and traffic increases lifting the result in Sweden.

If we go to Denmark, there we have some significant acquisitions through DBO and also the Örslev business, which includes the service traffic operations in Denmark similar to Samtrans. And we also had a new traffic start in Roskilde. And these elements have contributed significantly to the growth over Q2 last year. And if we look at EBITA, the acquired business definitely contributes to the result due to the high level of profitability in these acquired operations but we also have increased traffic in the -- in our ordinary initial business in that market.

Continuing to have a look at Finland on the next page. Here, we have a little bit more stable situation, not so much changes. But we do have new contracts that we have started, a little bit more significant effect from the exchange rate, meaning that our Swedish krona has weakened quite a lot compared to the euro, which creates a consolidation growth that has also affected this segment. Looking at EBITA, we have positive effects from the contracts startups and also improved efficiency. Now one thing to highlight in Finland is that when we talk about contract migration, the effect is a little bit smoother in Finland due to actually adding lines to existing traffic structures, not stopping up the whole traffic area as they do in other countries. So it actually can increase results immediately when we do new contracts there.

Going to Norway. Norway had a significant volume of extra traffic, which has added to the revenue and which represents a quite large growth compared to last year, also affecting the EBITA, which actually supersedes a lot of the extra costs that we have from startups and also the closing-down of Tromsø. So therefore, the result, the EBITA result, is actually at the same level last year, not really hit this year.

By that, we continue to the group P&L. And I would like to highlight that we have a fairly good EBITDA margin, which is on a similar level compared to last year, which is good considering that we have started with the contract migration effect already in Q2, even though they're not that big. I would also like to highlight that when we look at the EBT, the EBT is SEK 101 million for the quarter. And the adjusted, say, EBT that Magnus commented on the first page does not include a recovered penalty of SEK 11 million that actually is included in the SEK 101 million. And that is due to IFRS accounting rules.

If we continue to the profit bridge on the next page, there we see the starting point from last year, leading us down to the net sales situation and EBT for this year. And we have quite a significant contribution from price and volume. And here is the acquisitions included, contributing quite significantly to the net sales growth and also to the EBT growth. Some of you might be a little bit surprised that we have a positive contract migration effect on the result. But that is related to earlier contracts that have been started recently that have picked up quite strongly in the beginning. So it actually contributes to the result already now. This number will, of course, be very different going forward now into Q3 and Q4, when we are absorbing the full effects from the contract startups that we have executed now late in Q2.

Indexation and operational efficiency looks fairly okay. We have a contribution on indexation of SEK 96 million and we have a positive net effect of everything in the efficiency box of SEK 8 million. In the other, we have a minus SEK 14 million. And here, we have primarily cost developments in the central functions and also the result from the fleet operations adding up to that figure.

In the financial net, we have as more or less related to currency effects on our loan for financing the acquisition in Denmark, which is -- which has been raised in Danish kroner. And most of this is an unrealized exchange rate effect. In addition to that, we also have a slightly higher interest cost related to the new investments in buses at (inaudible). So that, all in all, leads to the SEK 220 million year-to-date.

On the next page, we have the cash flow. And the cash flow is quite interesting to look at this year because some big numbers are flowing around here. If you start looking at the working capital, despite early arrears, we have a positive working capital of SEK 53 million in quarter 2. Normally, this should be a negative. But this is related to timing of bus deliveries and invoicing of the bus deliveries, which actually have boosted our accounts payable a bit, which then contributes positively to the working capital. So this, you can say, is an effect of our new financing method using loans and buying the buses instead of putting them into lease agreements, which goes directly to the financiers.

You can also see that our cash flow from investing activities is quite significant. It's minus SEK 623 million in the quarter and SEK 1,282 million. And this is related to partly a refinancing of all these agreements, which is included here and also acquisition of new buses. The reason why it all leads to a quite negative cash flow for the period is because the proceeds used to finance the investment is, in a very large extent, the bond capital that we raised in Q4 last year that was sitting in the cash box when we started the year.

If we continue to the investment page, here you see the gross reconciliation of all our investments. The total investments was 1 point -- almost SEK 1.2 billion in quarter 2 and SEK 1.8 billion year-to-date. And we have the refinance boxes by loans for approximately SEK 700 million, which is part of this. The rest is new investments related to the startups. And you can see here that the lease financing has been SEK 525 million in the quarter and SEK 528 million year-to-date, which relates to Norway and Finland, where we still finance the buses by leases. So the CapEx coming out at the bottom here is SEK 600 million for the quarter and SEK 1.3 billion year-to-date. And there you'll see the -- how we have financed by loans or by cash on the bottom.

Finally, we have the balance sheet. And the balance sheet has started growing again due to the traffic starts that we are going through with all the new buses coming in. So we now have a balance sheet of almost SEK 9.6 billion. We see a cash position of SEK 460 million, which is fairly okay. And we have still our undrawn overdraft facility of SEK 300 million, meaning it's really untouched and still available in full.

The equity ratio is 3.6% (sic) [13.6%], which is lower compared to last year. But this is now affected by, of course, the dividend that we paid out during the summer and also that it represents the temporary (inaudible) in the year because a lot of earnings is remaining until year-end, where the equity ratio will recover. The net debt to EBITDA is very okay compared to our targets. It's 3.1, which is still at the lower end of the range compared to 2.9 last year.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. Then we can conclude the second quarter by saying that we have had a significant growth that comes mainly from the acquisitions. We have had stable earnings during Q2. And we have also said before that the numbers going forward in the comparisons for the second half year will be slightly tougher due to the migration that we are now performing during the summer or have performed.

We had started 395 buses and we have ended 378 in the quarter. We have a good situation for securing the market share during next year as we have already surpassed the wins if we compare with the outstanding buses that we have in traffic that we risk to lose. And there are still more tenders to be turned in for the rest of the year. Then we have an EU Commission decision, which is important for us, that says that there should be fair competition as we are having quite a few competitors that are in the (inaudible). And we are definitely glad for this decision.

Now I think we are open for questions if there would be any.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And your first question comes from Erik Paulsson from Pareto Securities.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. It's Erik at Pareto. I have 2 questions. The first one is regarding acquisitions and potential future acquisitions. What do you see in terms of this -- in terms of different geographies, et cetera, and also in terms of business models? And the second question is regarding this recovered penalty, maybe you mentioned that, but I missed that, of SEK 11 million. What is that exactly?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I'll start with the first question. And we'll...

--------------------------------------------------------------------------------

Per Skärgård, Nobina AB (publ) - VP & CFO [4]

--------------------------------------------------------------------------------

Acquisitions.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Acquisitions. Yes, acquisitions. We have an acquisition that we are working after and -- but we have, at the same time, we have said that we are digging where we are standing, meaning that we remain in the Nordic countries for the time that we can overview. But we would like to broaden the scope of our business, especially in Sweden. And we have done that with service traffic. It is more likely that we will go for bolt-on acquisitions in the other 3 smaller countries but there is also a possibility for service traffic in those countries. And we are definitely already expanding the short commercial traffic in various ways, but (inaudible) is probably the best example, but there are other things happening also in this area. But acquisition investment is going forward. And when they're going to happen and who we're going to buy and so on, that's, of course, to be seen. And Per, if you have the...

--------------------------------------------------------------------------------

Per Skärgård, Nobina AB (publ) - VP & CFO [6]

--------------------------------------------------------------------------------

Yes. I'll take the other one. Right. The recovered penalty was actually related to one of our acquisitions. And that one was covered in the result for the acquisitions before. But what has happened since we made the acquisition is that we have improved the services, meaning that we've been able to actually get this claim withdrawn. So that actually contributes to our results positively. And it's included in the EBT. But as it is related to an acquisition, it's actually being taken back through the adjustment line, which actually have reduced the adjustment amount that normally increase our adjusted EBT by SEK 11 million. So if it would have fallen through the whole way, EBT adjusted would have been SEK 180 million.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Thank you. There are no further questions at this time. (Operator Instructions) And it seems we have no further questions at this time. I would now like to hand you over to your host for closing remarks.

--------------------------------------------------------------------------------

Magnus Rosén, Nobina AB (publ) - President & CEO [8]

--------------------------------------------------------------------------------

Okay. Then we will close the Q2 hereby, and we wish you a nice weekend. Thank you very much. Bye-bye.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.