NTG Nordic Transport Group AS
CSE:NTG
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NTG Nordic Transport Group AS
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Ladies and gentlemen, thank you for standing by, and welcome to NTG Q1 2021 Conference Call. [Operator Instructions]
I would now like to hand the conference over to the Group CEO, Michael Larsen. Please go ahead.
Thank you. Welcome to our Q1 2022 conference call, and thank you for dialing in. Let's move on to Page #2. I kindly ask you to read the important notice in this slide, and then let's flip to the next page.
Here you see that today's presenters. My name is Michael Larsen, I'm the Group CEO of NTG Nordic Transport Group. And with me today, I have Christian Jakobsen, our group CFO.
Let's move on to Page #4. Here, you see the agenda for this conference call, which includes the highlights for the first quarter of 2022, a review of the financial performance of the group and the 2 divisions, a presentation of other key figures, the updated outlook for 2022 and a brief update on the acquisition of Aries Global Logistics. At the end of the presentation, the line will be open to questions from the participants.
Let's move on to Page 5. These are the main highlights for the first quarter of 2022. Momentum from 2021 continued into the first quarter of '22 as activity remained high and capacity shortage continues to affect market dynamics. The war in Ukraine added further uncertainty on top. And based on the related consequences, we decided to divest our activities in Russia, together with related activities in Belarus, Kazakhstan and Germany in our management file completed in April this year.
Despite the demanding market dynamics, market conditions continue to be supportive and financial results in both divisions exceeded those of the first quarter last year. Net revenue increased by more than 40% and adjusted EBIT increased by almost 60% in the first quarter of '22. At the end of March, we announced the acquisition of the U.S.-based and ocean freight forwarder , Aries Global Logistics and the acquisition was closed on the 6th of May this year.
The transaction represents a milestone for us, cementing our position as a global player and doubling the size of our Air & Ocean division. We expect annual synergies in the range of USD 2.5 billion to USD 3.5 million when fully integrated and finalization of the integration is expected in the first half of 2024.
Based on the expected financial impact of the acquisition of AGL for the remainder of '22, the positive development in NTG's existing business in Q1 '22 and an expectation of current market conditions continuing in Q2 2022, we also raised our expectations for the full year on the 6th of May and for '22, we now expect revenue in the range of DKK 9.7 billion to DKK 10.2 billion and adjusted EBIT of DKK 700 million to DKK 750 million.
With those words, I'll now hand over to Christian, who will take you through the Q1 2022 financial results. Christian?
Thank you, Michael. As Michael mentioned, we are very pleased to see the positive trend from '21 continue into the first quarter '22.
On Page 6, you see the main financial highlights for the group. Before we dive into the numbers, please note that we changed the classification of terminal-related cost effective as of 1st of January '22. Terminal-related costs, previously included in other external expenses and staff costs, have been now been included in direct costs in order to maintain the financial transparency in the weight of our increasing in external activities, most notably due to the acquisition of NTT Group in '21. As such, please also note that the amendment only affect the Road & Logistics division. And the figures for the comparison periods have been restated in accordance throughout the presentation and Note 1 in the Q1 report.
As you see from Slide 6, net revenue for the first quarter of '22 total DKK 2.2 billion, which is an increase of 41% versus the same period last year. Organic growth contributed with 27% and acquisition in the Road & Logistics division contributed with an additional 16% for the quarter. While currency translation effects had a negative impact of 1.5%.
Gross profit increased by 36% to DKK 428 million, corresponding to a gross margin of 19.6% versus 20.4% in Q1 '21. The gross margin decrease was mainly related to the continuing pressure on input factor prices due to the capacity shortages that we continue to experience in Q1 '22.
Adjusted EBIT increased 57% to SEK 160 million in Q1, corresponding operating margin of 7.3% versus 6.6% in Q1 '22. And the development was driven by increased efficiency and scalability in both divisions.
Then if we move to Page 7, you see the summary of the key financial performance indicators, which have also been restated as I mentioned before. As illustrated to the left, the gross margin development for the group was impacted by increasing input factor prices in both divisions, which resulted in increase in pass-through revenue in the Air & Ocean division and increasing cost of procuring capacity in the Road & Logistics division, although partially offset by recent acquisition and capacity surcharges introduced in the second half of '21.
In the middle of the slide, you see the conversion ratio, which increased in both divisions as a result of persistent cost control and increased efficiency. The operating margin increased compared to Q1, as you see on the right-hand side of the slide and the conversion ratio improvement more than offset the gross margin decline.
And then if we go to Page 8, we see the financial review of Road & Logistics division. The division generated in Q1 a net revenue of DKK 1.7 billion, which was 42% above the same period last year. The increase was related to both growth from acquisitions that contributed with 21% and organic growth that contributed 24%, predominantly driven by capacity surcharges introduced '21 to safeguard capacities and existing customers and partner relationships.
Gross profit increased 40% to DKK 335 million, corresponding to a gross margin of 21.1% versus of the 20.3% in Q1 '21. The margin decrease was related to increase in input prices caused by a driver and shortage -- truck shortages and elevated key prices, although partly offset by the acquisition and surcharges introduced in the second half '21.
Adjusted EBIT increased 53% to DKK 124 million in Q1, corresponding to an operating margin of 7.4% versus 6.9% in Q1 '21, driven by the conversion ratio improvement, as I mentioned before.
If we flip to Page 9, you see the financial ratio of Air & Ocean division. The division generated in Q1 a net revenue of DKK 511 million, which was 41% above the same period last year, composed of organic growth of 39% and currency translation effect of 2%. The organic growth was mainly driven by innovative freight rates but continued to provision in the first quarter of the year.
Gross profit increased 23% to DKK 94 million, corresponding to a gross margin of 18.3% versus 20.9% in Q1 '21. The development was, as I mentioned earlier, mainly a consequence of innovative freight rates trade that resulted in increasing pass-through revenue.
Adjusted EBIT increased 83% to DKK 36 million, corresponding to our operating margin of 7.1% versus 5.5% in Q1 '21. The margin increase was driven by a positive conversion rate of development of 12.7 percentage points was more than offset the effects of the gross margin decline of the operating margin.
And then if you flip to Page 10, you see an overview of our key figures. On the left, you see that the net working capital increased slightly to minus SEK 161 million at the end of Q1. The adjusted free cash flow totaled DKK 74 million in the first quarter of the year compared to $4 million in the same period last year, mainly driven by improved operatig performance and the development in the networking capital.
Finally, to the right to see the net interest-bearing debt, excluding IFRS 16which totaled DKK 37 million in net cash by the end of Q1 '22.
And then if we move to Page 11, you see the full year outlook '22 that was updated on the 6th of May and based on the expected financial impact of the acquisition of AGL for the remainder of '22. The positive development in NTG's existing business in Q1 and an expectation of current market conditions continuing into Q2 '22.
We raised our full year expectations for '22 to a revenue of DKK 9.7 billion to DKK 1.2 billion and an adjusted EBIT of DKK 700 million to DKK 750 million. The updated full year outlook is based on an expectation of the current market situation continuing in the second half of '22, followed by a gradual normalization in the second half of the year. And the outlook further assumed a stable macroeconomic environment with no material adverse events affecting regional and global cargo volumes and trade patterns.
And then on Page 12, you see a brief update of the acquisition of AGL that we closed on the 6th of May. Following the closing of the transaction, AGL will be included in the financial statements of NTG as of May '22, and we expect AGL to contribute with approximately DKK 1.4 billion in revenue and approximately DKK 85 million net adjusted EBIT for the remainder 8 months of the year.
The integration commenced on the day of the closure, and the first step is to complete the merger of the legal entities, leaving a single operational entity in U.S. going forward. Following completion of the merger, which we expect within the next 2 months, we will integrate all NTG U.S. activities on to cargo, which would be the new TMS standup within the U.S. And we will utilize AGL's competences in that respect as they are already applying the system to onboard our existing activities.
Transaction and integration cost of approximately DKK 25 million in total are expected to be charged under special item through the finalization of the integration of AGL in the first quarter of '24, of which approximately DKK 7 million already was charged on the special items in Q1 '22. And we expect annual synergies in the range of $2.5 million to $3.5 million upon completion of the integration as previously communicated.
Following completion of the integration of AGL cargo as on will be rolled out to the rest of the entity and organization in line with our strategy of having a single TMS system with each of our 2 divisions.
And that was all what we have planned for today. So operator, please open the line for Q&A.
[Operator Instructions]
We have the first question from Michael Rasmussen from Danskebank.
Yes. Well done, guys, on bringing in another super strong quarter. So I've got a number of questions. I just don't know where to start up. Let's start up on the macro side. So what kind of assumptions do you put into second half, if you can just run through the 2 divisions, please?
And my second question is also slightly related to that. But just assuming that we get a much weaker outlook for the consumer in the second half or maybe into the early part of 2023. How do you think your earnings would be impacted assuming volumes start to tick down? And of course, also including some indirect impacts from competitors might be a bit aggressive, suddenly, there's an excess of capacity, i.e., a very different situation versus what you have right now?
And then my last question, just if you could update on the EU Mobility Package. I was a little bit uncertain on what you wrote in the report, whether it's a positive or negative conclusion for you guys right now? And also, if you could just update us on the driver situation now with what's going on in Eastern Europe.
All right. Should I start with the first 2. And on the macro economic assumption for '22. As we have said, we are not seeing any negative movement on our side at the moment. We are not having enough capacity to operate our -- we are doing everything we can to service our customers because we are lagging the capacity. So that is what we are seeing in the current environment. And what we have put into our assumption is that we expect that something -- we hear all the noises that is happening in the U.S., and it will probably start there. So we are a little soft on the guidance for U.S. And then we are seeing that a little later in Europe. So we expect something in the current level for Q2 and then a little softer in Q3 and a little bit softer also in -- and even softer in Q4. So that is the assumption we have put in.
But sorr, Christian, so a bit softer in Q3 and even softer in Q4. So what are those assumptions? Are they that organic growth will turn negative? And what's your assumption on yields for Air & Ocean? I guess this is mainly related to.
But it's also related to the Road. So -- and it's still our biggest division. So I'm not saying and -- give you any figures, but we will definitely -- I would say that it is softer and putting in a precise assumption and putting in our reaction, that will be some details that I can't share with you. But it is seen as a little softer and we will also see that we are affected from that. And then I'm not able to give you any more flavor on that one.
And then if we look at '23, then of course, in particular, we would expect to see the Ocean a little bit more under pressure than what we see today. I still believe. But it's only related to what I hear out in the market that it will also be gradually over the '23. It will not be something very -- coming in very hard on that.
But please also bear in mind that we are using a lot of time by our freight forward had to buy capacity and begin to utilize that. So it might be that the GDP per kilo of 100 kilo will go down, but we also expect that we will be able to produce a little bit more because we have seen our productivity going down due to the current situation.
So there will be an effect, but it is impossible for us to tell you what it would be. We have -- we will see what will happen and then we will react as we always do. And we are very agile and we'll try to optimize based on the situation, but we can't tell you what will happen. That's -- that will be unrealistic for us.
Okay, Christian. Yes. So I mean, if you start up the year with DKK 16 million in EBIT before special items and usually, that's low season, it also does seems a little bit conservative as we move on also as Aries comes into the numbers. Yes. And on the EU Mobility Package on Eastern Europe, please?
Michael will take that one I'll take that one.
I'll take that one, Michael. Yes, there's no doubt that we are seeing the signs of it now, and I believe that it will -- there will be more to come. If we look at what it means, depending on the nationality of the driver and in which geography that he's producing for us, it's somewhere between 5% and 20% of the capacity that is being taken out of the market when you need to go home after these 8 weeks. So we are talking -- depending, again, if it's a Baltic driver driving in the Nordic region, it's maybe only 5% would be taken out. It's the time going back and forward to Baltics. But if it's a Bulgarian driver driving in the Nordics, it can be up to maybe 20% of the capacity will be taken out of the market.
And then also, if we look at the environmental perspective, yes, I believe that for sure, I can say that it had no positive effect on that also. Quite often, they need to go home or back again empty or partly due to the fact that many of the countries were where they are, it's not -- they're not importing that much cargo. So -- then you also have the Ukrainian drivers. There was a lot of Ukrainian drivers on our trucks who needed due to the crises of the war in Ukraine to go back and go to war in Ukraine. So that also had a huge impact on the capacity.
I'm not sure that there are anybody else on.
There are no further questions at the moment, sir.
Yes. Can you hear me still?
Yes.
Okay. Perfect. Yes. I guess people are probably listening into DFDS, so maybe you should coordinate that going forward. So they're not at the same time. Can you talk a little bit about the organic growth momentum in Aries here in April? I guess you have some insight into how it has performed versus your existing own NTG Air & Ocean business.
They have both all been good. That's also why we operated our expectations. And also that you see is that we have also made some ambitious growth for Aries compared to what they delivered in '21. So yes, we are quite happy. They seem to be trading up compared to what we saw when we acquired them. So we're very happy about that.
Okay. So I should understand that is at least as good as NTG?
Yes.
Yes. Okay. So you mentioned, obviously, the gross margin pressure, and I understand why it's happening. But can you maybe just give us a bit of insight into how long should we expect this to continue affecting mainly the Road division?
Well, I don't have a crystal ball. What we can't see it ending at the moment. So that's also why we have said that we expect that Q2 will be a strong as Q1 and also will be equal. We're not seeing it ending, but yes, due to what we hear out in the market it -- definitely should be ending, but we have really issues getting the capacity also getting new trucks is really a challenge for our owners, and we have our program to assist them.
And we also had difficulties getting the trucks for them. So it's -- we don't see the end and we see a lot of cargo out on the street by our customers and out in the market. But yes, we're not able to take the new customers in really -- many new customers in because we're simply limited with the capacity at the moment.
Okay. And just kind of any difference in how you see the different verticals doing? Are you, example, seeing an uptick in automotive or retail starting to suffer or anything you're seeing on the verticals?
No. We still have the same challenges in our automotive that has that problem mostly with the semiconductors, and that means some stock on the factories, and that's just keep going, and we haven't seen any down trade in any particular -- we saw a little softening in -- March was a little softer than March last year, but on -- then April, I think it would be just in the level. So yes, we don't see any big movements.
Okay. And just on the restated terminal costs, can you -- do you have any idea about how your peers handle this?
I don't think I would say and share that. I think you can easily read them as I do. And then maybe I can give you a hint off-line, but I'll not comment on the peers.
There are no further questions, sir.
But then thank you, everyone. And yes, have a nice day.
Thank you.
Bye.
That concludes the conference for today. Thank you for participating. You may all disconnect.