NTG Nordic Transport Group AS
CSE:NTG
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
250
314.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
NTG Nordic Transport Group AS
You don't have any saved screeners yet
Good morning. This is the conference operator. Welcome, and thank you for joining the NTG First Quarter 2023 Earnings Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Christian Jakobsen. Please go ahead, sir.
Thank you, and welcome to our Q1 2023 conference call, and thank you for dialing in.
And if we go to Page 2, we kindly ask you to read the important notice provided in the slide.
And if we move to Page 3, my name is Christian Jakobsen. I'm the Group CFO of NTG Nordic Transport Group. And today, I will take you through the financial results of Q1 '23.
And if we go to Slide 4, you see the agenda for this conference call, which includes highlights for the first quarter of '23, a review of the financial performance of the group and the 2 divisions, a presentation of our key figures and the outlook of 2023. By the end of the presentation, the line will be open to questions from the audience.
And if we move to Page 5, these are the main highlights. In the first quarter of the year, we experienced challenging market dynamics. The supply chain disruptions of the past years are gone. And instead, the market is now characterized by some degree of old capacity. At the same time, the global macroeconomic situation, as to the challenging market conditions, consumer confidence remains muted. Interest rates are still rising, and inflation is still elevated.
The combination has resulted in lower volumes as well as lower rates, especially in the Air & Ocean division, but to some extent also in the Road & Logistics division. As a result, both divisions have seen a decline in organic growth. The development was largely as we expected with the Air & Ocean being affected the most due to the last decline in Fed rates and the Road & Logistics being affected by a weaker spot market. The guidance provided on the 8th of March 2023 was maintained. And for the full year of '23, we have [ certainly ] an adjusted EBIT of DKK 620 million to DKK 700 million.
And if we move to Page 6, we see the main financial highlights for the group. Net revenue for the first quarter of '23 totaled DKK 2.3 billion, which is an increase of 3.5% versus the same period last year. Organic growth contributed was negative 7%, while the acquisitions of AGL, Kontinent Transport and Solida contributed with 12.5% for the quarter.
Currency translation effects had a negative impact of 2.1%. Gross profit increased by 11% to DKK 477 million, corresponding to a gross margin of 21.2% versus 19.6% in Q1 '22. Adjusted EBIT decreased 6% to DKK 150 million in the first quarter of '23, corresponding to an operating margin of 7 point -- 6.7% versus 7.3% in '22, reflecting a moderate margin decrease in the Road & Logistics division and a margin decrease in the Air & Ocean division as well.
And if we move to Page 7, you see a summary of the key financial performance indicators. Illustrated to the left, the gross margin development for the group was impacted by an increase in gross margin across both divisions when compared to last quarter as well as the same period last year. The gross margin within Air & Ocean division increased significantly compared to the same period last year, mainly driven by the significant decline in freight rates.
In the middle of the slide, you see the conversion ratio, which on group level decreased compared to the same period last year, driven mainly by the Air & Ocean division where lower freight rates translated into lower absolute gross profit figures and, coupled with investment in the sales organization, led to a lower conversion ratio. In the Road & Logistics business, the conversion ratio also fell mainly as a result of investment in sales organization.
On the right-hand side, you see the development in the operating margin, which decreased compared to the last quarter, mainly due to the development within the Air & Ocean division, which was due to the challenging market and lower freight rates. The operating margin in the Road & Logistics division also saw a slight decline.
And if we go to Slide 8, you see the financial review of the Road & Logistics division. The division generated a net revenue of DKK 1.6 billion in Q1, which was 2.5% lower than the same period last year. The decrease was related to the slight drop in organic growth. [ Cost volume ] to negative 1.2%, driven by lower volumes and soft spot market. Start-ups and M&A contributed with 0.2% and 1% restructuring. And currency translation had a negative effect of 2.5%.
Gross profit decreased 1% to DKK 348 million, corresponding to a gross margin of 21.1% versus 20.8% in Q1 '22. Adjusted EBIT decreased 7% to DKK 117 million in Q1, while the operating margin fell to 7.1%. The conversion ratio decreased to 33.6% compared to 35.8% in Q1 '22.
And if we flip to Page 9, you see the financial review of the Air & Ocean division. The division generated a net revenue of DKK 605 million in the first quarter, which was 24% above the same period last year. Hereof, a joint growth of negative 28%, driven mainly by the significant lower freight rates, covered decline in volumes.
Gross profit increased 67% to DKK 129 million, corresponding to a gross margin of 21.3% versus 15.8% in Q1 '22. This development was mainly a consequence of market development where lower freight rates allowed for a higher gross margin.
Adjusted EBIT decreased 6% to DKK 32 million, corresponding to an operating margin of 5.3% versus 7% in Q1 '22. This margin decrease was driven by a negative development in the conversion ratio of 19.4% due to small challenging market conditions and lower freight rates. The division has taken measure to reduce the cost base to the current market conditions, especially in the U.S. The measures have been mainly executed throughout the quarter and, therefore, not fully reflected in the figures of Q1 '23.
And if you go to Page 10, you see an overview of all the key figures. On the left, you see net working capital increased to minus DKK 140 million at the end of March '23, as in previous quarters. This was mainly driven by the acquisition of AGL.
The adjusted free cash flow totaled DKK 45 million in the first quarter compared to DKK 74 million in the same period last year, mainly driven by the increase in the net working capital. Finally to right, you see the net interest-bearing debt, excluding IFRS 16, totaled DKK 220 million by the end of Q1 '23.
And if we move to Slide 11, you'll see our full year outlook for '23 that we provided on March 8. We maintain our full year expectation of an adjusted EBIT of DKK 620 million to DKK 700 million. The full year outlook is based on an expectation of a weakening macroeconomic environment in the first of '23 and a gradual rebound in activity in the second half of the year.
And that was all what we have planned for today. So operator, please open the line for Q&A.
[Operator Instructions] The first question is from Michael Rasmussen of Danske Bank.
And well done, Christian, on navigating in these challenging markets. Three questions for me to start with. First of all, you mentioned cost initiatives a little bit, I think, in the report here. Can you put any numbers to how much you have taken out in Q1 and whether this number will be bigger going forward in the quarters to come?
My second question is if you could talk a little bit about the momentum during Q1. And also, if you could add any flavor to what you're seeing right now. Is it your impression that customers have started to rebuild inventories?
And my final question is on the Air & Ocean division, which part did better, which part did worse? And are you starting to see the carriers on the ocean side being really, really aggressive on pricing?
Thank you, Michael. I will not give a number on the number of employees. And we will also -- we are not 100% done, so there will be some adjustments also in Q2.
And as for the momentum, when I speak with our managing directors in the countries, then they say it's a little bit spring, but we are still very cautious about what we are seeing. So we haven't seen any light, but maybe we are seeing that it is getting a little bit better. But we will have to await the next couple of months to see whether it really picks up or it's just a [ fringe ] because we are seeing that people are buying everything for their terraces and gardens and everything. So it might be a little bit late spring this year.
And yes, it's no secret that we also expected that the destocking in the U.S. would be harder. And in particular, in January and February, they were very slow, in particular in the U.S. So March picked up, of course, larger and more working days in March and no holidays. So that was what we saw. We haven't concluded anything on the destocking. I still believe that the destocking side is ongoing. And hopefully, it will end here in -- throughout Q2. But what -- we haven't seen the end of the destocking cycle that we have, in particular, in the U.S.
And on the Air & Ocean part and some comments on the carriers? Now suddenly they have lots of capacity, I guess.
Yes. The carriers, it seems like they are actually trying to get the prices a little bit up. So they're not as aggressive as you might have expected. So maybe they are, yes, a little -- I think also they are close to being nonprofitable. So it might also make sense that they are not being too aggressive.
The next question is from Bak, Ulrik of SEB.
Christian, also a couple of questions from my side. Also on the Air & Ocean, I noticed that the M&A contribution in Q1 on revenue was DKK 256 million and DKK 12 million on EBIT. I assume this contribution is entirely from the AGL acquisition from last year. But back then when you acquired AGL, it made around DKK 540 million revenue and DKK 25 million in EBIT.
So this decline in contribution both on revenue and EBIT, is that solely driven by the market development with lower volumes and rates? Or have you lost any customers? Or are there any internal reasons for this significant decline? That's the first question.
And please also bear in mind, we also had some in the U.S. So it is a calculation using some method that -- and therefore, it's not 100% fixed that the added we have put in, but it's very close to -- we have also lost customers in the U.S., and we have also experienced some of the bigger competitors attacking us. But we are getting attacked each day, so it's nothing un-normal. But of course, when the market is a little weaker, then people are trying to gain volumes. And we are also trying to gain volumes.
So yes, it's a harder game out there. Before, you had the customer, if you could service them. And now you -- we are seeing that everybody attacks each other's customers. So I think that -- but as I said, U.S. in particular, January and February, that was slow months. We also saw that on the statistics, so -- and it picked up some in March.
Okay. And there, in that connection, I know that the last part of the earnout for AGL is based on 2023 earnings. Given the start to the year, yes, can you say anything about the threshold for this earnout and how likely you consider it to be paid out? And any comments would be appreciated.
But the earnout was based on the '21 figure, and they were not as elevated as what we saw in '22. So we are still within in the ballpark of the earnout. So we still expect to pay them up. But of course, they are a little behind currently.
Okay. And then my final question, on costs, I noticed that other external costs were down 26% sequentially. What is the explanation for this significant decline? And is it sticky when looking at the coming quarters? Or is there any seasonality in that number?
I think you might have not used the restatement when you're using that figure, Ulrik.
Okay. But then perhaps...
First of all, we have moved around DKK 15 million a quarter from Air & Ocean to Road, where we moved Hungary, France and Switzerland to -- from the Air & Ocean to the Road division.
Okay, but this was on the consolidated numbers. Okay. But then again, a question on the Air & Ocean cost side. You cut the costs quite significantly also sequentially. So is that -- what's the mix between FTE reductions versus other external costs? Any color on that would be appreciated.
We had -- in the Air & Ocean, we had 2 offices in L.A. until December last year. So that was one of the reasons. But we have -- the cut will be mainly in the staff cost.
The next question is from Lars Heindorff of Nordea.
I'll just take them one at a time. If we start on Air & Ocean, we've been discussing this before, and I know that you don't disclose your volume growth. But it could be interesting if you give a little bit of a flavor on yields and maybe also volume and maybe, I don't know, if you can talk shipments instead, if you prefer that?
Development -- I think you've been fairly, at least my sense, downbeat about the development in AGL, particularly in the U.S., at least in the latter part of '22. If you've seen any signs of improvement here as we intend to [ free up ], in particular, sort of the exit rates as we head into Q2.
But I think we have seen declines in both volumes, and it is double-digit declines in volumes. But we've also seen that we are earning less gross profit per shipment as what we did last year. So we are experiencing both in yields and in volumes in our Air & Ocean division. We also -- and in particular in the U.S., but also in Germany, whereas the Nordics, they are holding up okay. So it's a little mix of what market we are operating in.
And the decline that we have seen in the top line, the minus 29% organically in the first quarter, just to get a sense because, I mean, we have now seen that -- and you mentioned that yourself that at least ocean rates have stabilized. Air is still going down. So I mean, would it be appropriate to think about Q2 roughly the same kind of decline as we have seen in Q3 -- sorry, in the first quarter? Or should it be better?
It's very hard for me to say. But my own guess and my own, yes, is that we have seen that the rates are bottoming out and, therefore, and I don't -- but as you also know, capacity is coming in. So it would be very hard for me to tell you what will happen.
But I think that it seems like that the carriers, that the prices have bottomed out on the Ocean. And also, we are -- we might see something when there's still, I think, a little belly capacity coming in from -- on some of the lanes. So that might also go a little bit down, but on the Air, but I think we are close to the bottom in both Air & Ocean.
Okay. And then on -- maybe just a sort of housekeeping question, but it's on the start-ups. Small positive -- very small positive impact on Road & Logistics, a little bigger in Air & Ocean. Have you -- are you starting up just to get a sense for -- is there any geographical area? Are you starting something new?
It is the 2 start-ups from last year. There was the Air & Ocean in Czech and the NTG Care in Denmark.
Okay. So nothing new besides those 2?
No, nothing. No.
Okay. And then last but not least, maybe a status on -- we've been also been talking about this before on LGT implementation of IT systems and integration into the rest of the organization. Maybe a status on that one?
Yes. Yes, we went live with LGT in Sweden, and we experienced a very smooth start. Yes, I always say that if I don't hear anything, then it's going very well. And -- but actually, we also got that confirmed. It's running very smooth, and everybody gets the goods delivered on time. And yes, we're very happy about this setup. So now it's only Denmark we have left. Finland was in November. So now it's only Denmark, and they have already started off on that.
And also for AGL -- for the cargo-wise, as we rolled out our first in March and now it is Norway and Sweden, 1st of June, and it looks promising. And it seems like we have the right enterprise platform for that rollout, and then we will just roll at least once each month. We will roll the rest out and follow the plan in the first half '24 for the AGL. So yes, very impressive.
The next question is a follow-up from Bak, Ulrik of SEB.
Just on your share buyback that you announced of DKK 125 million. In that context, will there still be room in the short term for further M&A activity? And in terms of M&A, previously, you've stated that the sellers' price expectations were a bit too far from your expectations. So what is the latest on that?
Yes, I think we are currently on around 1x EBITDA, and we have said that we will go up to 3x EBITDA. So we definitely believe we have room for acquisitions. Just do the math and then there will be pretty much room, and we have good agreements with the banks. So that is also -- that should also work.
So -- and yes, we are seeing that the sellers are climbing a little bit down to 3, and they have climbed a little bit more down. So hopefully, we will see them, we will be able to make some deals this year. So yes, it is getting more and more right on the side. We are definitely having good dialogues now starting opening, and they don't come out with the expectation that they will earn more in '23 as it did in '22, which we have seen quite some time.
So definitely, we are now coming into a more normalized situation where we not should only agree on the multiplier, but also it's easier to agree on the EBIT that you're using for the deal.
Okay, that makes sense. And then perhaps the final, final question from my side. So Road & Logistics, just the market outlook, you've previously stated that it's fairly stable both in terms of volumes and yields. But -- and normally, Q1 is the weakest one seasonal-wise. But do you see any risk of a delayed negative spillover effect from a weak Air & Ocean market, which could impact from Logistics negatively later in the year?
But we are also always worried about what will happen. So -- but that's why we have our [ AGL ] model. So if something comes over and then we will be able to adjust our capacity very fast. I think we have adjusted the whole [ USR ] where we can get them down. So I don't think there's any room there if they still have to survive.
So I think we have squeezed what we can, and that means that then if something happens, then we will have to look at the capacity. But as you know, we are able to adjust very fast and we're looking at the consignments on a weekly basis and from group side. And of course, they're looking at it on the operational daily side. So we will adjust it if it's necessary.
The next question is a follow-up from Lars Heindorff from Nordea.
A couple of follow-ups on my part as well. Yes, on -- if we stay on the balance sheet side of things and cash flow, I would have thought, maybe I'm wrong, but I would have thought that given the decline in volumes and in rates, particularly in Air & Ocean, that you would have seen a bit of a more of a release of net working capital in the first quarter compared to what you actually reported.
I might be wrong, but maybe just to get a sense for will we see some further impact and release of net working capital as we head into the second quarter as well? Or how should we think about this?
I think that we saw the most relief that we will see in the fourth quarter. And we -- and traditionally, the first quarter is not a very -- it's a quarter where we have a higher net working capital. But I think we saw the most of the relief we would see released in the -- we saw that in Q4.
We are on a negative level with the net working capital. I think it will be difficult to see us improving. But if you look at each quarter, we are now with a bigger part of the Air & Ocean that we are also satisfied with the level. But of course, we will do our best to improve it. But we are very close to being satisfied with the level of our net working capital.
Okay. And then, again, regarding the restated numbers, if I look at what you have restated and what you actually reported before the restatement, then the difference on the gross margin in Air & Ocean is round about 1.5 percentage points lower. And yet you reported a very significant jump in the gross margin here in the first quarter.
Just to get a sense of to recalibrate, if you understand what I'm trying to say here, I know the gross margin levels going forward. I mean, is this sustainable above 21% if you look into the rest of the year?
I would say I have no reason to say anything else. But of course, that means that if the markets keep being stable, then I have no reason to conclude anything else.
[Operator Instructions] Mr. Jakobsen, there are no more questions registered at this time.
Okay. But thank you for listening in, and we will come back after Q2. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.