NTG Nordic Transport Group AS
CSE:NTG
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NTG Nordic Transport Group AS
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Welcome to our Q3 2022 conference call, and thank you for dialing in. If we move to Page 2, we kindly ask you to read the important notice provided on this slide, and then let's move on to Page #3.
Here, you see the presenting team of today. My name is Mike Larsen, I'm the Group CEO of NTG Nordic Transport Group. And together 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 third quarter of 2022, a review of the financial performance of the group and the 2 divisions, a presentation of the other key figures and finally, the outlook for 2022. By the end of the presentation, the line will be open to questions from the audience.
If we move on to Page #5. These are the main highlights for Q3. In the third quarter of the year, we experienced a change in the market dynamics as leading with macroeconomic outlook, rising inflation and declining supply chain congestions led to a change in consumer behavior across a range of industries, which all together led to a cool down in transportation activities.
In the Road & Logistics division, we experienced a gradual stabilization of the capacity situation in Q3. And even though capacity continues to be short in supply, [indiscernible] market outlook led to reduced supply side pressure, as reflected in the spot rates slowly declining in July and August, followed by a partial rebound in September.
In the Air & Ocean division, Q3 marked the beginning of a softening of global air and ocean freight markets and the combination of slowing demand. And decrease in bottlenecks in the U.S. and Asia led to a significant decline in ocean freight rates across key trade rates.
In air freight, rates were also on the decline, although at a much more moderate pace. Despite these challenges, we experienced strong results across both divisions in Q3 with double-digit growth in net revenue and operating profit.
Finally, the guidance provided on the 6th of May 2022, is maintained. And for the full year 2022, we expected to achieve a net revenue 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 will now hand you over to Christian, who will take you through the Q3 financial results. Christian?
Thank you, Michael. As Michael mentioned, we are pleased to show strong results across both divisions during the third quarter of '22 despite an increasingly challenging market environment.
On Page 6, you see the main financial highlights for the group. Net revenue for the third quarter of '22 totaled DKK 2.8 billion, which is an increase of 51% versus the same period last year. Organic growth contributed with 17% by the acquisitions of LGT Group and AGL contributed with additional 36% for the quarter.
Currency translation effects had a negative impact of 1.9%. Gross profit increased 45% to DKK 533 million, corresponding to a gross margin of 18.9% versus 19.7% in Q3 '21. Adjusted EBIT increased 47% to DKK 209 million in the quarter, corresponding to an operating margin of 7.4% versus 7.6% in Q3 last year, reflecting a constant margin in the Road & Logistics division and a margin decrease in the Air & Ocean division.
If we move to Page 7, you see the summary of the financial key performance indicators. As illustrated to the left, the gross margin development for the group was mainly impacted by a decrease in the Road & Logistics division compared to the last quarter as well as the same period last year due to an increase in the cost of procuring capacity and a softening spot market in July and August. The gross margin within the Air & Ocean division also declined slightly compared to the same period last year, although trending higher compared to the previous quarter as a result of the decline in ocean freight rates.
In the middle of the slide, you see the conversion ratio with a group level increase compared to the same period last year, although declining compared to previous quarter in both divisions, mainly because of seasonality effect during the holiday period and secondly, AGL having a full financial impact in Q3.
On the right-hand side, you see the development in the operating margin, which decreased compared to the last quarter due to the development within the Road & Logistics division, which was a consequence of seasonality effects, but also less favorable spot rates. The gross margin development in the Air & Ocean division offset the decline in conversion ratio compared to the previous quarter, and the margin cost [indiscernible] remain constant.
If we move to Slide 8, you see the financial revenue for the Road & Logistics division. The division generated a net revenue of DKK 1.7 billion in the quarter, which was 24% above the same period last year. The increase was related to both [indiscernible] growth contributing with 7% to the total group, while organic growth contributed 21%, driven by capacity and EU Mobility Package surcharges introduced to safeguard capacity. [ Innovative ] spot rate also had a positive effect on [ organic costing ] in the quarter of '22 compared to the last quarter -- same quarter in '21. Gross profit increased 20% to DKK 338 million, corresponding to a gross margin of 19.5% versus 20.2% in Q3 '21, and the decrease was mainly driven by the increasing cost of recurring capacity.
Adjusted EBIT increased 26% to DKK 134 million in the quarter, while the operating margin remained constant at 7.7%. The conversion ratio increased to 39.7% compared to 37.9% in the same quarter last year. And that was mainly driven by an increase in gross profit shipment as well as persistent cost control throughout the quarter.
And then if we flip to Page 9, you see the financial review of the Air & Ocean division. The division generated a net revenue of DKK 1.1 billion in the quarter, which was 129% above same period last year. [indiscernible] organic growth of 7%, driven by high growth in Poland and Denmark, though partially offset by declining volumes with a limited number of customers as well as declining freight rates. While the acquisition of AGL contributed 120% up to the growth during the quarter.
Gross profit increased 126% to DKK 196 million corresponding to a gross margin of 17.9% versus 18.2% in Q3 '21. The development was mainly a consequence of the acquisition of AGL. And if we adjust for this, the gross margin increased 0.7 -- 0.8 percentage points year-on-year. Adjusted EBIT increased 109% to DKK 75 million corresponding to an operating margin of 6.9% versus 7.6% in Q3 '21. The margin decrease was driven by a negative development in the conversion ratio of 3.1 percentage points, and that was due to more changing market conditions.
Then if we flip to Page 10, you see an overview of other key figures. On the left, you see that the networking capital decreased to minus DKK 22 million as per September 30. AGL added DKK 153 million in the net working capital, and the rest is normal seasonality by non-recourse factoring program released DKK 9 million as per end of the quarter.
The adjusted free cash flow totaled DKK 223 million in the third quarter compared to DKK 76 million in the same period last year, mainly driven by improved operating performance and an improvement in net volume capital compared to the previous quarter.
Finally, to the right, you see that the net interest-bearing debt, excluding IFRS 16, totaled DKK 367 million by the end of Q3, mainly as a result of the acquisition of AGL and also with the solid cash flow in Q3.
Then in we move to Page 11, you see our full year outlook for '22 that was provided on 6th of May. We maintain our full year expectation of net revenue of DKK 9.7 billion to DKK 10.2 billion and an adjusted EBIT of DKK 700 million to DKK 750 million.
And that was all what we have planned for today. So moderator, please open the line for Q&A.
[Operator Instructions] The first question is [ Horik Back ] from SEB.
First of all, a question on your guidance. You maintained the guidance, which means that you implicitly guide for around DKK 150 million to DKK 165 million in Q4 adjusted EBIT, which is if you take the midpoint, is a 30% decline compared to what you reported in Q3. Can you perhaps share what you have seen in the market that makes you expect such an earnings decline in Q4? And also if we can sort of use the implicit Q4 guidance as a reference when looking into '23?
What we are seeing is that we are having close to no visibility. And what we have been hearing is that the stocks in the warehouses in the U.S., they are completely full, and a lot of people expect that the U.S. market will be very soft in Q4. And then we've also seen some analysis from some of your competitors indicating that also the road freight will be soft in Q4.
So we don't have any visibility. And therefore, you can see that we're also having a little bit higher spread than we would normally have at this point on the year. But it is due to the fact that we have close to 0 visibility, but we are hearing a lot about the market, also hearing that the U.K. market is very soft at the moment. But that is the reason.
Okay. And maybe a follow-up on that. If you look at the volumes for perhaps October and the trucking rates for October compared to the Q3 average, where are we tracking at the moment, if you can share that?
There's no doubt that the market has softened also on the road market. We -- and please remember, we came from a very, very high level in Q2, where we had a very -- some very good spot due to the new market conditions with the EU Mobility Package. And this market has normalized. So we do see a decline in the index.
But any sense of percentage terms, are we down 10% in terms of volumes and yields? Or is it more? Or is it less? Just to provide an indication.
Don't think it will be suitable if I give you a percentage on that.
Also please have in mind that there's a big difference if you take it from market to market in the road. Like Christian said before, the U.K. market is really slow at the moment. So there's a big difference. So to give you a percentage, there will be quite a big gap between some of the countries.
And we're also hearing south of Europe should be pretty soft. So that's -- it will be very difficult to give you a flavor on the different markets.
Okay. Then a question on your cost. What have you done in terms of cutting costs or if you have done anything but given the uncertain macro environment?
I think that our different path has already done what they see in the market, and that means some have made a little bit of cost cutting and some have stopped hiring people and also replacing people. So yes, we are very focused, and all of the group is very focused of being cautious on the cost side. So if -- and then if we have to do more, then we will have to do -- then we will do more.
Thank you for your question. We don't have any other question at the moment.
All right. Then we can conclude. Thank you for listening in, and see you when we are publishing our full year. Thank you.