Ladies and gentlemen, thank you for standing by, and welcome to NTG Q1 2022 conference call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question, you will need to press star and one on your telephone. I would now like to hand the conference over to 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 number two. Kindly ask you to read the important notice in this slide, and then let's flip to the next page. Here you see 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 number four. 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 two 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 number five. These are the main highlights for the first quarter of 2022. Momentum from 2021 continued into the first quarter of 2022 as activity remained high and capacity shortage continued 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 a management buyout completed in April this year. Despite the demanding market dynamics, market conditions continued 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 2022.
At the end of March, we announced acquisition of the U.S.-based air 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 and ocean division. We expect annual synergies in the range of $2.5 million-$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 2022, the positive development in NTG's existing business in Q1 2022 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 2022, we now expect revenue in the range of DKK 9.7 billion-DKK 10.2 billion and adjusted EBIT of DKK 700 million-DKK 750 million. With those words, I'll now hand you 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 2021 continuing to the first quarter of 2022. On page six, you see the main financial highlights for the group. Before we dive into the numbers, please note that we changed the classification of channel-related costs, effective as of 1st of January 2022. Channel-related costs previously included in other channel expenses and staff costs have now been included in direct costs in order to maintain the financial transparency in the wake of our increasing channel activities, most notably due to the acquisition of NTG Group in 2021. As such, please also note that the amendment only affect the Road & Logistics division and that figures for the comparison periods have been restated accordingly throughout the presentation and note one in the Q1 report.
As you see from slide six, net revenue for the first quarter of 2022 totaled 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 2021.
The gross margin decrease was mainly relating to the continuing pressure on input factor prices due to the capacity shortages that we continued to experience in Q1 2022. Adjusted EBIT increased 57% to DKK 160 million in Q1, corresponding to an operating margin of 7.3% versus 6.6% in Q1 2022. The development was driven by increased efficiency and scalability in both divisions. Then if we move to page seven, 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 increasing passthrough 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 2021. 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 offsets the gross margin decline. If we go to page eight, you see the financial review of the Road & Logistics division.
The division generated in Q1 a net revenue of DKK 1.7 billion, which was 4.2% 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 in 2021 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 20.3% in Q1 2021. The margin decrease was related to increasing input prices caused by driver and truck shortages and elevated energy prices, although partly offset by the NTG acquisition and surcharges introduced in the second half of 2021.
Adjusted EBIT increased 53% to DKK 124 million in Q1, corresponding to an operating margin of 7.4% versus 6.9% in Q1 2021, driven by the conversion ratio improvement, as I mentioned before. If we flip to page nine, we see the financial review of the 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 a currency translation effect of 2%. The organic growth was mainly driven by elevated freight rates that continued to prevail 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 2021.
The development was, as I mentioned earlier, mainly a consequence of elevated freight rates that resulted in increasing passthrough revenue. Adjusted EBIT increased 83% to DKK 36 million, corresponding to an operating margin of 7.1% versus 5.5% in Q1 2021. The margin increase was driven by a positive conversion ratio development of 12.7 percentage points, which more than offset the effects of the gross margin decline on the operating margin. If we flip to page 10, you see an overview of other key figures. On the left, you see that the net working capital increased slightly to -DKK 161 million as of end of Q1.
The adjusted free cash flow totaled DKK 74 million in the first quarter of the year compared to DKK 4 million in the same period last year, mainly driven by improved operating performance and the development in the net working capital. Finally, to the right, you see the net interest-bearing debt, excluding IFRS 16, which totaled DKK 37 million in net cash by the end of Q1 2022. If we move to page 11, you see the full-year outlook for 2022 that was updated on the 6th of May and based on the expected financial impact of the acquisition of AGL for the remainder of 2022.
The positive development in NTG's existing business in Q1 and an expectation of current market condition continuing into Q2 2022, we raised our full-year expectations for 2022 to a revenue of DKK 9.7 billion-DKK 10.2 billion and an adjusted EBIT of DKK 700 million-DKK 750 million. The updated full-year outlook is based on an expectation of the current market situation continuing in the second half of 2022, followed by a gradual normalization in the second half of the year. The outlook further assumes a stable macroeconomic environment and with no material adverse events affecting regional and global cargo volumes and trade patterns. On page 12, you see a brief update of the acquisition of AGL that we closed on the 6th of May.
Following closing of the transaction, AGL will be included in the financial statements of NTG as of May 2022, and we expect AGL to contribute with approximately DKK 1.4 billion in revenue and approximately DKK 85 million in adjusted EBIT for the remainder eight months of the year. The integration commenced on the day of the closing, and the first step is to complete the merger of the legal entities, leaving a single operational entity in the U.S. going forward. Following completion of the mergers, which we expect within the next two months, we will integrate all NTG U.S. activities onto CargoWise One, which will be the new TMS standard within the U.S., and we will utilize AGL's competencies 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 on the special items through the finalization of the integration of AGL in the first quarter of 2024, of which approximately DKK 7 million already was charged on the special items in Q1 2022. We expect annual synergies in the range of $2.5 million-$3.5 million upon completion of the integration, as previously communicated. Following completion of the integration of AGL, CargoWise One will be rolled out to the rest of the NTG Air & Ocean organization in line with our strategy of having a single TMS system within each of our two divisions. That was all what we had planned for today. Operator, please open the line for Q&A. Operator?
Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star one on your telephone. We have the first question from Michael Vitfell-Rasmussen from Danske Bank. Please go ahead.
Yes, thank you very much, operator. Well done, guys, on bringing in another super strong quarter. I've got a number of questions. I just don't know where to start up. Let's start up on the macro side. What kind of assumptions do you put into second half, if you can just run through the two divisions, please? 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 parts of 2023, how do you think your earnings would be impacted, assuming volume starts to tick down?
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. 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. Also if you could just update us on the driver situation now with what's going on in Eastern Europe. Thank you.
All right. Should I start with the first two then? On the macroeconomics assumption for 2022, 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. We are doing everything we can to service our customers because we are lacking the capacity. That is what we are seeing in the current environment. 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.
We are a little soft on the guidance for the U.S., and then we are seeing that a little later in Europe. We expect something in the current level for Q2, and then a little softer in Q3 and maybe a little softer also, and even softer in Q4. That is the assumptions we have put in. For 2023-
Sorry, Christian. Christian, a bit softer in Q3 and even softer in Q4. What are those assumptions? Are they that organic growth will turn negative? What's your assumption on yields for Air & Ocean? I guess this is mainly relating to?
It's also related to the road, and it's still our biggest division. I'm not sitting and give you any figures, but we will definitely. I will say that it is softer and putting in a precise assumption and putting in our reaction that would be some details that I can't share with you. It is seen as a little soft, and we will also see that we are affected from that. I'm not able to give you any more flavor on that one.
If we look at the 2023, then of course, in particular, we will expect to see the Air & Ocean being 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 gradual over the 2023. It will not be something very coming in very hard on that. Please also bear in mind that we are using a lot of time by our freight forwarders to find capacity and to utilize that.
It might be that the GP per tour or per hundred 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. There will be an effect, but it is impossible for us to tell you what it will be. We will see what will happen, and then we will react as we always do. We are very agile and will try to optimize based on the situation. But we can't tell you what will happen. That would be unrealistic for us.
Okay. Thank you, Christian. Yeah, I mean, if you start up the year with DKK 160 million in EBIT before special items , and usually that's low season, it also does seem a little bit conservative as we move on also as Aries comes into the numbers. Thank you. Yeah, on the EU Mobility Package and Eastern Europe, please.
Yeah. Michael will 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%-20% of the capacity that is being taken out of the market when he needs to go home after these eight weeks. We're talking, depending again, if it's a Baltic driver driving in the Nordic region, it's maybe only 5%, it will be taken out. It's the time going back and forth to Baltics.
If it's a Bulgarian driver driving in the Nordics, it can be up to maybe 20% of the capacity we'll be taking out of the market. If we look at the environmental perspective, I believe that for sure I can say that it has no cost positive effect on that also. Quite often they need to go home or back again empty or partly empty due to the fact that many of the countries where they are not importing that much cargo.
Mm-hmm.
We also have the Ukrainian drivers. There was a lot of Ukrainian drivers on our trucks, who needed to, due to the crisis of the war in Ukraine, to go back and go to war in Ukraine. That also had a huge impact on the capacity.
Thank you, Michael. I'll jump back in the queue. I have a few more if there's time later.
I'm not sure that there are anybody else on.
There are no further questions at the moment, sir.
Please give the word back to Michael.
Yeah. Can you hear me still?
Yes. Yes.
Okay. Perfect. Yeah. 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 entity, Air & Ocean business.
For April, they have both been good. That's also why we upgraded our expectations. As also that you see is that we have also made some ambitious growth for Aries compared to what they delivered in 2021. Yeah, we're quite happy. They seems to be trading up compared to what we saw on the when we acquired them. We're very happy about that.
Okay. I should understand that as at least as good as an entity.
Yes. Yes.
Yeah. Okay. You mentioned obviously the gross margin pressure, and I understand why it's happening. 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, but we can't see it ending at the moment. That's also why we have said that we expect that Q2 will be strong as Q1. And also with the April. We're not seeing it ending. Yeah, due to what we hear out in the market that it definitely should be ending. We have really issues getting the capacity. Also getting new trucks is really a challenge for our owners. You know, we have our program to assist them. And we also have really difficulties getting the trucks for them.
It's- we don't see the end and we see a lot of cargo out on the streets by our customers and out in the market. Yeah, we're not able to take the new customers in a really many new customers in because we're simply limited with the capacity at the moment.
Okay. Just kind of any difference in how you see the different verticals doing? For example, are you seeing an uptick in automotive or retail starting to suffer or anything you're seeing from the other verticals?
No. We still have the same challenges in our automotive. They had those problems mostly with the semiconductors, and that means some stops on the factories. That does just keep going and we haven't seen any downtrend in any particular. We saw a little softening. March was a little softer than March last year, but in April, I think it would be just in the level. Yeah, we don't see any big movements.
Okay. Just on the restated terminal costs, do you have any idea about how your peers handles this?
I don't think I would sit and share that. I think you can as easily read them as I do, and then maybe I can give you a hint if offline, but I'll not sit and comment on the how peers it.
Okay, great. Thank you. I think that was it for my side and yeah, see you guys online tomorrow also, I guess.
Yes. Great. You also have a things for tomorrow.
Oh, yeah. Correct. Yeah.
Great. Well, the same more in-line operator?
There are no further questions, sir.
Thank you very much today and, yeah, have a nice day.
That concludes the conference for today. Thank you for participating. You may all disconnect.