Good morning. This is the conference operator. Welcome, thank you for joining the NTG Nordic Transport Group, full year 2022 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Christian Jakobsen, Group CFO. Please go ahead, sir.
Yes, thank you. Welcome to our full year 2022 conference call. Thank you for listening in. If we go to page two, we kindly ask you to read the important notice provided on this slide. If we move to page three, my name is Christian Jakobsen. I'm the Group CFO of NTG Nordic Transport Group. Today, I will take you through the Q4 and full year result, financial results of 2022. If we move to page four, you see the agenda for this conference call, which includes highlights for the first quarter and full year 2022, a review of the financial performance of the group and the two divisions, a presentation of other key figures, and the outlook for 2023, as well as our midterm financial target.
By the end of the presentation, the line will be open for questions from the audience. If we move to page five, you see the main highlights for 2022. 2022 was yet another turbulent year for the global transportation market as well for NTG, and we are extremely proud that our skilled and dedicated employees managed to successfully navigate these structural changes to overcome challenges in collaboration with our customers. Elevated volatility and macroeconomic uncertainty characterized 2022, mainly caused by the war in Ukraine, port congestions, and COVID-inflicted lockdowns in China, which resulted in increased uncertainty and unpredictability, soaring energy prices, and disruptions of global supply chains. For the Road & Logistics division, the beginning of 2022 was impacted by the effects of the implementation of the EU Mobility Package, causing widespread capacity shortages, which were further exacerbated by the war in Ukraine.
In the 3rd quarter, a weakening market outlook and stagnating demand, however, led to reduced supply side pressure, although imbalances continued to persist. For the Air & Ocean division, the structural imbalances and uncertainties that characterized the second half of 2021 and the first half of 2022 were further accelerated by the outbreak of the war in Ukraine. The ramifications of increasing energy prices, slowing demand, and inventory destocking altogether led to freight rate declines, which accelerated in the second half of the year. Despite uncertainty and unpredictability, we continued the positive trajectory in 2022, which led to double-digit growth in operating profit, and we delivered on our outlook for 2022 as announced on the 6th of December last year. In 2022, we completed the acquisition of Aries Global Logistics, the largest acquisition since our inception in 2011.
The acquisition nearly doubled the volumes of our Air & Ocean division and significantly strengthened the division's activities globally. The integration is progressing according to plan, on track for finalization in the first half of 2024. With those words, I will proceed to the review of our financial results for 2022. On page six, you see the main financial highlights for the group. Net revenue for the full year 2022 showed some DKK 10.2 billion, representing an increase of 40% compared to 2021. Organic growth contributed 16%, driven by higher freight rates and activity, while acquisitions, mainly AGL, contributed with additional 26%. Currency effects had a negative impact of 1.8% in 2022.
Gross profit increased 37% to DKK 2 billion, corresponding to a gross margin of 19.7% versus 20.2% in 2021. The market normalization and easing input factor price pressure had a positive effect on gross margins towards the end of the year, partially offset by the effects of the acquisition of AGL. Adjusted EBIT increased 40% to DKK 758 million in 2022. Despite a lower gross margin, the hard work of NTG's dedicated employees, coupled with our scalable operational setup, ensured that we safeguard the operating margin of 7.4% in line with 2021. If we move to page seven, we see the summary of the key financial performance indicators on a quarterly basis.
As illustrated to the left, the gross margin increased in Q4 compared to Q3 as a result of the freight rate normalizations within the Air & Ocean division, driving higher gross margin and reduced input factor pressure within the Road & Logistics division. The acquisition of the AGL had a marginally adverse effect on gross margins in 2022. The quarter-on-quarter conversion ratio development in the Road & Logistics division was mainly driven by reduced activity, and the ratio was approximately in line with the same period last year. Whereas the Air & Ocean division experienced a decrease in conversion ratio in the second-Q4 driven by the weaker markets and the acquisition of AGL. The operating margin development in fourth quarter of 2022 was primarily a result of the negative development in the conversion ratio within the Air & Ocean division, as mentioned before.
If we move to page eight, you see the financial review for the Road & Logistics division. The division generated a net revenue of DKK 6.8 billion in 2022, 22% above the same period last year. The increase was related to those acquisitive growth contributing 10% to total growth and organic growth contributing 15% driven by the effects of volume and price momentum carried over from 2021. FX effects mainly related to Turkish lira, Swedish crowns, and Polish zlotys had a negative effect on growth of 3% during the year.
Gross profit increased 21% to DKK 1.4 billion in 2022, corresponding to a gross margin of 20.3% versus 20.6% in 2021. The development was mainly driven by increasing cost of procuring capacity compared to 2021, partially offset by freight rate adjustments implemented throughout the year. Adjusted EBIT increased 24% to DKK 531 million corresponding to an operating margin of 7.8% in line with 2021. The EBIT increase was mainly driven by higher activity, effects of acquisitions, and the resourcing of low-performing activities. If we flip to page nine, you see the financial review for the Air & Ocean division. The division generated a net revenue of DKK 3.4 billion in 2022, 97% above the same period last year.
The increase was mainly driven by acquisitive growth of 77% driven by the acquisition of AGL in May 2022, and organic growth of 18% mainly driven by elevated freight rates in the first half of the year. Gross profit increased 92% to DKK 636 million corresponding to a gross margin of 18.5% in 2022 compared to 18.9% in 2021. The development was a result of the acquisition of AGL coupled with increasing pass-through revenue from elevated freight rates, which drove gross margins lower compared to 2021. adjusted EBIT increased 103% to DKK 227 million corresponding to an operating margin of 6.6% versus 6.4% in 2021, primarily driven by the acquisition of AGL, increased activity, and operational efficiency.
If we flip to page 10, you see an overview of other key figures. On the left, the net working capital decreased to negative DKK 165 million by the end of 2022, mainly driven by the release of working capital within the Air & Ocean division, reduced activity compared to previous quarters, and decrease in sales outstanding. Adjusted free cash flow total DKK 263 million in the fourth quarter of the year and DKK 714 million for the full year compared to DKK 288 million in 2021. The development was mainly driven by increasing operating profit and decreasing net working capital commitments. Turning to the right, you see the net interest-bearing debt excluding IFRS 16, which totaled DKK 201 million by the end of 2022 compared to 2021.
The development was mainly related to the acquisition of AGL completed in May 2022. If we move to slide 11, you see the full year outlook for 2023, where we expect an adjusted EBIT in the range of DKK 620 million-700 million. The outlook for 2023 assumes a weakening macroeconomic environment with continued destocking and muted consumer confidence in the first half of 2023, followed by gradual rebound in activity during the second half of the year.
The Road & Logistics division is assumed to experience a low single digits decline in volumes in 2023 compared to 2022 based on an expected moderate adverse development in transport activity and changing market dynamics driving increasing repositioning cost on certain corridors, partially offset by reduced capacity shortages and normalized spot rates. The Air & Ocean division is assumed to experience a single digit decline in volumes in 2023 compared to 2022, with freight rates and volumes continuing to decline. The assumption is based on expectation of reduced transport activity resulting from continued inventory depletion and soft consumer confidence. The outlook for 2023 includes the full year effects of the acquisition of AGL, Kontinent Transport, and Solida Logistik, which we closed in 2022, and it does not include potential impact from new acquisitions during the year, if any.
Currency exchange rates are assumed at current level, and because uncertainty remains high, the assumptions underlying the outlook may change. For 2023, no guidance will be provided on net revenue purely by a combination of freight rate volatility and limited visibility, making predictability and of pass-through with revenue effects difficult. Whether or not revenue guidance will be resumed will be assessed in the wake of any market stabilization. In addition to the full year outlook in 2023, we maintain our mid-term financial target provided in 2021 annual report that you see on page 12. No later than by the end of 2027, we strive to achieve DKK 1 billion in adjusted EBIT. The target is based on a combination of organic growth and M&A financed by our cash flow and credit facilities.
No assumption of capital raised is included, although we will evaluate the source of financing for larger acquisitions. Finally, the mid-term target assumes no additional material adverse events affecting regional and global cargo volumes and trade patterns, and Maersk continuing to develop the business, establishing starward, and execute its M&A agenda. That was all what we have planned for today. Moderator, please open the line for Q&A.
This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star 1 on their telephone. To remove yourself from the question queue, please press star 2. Please pick up the receiver when asking questions. Anyone who has a question may press star 1 at this time. We will pause for a moment as callers join the queue. The first question is from Michael Rasmussen of Danske Bank. Please go ahead.
Yes. Thank you very much. 3 questions from me. First of all, on the AGL acquisition, you included some earn-outs on both 2022 and 2023 criteria. Can you maybe talk a little bit about those 2023 criteria? If you expect the full earn-outs to be paid for what you have in your guidance? That's my first question. My second question is if you could give us a little bit more in-depth update on the integration process, both on AGL, where I recall you had some issues in the IT integration side from Finland, I think it originated.
Also secondly, on the CargoWise rollout in relation to AGL, if you could give us some examples on the benefits or anything that you are seeing there. In combination with that, if you could also add comments on 2023 special items. Finally, on just the roads business, are you guys still pushing through price increases and/or are you seeing any impacts from overcapacity in the market right now? Thank you very much.
Hi, Michael. Thanks for the questions. You're totally right. We have the earn-out for AGL. It was based on the 2021 performance of AGL. Of course, we have seen a declining market, in particular in the U.S. You're also seeing it, the destocking cycle really taking effect in the U.S. We still believe that AGL will perform according to the earn-out. Therefore, we haven't changed the earn-out in our balance sheet. Of course, it will be 2022 was a fantastic year. They of course easily hit the earn-out there. It will be more challenging in 2023.
On the integration of AGL, yeah, you're fully right. We were delayed with the finish implementation. We went live on the first of December, and I think on the 15th of January, we took them out of the integration support. A successful implementation when we first went there. We have also made the data flow test for the Swedish operation. I hope it will go live first of April, but it will go live in Sweden no later than first of May. We have tested our workflow that it now suits the AGL setup. That's gonna progress.
I'm also happy to say that we went live here first of March with CargoWise in Denmark. We didn't experience anything. We, you of course always see some challenges when you go live, but we didn't see any major challenges or any unexpected challenges. We are live. We're working on CargoWise with our setup. It is of course a pilot, so we will also have some lessons learned before we roll it out to the next one and maybe adjust something a little bit in our setup. It seems like we have done a very good preparation, and we are happy to be live on the, and we'll then proceed with the rollout to the next countries.
On the price increases, we are not pushing any price increases through now, and we have also seen that the market is weakening. I think that prices are pretty stable overall. There are some ones that are at a slight price decrease and some one a price increase. What we see today is that the spot market is really weak on the roads side.
Thank you, Christian. Maybe also a comment on the special license, in 2023 from, integrations.
Sorry. I only noted the three, but, yeah, I don't expect it would be higher than a single-digit number.
Okay, great. Thank you very much.
The next question is from Dan Togo of Carnegie. Please go ahead.
Yes. Hi, thanks for taking my questions. I also have a couple of questions, but let's just take them one by one. In terms of yields, both in road and also in air in particular maybe, how do you see the development during the year? Will they come in strong and then, you know, softly normalize? When do you expect to see a normalization in yields? That would be the first question.
I don't think that would come in strong on the yields. I think we will see that actually the market is so soft that you also see a push on the yields at the moment and don't expect to see a big pick up there.
Okay. All right. More... You don't... By...
No.
Does that include, you know, sequential softening, further or maybe a more stable development?
I think we will look into a more stable environment.
Okay. In your guidance, you imply a pickup in second half. I expect that to be on volumes. When you say pickup, is that sequentially so that volumes in second half is higher than first half, or is it a pickup year-over-year? Just understand the math here.
It's within 2023, we expect that the first half will be softer than the second half.
Okay. Then on the market, a bit relating to what Michael asked, maybe more broadly, are you seeing any bottlenecks at the moment throughout the system, or is everything more or less back to normal, so capacity is easy to get your hands on?
We don't see any serious bottlenecks, I would say. We always run into to smaller things, but I haven't heard of any serious bottlenecks.
Maybe some words on the market also because a big deal might go down in here in 2023 and actually have impact maybe in 2024 on Schenker. We know that both DHL and DSV is positioned at least. But if such a deal were to happen, how do you expect that to impact you? Are you seeing any effects in the marketplace right now that some of these bigger forwarders are trying to position themselves in respect of this possible transaction?
First of all, I will underline that we are not a candidate to take over Schenker.
Yes, I get that.
Of course, there will always be some movements in the market if you see such a big deal, and we will of course be ready to pick up if anything falls our way. That I think we can say about that.
If anything, it's positive for you say?
I don't know. It's yeah, I at least not seeing anything negative, but I don't have a real opinion on that.
Okay. Fair enough. Thanks.
You're welcome. Thank you.
The next question is from Lars Heindorff of Nordea. Please go ahead.
Yes, morning. Thank you for taking my questions also, a few from my part. The first one is regarding the share buyback. The DKK 75 million that you announced now, which will run until May. Now, given the guidance that you have made on EBIT, and even assuming a slightly lower cash conversion that you have had in 2023 compared to 2022, you should be able to still improve your capital structure and hence probably end up 2023 with a lower net interest-bearing debt to EBITDA compared to what you were ending at in 2022. In that light, the DKK 75 million, I mean, can you do more than that? How much more do you believe you can do without stretching the balance sheet too much? That's the first one.
We are very happy about that we are starting the share buyback. Yeah, if no, if no big deals comes up, then we will probably also start another share buyback. That's at least our history. Yeah, we have a very healthy capital structure. Yeah, as you also saw, we converted a lot of the results to cash last year. We're very happy about our position and are ready to other utilize that.
Yeah. Then the follow-up on that is, I mean, are you planning to cancel those shares or what is the plan?
We haven't any plans, but we also, as you also saw with Ebrex, we were very happy to use it as a currency because then the former owners of Ebrex, they were then into key partners and we liked that they are partners. We don't have any plans, but we would be very happy to do an acquisition like Ebrex, where part of the purchase price was paid with our own shares. We would also like that opportunity.
Okay. The other question is regarding the markets, maybe a bit more. On Air & Ocean, gross margin has been depressed because of the I mean, historically high interest, so not interest rates, high rates, is coming off now. I don't know if you can help us in terms of guidance and give any indication what kind of impact on your gross margin will it have when the ocean and air rates expect to normalize and yield normalize during the course of 2023?
That would be very difficult. We also don't know what the future rates will be, Lars, so it's just, I would rather not give a guidance on that one.
Okay. All right. Thank you.
Thank you.
The next question is from Ulrik Bak of SEB. Please go ahead.
Yes. Hello, Christian. Thank you for taking my questions, also a couple from my side. Firstly, on your road logistics conversion ratio and margins, I think you've done an extraordinary job at keeping EBIT margin flat quarter-over-quarter, and only slightly decreasing your conversion ratio, at least if you compare it to your global peers. How do you explain this performance would be the first one? Then in that connection also, would these margin levels, conversion ratios be a sustainable target for 2023 as well?
As you know, we have a brilliant staff, and we have a lean back office and a good IT system. That we'll also still have in 2023. Definitely we will strive to keep it that way. I don't know. As to be honest, and that you always also know, our focus is the EBIT and not the margins. We of course understand what drives the EBIT and use that for our internal business.
We also see some times that we have a development between some countries where you have a natural higher EBIT % than you have in other countries. Our focus will be on the EBIT and not on the margins. I don't think I can elaborate more on that.
Sure. A question on the Air & Ocean, like similar question, because here you saw a significant drop in both, yeah, margins and conversion ratio. Just to be sure that there are no one-off, like, costs in the Q4, or We should expect some sort of pickup because you've had a relative higher cost in Q4, which you won't have going forward?
No.
That's very clear. A question on your net working capital. We saw a significant improvement during Q4. Shall we expect to see a further improvement during 2023, or has the majority of this normalization of net working capital already happened during the quarter?
I think you're a little greedy, aren't you? I think we're very happy that we are below zero on our net working capital. I don't think there will be any. Well, I don't think we will be able to push it further.
Right. My final question.
Sorry.
Yes. two, yeah.
Net working capital is always at the bottom at the end of the year. This is always our best, our lowest, net working capital.
Sure. That makes sense. Final question. On, on your share buyback program, you mentioned that, yeah, last year, you initiated a share buyback, or you didn't initiate a share buyback program right after the Q4 report. A couple of weeks later, you acquired AGL. In, in that sense, should we, should we think of the current share buyback program as there will be no acquisitions just around the corner?
Please, you can... I can't comment on the acquisitions and-.
Sure.
on what's in the pipeline.
Right. Okay. That's all for me. Thank you.
Thank you.
The next question is a follow-up from Lars Heindorff of Nordea. Please go ahead.
Thank you again for getting me in the queue. Two questions regarding, well, the first one regarding cost development. We're having sort of fairly intense discussions with some of your competitors and peers regarding the cost development when volumes decline. This is particularly the case, I think, in air and ocean, maybe mostly pronounced. I wonder if you can give an update. If we do not see a volume pickup as you expect going to the second half, do you have contingency plans? Have you already started, or are you doing something on the cost side already now? That's the first one.
We definitely have contingency plans in the drawer, but we haven't picked them up from group side. We expect our managers to adjust in what is necessary. At the moment, we probably are not, if somebody leaves us, it's not sure that they will re-replace the position as we might have done before. We are not going out. We have the best employees in the industry, and we will not go out and do some just in the sake. If the market then picks up, then we have to find that. We're very happy about the Q1, but there has been already small adjustments and some...
Also people leaving us without being replaced. That's what I can say.
Okay. A follow-up on the M&A. I know you can't say too much about these things, but maybe, if I ask in a little different way. I mean, do you have any preferences? You earlier communicated that in terms of an Air & Ocean acquisitions, you probably need to do and conclude the integration of AGL first before you can proceed with any other stuff there. Preferences on terms of, maybe geographies and also what kind of what division, where you have sort of most likely to do something and where you have the most appetite?
I don't think that we have said like you just said. I think we have said that you will not see a trans-formal acquisition within the Air & Ocean division in the size of AGL. We can definitely do some smaller acquisitions within the Air & Ocean division. I'm not defining how big they can be. We are definitely ready in both divisions, but I don't think you will see an AGL just in the coming months. Yeah, we are very interested in acquisitions. We have also seen that the sellers are now climbing a little bit down from the treetops they have been sitting in.
Maybe we will now be able to meet each other a little bit easier in the near future.
Okay. All right. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Mr. Jakobsen, there are no more questions registered at this time.
Okay. Thank you very much, and thank you for listening in. Looking forward to see you out there. Thank you.
Ladies and gentlemen, thank you for joining the conference.