Fjordkraft Holding ASA

F:1ZK

Earnings Call Transcript 2019-Q1

[Morten A. W. Opdal, executive]

All right. Welcome, everyone, to Fjordkraft's First Quarter Results Presentation. My name is Morten Opdal, Head of Controlling and Investor Relations at Fjordkraft, and I have the pleasure of guiding you through today's presentation.

First quarter is always an important quarter for us at Fjordkraft because of the high volumes sold, and we are especially happy with our strong performance this quarter.

Our CEO, Rolf Barmen; and our CFO, Birte Strander, will take you through the details. And we're starting off with Mr. Rolf Barmen.

[Rolf Barmen, executive]

Thank you, Morten. First quarter, always an important one, as Morten said. Obviously, we are very satisfied with the results this quarter. Net revenue and EBIT performance are better than expected. Strong price management and favorable market dynamics are the main reasons for our improved results.

That being said, the temperature has been significant higher than first quarter last year. And this is, of course, affecting volume per delivery negatively. However, our growth in number of deliveries secures 3% year-on-year volume growth. We achieved a positive organic growth in all segments quarter-on-quarter despite the introduction of the new data, Elhub, which is aggregating all metering from all the grid companies in Norway.

All the retailers in the sector have suffered from some kind of trouble, both when it comes to rating and billing as well as new customers' joining phase. We believe the problems will last through third quarter, but we do what we can to mitigate the consequences. And so far, we have actually done very well.

The mobile segment is developing according to plan, and we are now the largest mobile service provider in Norway. We'll come back to revision of targets at the end -- towards the end of the presentation.

We launched our sustainability report for 2018 yesterday. And as the CEO of the company, I'm very proud of the different initiatives we have made during the last 12 months. And I am, of course, especially proud of being the first Norwegian company to receive the United Nations Climate Action Award for Climate Initiative Klimanjaro. You may all read more about that initiative in the sustainability report.

As I said, the market dynamics have been beneficial this quarter, particularly when it comes to the development of the Elspot prices. But also, as I said, warmer weather than normal 3 out of 3 months, obviously, affect average consumption negatively. The price level in general is still quite high, and we expect market churn to follow the same path as in the fourth quarter last year, which is upwards. From our point of view, higher churn rates makes it difficult -- more difficult for smaller companies to be profitable. And those higher churn rates are beneficial to our consolidation agenda.

Growth in the Consumer segment was and still is affected by the Elhub introduction. So we are very satisfied. We're showing organic growth quarter-on-quarter. And as we have said many times, warmer weather highly affect volume. But growth year-on-year in deliveries almost offset average volume decrease. And this underpins the importance of having a very good growth strategy actually.

When it comes to the business segment, this segment experiences the same development as the Consumer segment, but growth in deliveries more than offsets the average volume decrease in this segment.

New Growth Initiatives. The organic growth in mobile subscription continues, almost 6,000 during the quarter. And this puts Fjordkraft in a position as the largest mobile service provider in Norway. Alliance segment suffered from warmer weather as Consumer business did. On the positive side, we can announce that we have entered an agreement with Orkland Energi to be our seventh member of the Extended Alliance concept with 6,000 deliveries, expected start-up the 1st of September. And we believe there is more to come within this year.

Now Birte will take you through the financial review. Birte, the floor is yours.

[Birte Strander, executive]

Yes. I'll start with adjusted net revenue numbers, as always, being strong this quarter, going from NOK 314 million to NOK 378 million. It's a growth of 20% year-on-year. And as you probably can see from the chart, all segments are contributing positively.

Favorable Elspot price development and strong price management is positively impacting our product margins in both Consumer and Business segment. So margins are the main driver this quarter for the net revenue performance. Year-on-year growth in number of deliveries is 14%, but we have only 3% growth in volume due to 10% decrease in average consumption per delivery in the Consumer and Business segment in total. And that's due to the milder weather that also Rolf talked about.

If you look to the LTM figures -- if you look at the LTM figures, we had a net revenue improvement of 19%, 60/40 split between improved margins and volume growth year-on-year. And it is the Consumer segment that drives our net revenue performance.

Moving to EBIT performance, strong 24% up to NOK 182 million. And also here, all the segments are contributing positively. And it is, of course, the performance in the net revenues that are the main driver for this. But OpEx is increasing by 17% year-on-year driven by sales and marketing variable costs and administrative costs. Our synergy realization from the M&A transactions from last year are so far on track. We have an all-time high adjusted EBIT this last 12 months also, up 18% to NOK 425 million. Here it is the Business segment that are the main driver, EBIT margin of 37%, up 1 percentage point from last quarter.

Moving to the segments slide. First of all, there is a solid performance across all our segments.

Looking first into some details in the Consumer segment. Adjusted net revenue is up 19% year-on-year driven by improved product margins from our variable products. And it's the product margin also drives our EBIT performance. And adjusted EBIT is up NOK 23 million. EBIT adjusted margin is 47%. That's up 1 percentage point year-on-year.

If we look to the Business segment, adjusted net revenue is also there up 19% year-on-year, reaching NOK 97 million. Product margin accounting for 70% of the adjusted net revenue improvement, and we have been able to increase the number of variable contracts in the Business segment, now amounting to 6% of the product mix here. EBIT adjusted margin of 60% is a contraction of 1 percentage point year-on-year driven by higher sales and marketing cost in this segment.

Looking to the New Growth Initiatives segment. It has a net revenue of NOK 14 million. That's up NOK 56 million (sic) [ 56% ] year-on-year. EBIT adjusted, still negative, now NOK 2.9 million, but significantly better than first quarter '18. Mobile service is the main driver. We have continuous focus on -- continued focus on product optimization and are succeeding with that, giving positive effect on our numbers. Alliance concept is also contributing positively. Around 30% of the improvement of adjusted net revenue is from the Alliance segment and 20% in adjusted EBIT.

Moving to some comments on the balance sheet. We have seasonally higher -- the seasonally higher volume is driving net working capital up quarter-over-quarter. It's increasing by NOK 283 million from fourth quarter, and that's quite normal due to seasonal higher volume. We have high -- 11% higher volume now in this first quarter due to fourth quarter and -- but the prices has been quite stable in both those quarters. If you look year-on-year on this, net working capital has decreased by around NOK 300 million despite prices increasing and also volume increasing. But -- however, there was -- the first quarter 2018 ended in the Easter public holidays, and there were some red days there.

Moving to my last slide. Our cash position has developed from a cash position at the start of this quarter to a marginal now net debt position of NOK 23 million at the end of this quarter. It's driven by the seasonal increase in net working capital. But as you hopefully see in the middle in this slide, underlying cash generation is still good with a cash EBIT adjusted of NOK 175 million.

Now Rolf will make some short comments on our outlook before we have a Q&A.

[Rolf Barmen, executive]

Thank you. It is a bit early to change our targets after the first outlook. But we -- still, we feel that we have to do that, particularly when it comes to net revenue growth in the Consumer segment. We expect somewhat higher level than we targeted back in February for 2019. This is obviously due to a strong -- very strong first quarter. We also feel that this is necessary now to be more accurate when it comes to what is actually -- what do we actually mean when we say that we will have an EBIT loss in 2019 lower than 2018. And we are now more accurate than we were before, stating that we're expecting 25% improvement from our nominal EBIT in 2018. So this is just more accurate form of expressing our targets within these segments.

Okay. Now Morten will guide you through Q&A session.

[Morten A. W. Opdal, executive]

Yes. We are moving over to the Q&A session. We have a microphone over here. So please use that if you have any questions. And yes, Petter?

[Petter Nystrøm, analyst]

Okay. Perfect. Petter, ABG. First on the top line growth, that was 20%. Should we view this as the competition intensity in the market has eased somewhat versus the previous quarter?

[Rolf Barmen, executive]

Still, we feel that there is some delay when it comes to the competition intensity. We -- always, we believe that there are -- but we see that there is an intensified competition. But it is not accelerating in a way that we believe. So -- but we still believe that it will be even more intensified during the period to come. But it is extremely hard to say actually. What we can see -- when Birte tells you that our improvement is closely related to our margin improvement, I also will underpin that our growth from last year is extremely important for us because if we haven't had this growth, the figures would look worse actually. So it is very important for us to offset the milder weather and many other aspects with growth.

[Petter Nystrøm, analyst]

Perfect. Then on the Business segment, there you have a guiding that the margin should be up this quarter. It is down 1 percentage points year-over-year. Should we be worried about that or...

[Birte Strander, executive]

No. No, it's -- No. No, you shouldn't. It's on track. The Business segment is on track.

[Morten A. W. Opdal, executive]

Lars Ove [Foreign Language].

[Lars Skorpen, analyst]

Lars Ove Skorpen. Could you tell us about your solar that we see now every day on the news? What's your business model there?

[Rolf Barmen, executive]

We have close relationship with Solcellespesialisten, who is very experienced supplier of [Foreign Language], solar panels. So this is completely the same business model as the other players in the market. So we really look forward to having this launch now in the Fjordkraft brand. We have had a pilot then, TrøndelagKraft, the last 10 months actually, so we know how this works. And we are now looking forward to really put our print on the solar panel market in Norway.

[Morten A. W. Opdal, executive]

Other questions? Yes.

[Pernille Skarstein Christensen, analyst]

Pernille Christensen, C Worldwide. I'm just wondering about your net working capital. Can we expect it to follow the seasonal patterns that we have seen the earlier years?

[Birte Strander, executive]

Yes. Probably yes. But we still -- we are continuously working to make it better, and maybe we'll get some positive effects now with the Elhub introduction, being able to do the invoicing process earlier making a positive impact on the net working capital.

[Rolf Barmen, executive]

But this will take some time due to the trouble Elhub has. But we certainly believe that Elhub will be a massive improvement on all our processes. But it just takes a little bit more time than we hoped when it was launched.

[Morten A. W. Opdal, executive]

Okay. Well, if there are no further questions, then we would like to wish you all a good day, and thank you for coming.

[Rolf Barmen, executive]

Thank you.