Fjordkraft Holding ASA

F:1ZK

Earnings Call Transcript 2019-Q2

[Morten A. W. Opdal, executive]

All right, everyone. Welcome to Fjordkraft's Second Quarter 2019 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. Once again, we are very satisfied with our performance, this time driven by strong price management and favorable market dynamics. Our CEO, Rolf Barmen; and our CFO, Birte Strander, will take you through the operational and financial highlights. We will be giving you a brief update on our outlook, and then we will wrap it up with a Q&A session. We are starting off with Mr. Rolf Barmen.

[Rolf Barmen, executive]

Thank you, Morten. Hello. Good morning, everyone. Very pleased to announce another solid quarter, of course, as Morten said. A strong growth year-on-year both when it comes to net revenue as well as EBIT. Adjusted net revenue, up 13% year-on-year; and EBIT adjusted, up 26%, both driven by strong management and favorable market dynamics. Also very pleased with the performance in the mobile segment. Customer base up more than 9,000 in the quarter, passing 81,000, further strengthening our position as the #1 service provider in Norway. As announced late in June, we made a successful acquisition of Vesterålskraft Strøm, one of our alliance partners, with around 8,600 electricity deliveries. Through the transactions, we get a new regional office with 18 employees in the northern part of Norway enabling us to grow our market share in a more or less unchartered territory for Fjordkraft. The transaction was completed at an enterprise value of NOK 27.3 million, split between the customer portfolio, NOK 24.8 million; and the workforce, NOK 2.5 million. We have estimated Vesterålskraft's underlying EBIT to be around NOK 3 million per year. And on top of that, we have identified around NOK 1.5 million cost synergies expected to be achieved during 2020. One-off integration costs is estimated to be around NOK 4 million.

Transaction was financed through available cash. And Vesterålskraft AS has purchased Fjordkraft shares with the settlement, now holding about 621,000 shares. We are very pleased with the fact that Vesterålskraft AS intends to stay exposed to the retail part of our value chain through ownership in Fjordkraft. Transaction was completed on the 1st of July and will be included in the company's third quarter figures.

In June, we launched our solar panel concept to the Consumer segment. Solcellespesialisten, the most experienced and largest player when it comes to installation in this segment, is our nationwide partner. We are happy with the uptake so far. Looking forward to see results of new installation going forward. We do not expect huge impact on our revenue streams from this initiative, but like home charging stations, this will support loyalty and strengthen our value of our service offerings.

The decrease in elspot prices from the first quarter continued to the second quarter, representing favorable market conditions to us. On the other hand, temperatures in the quarter has been warmer than normal in 2 out of 3 months. And April, a very important month when it comes to volume, of course, was especially warm with 3.3 degrees Celsius above normal. But even though the higher temperature than normal affect -- negatively affect average volume per delivery, the total volumes sold is still stable year-on-year. And the reason for this is obviously an increase in number of deliveries and shows the importance of growth when consumption is affected by external factors.

The number of Consumer customers shows a positive trend during the quarter. At the end of the second quarter, the Consumer segment comprised 532,000 electricity deliveries which represents a growth of 1,471 deliveries from first quarter 2019, all of which organic. The volumes sold in second quarter was in line with the second quarter last year.

When it comes to the Business segment, this segment comprised 76,000 electricity deliveries, representing a decrease of 560 deliveries. The decrease is due to a lost tender offer. However, the financial impact is limited. The decrease -- the volumes sold in the second quarter was 1% below of second quarter 2018, and the decrease is driven by, of course, milder weather but also by the before mentioned lost tender offer.

Numbers of mobile subscribers increased with 9,446 subscribers to 81,000 by the end of the quarter. And this is the highest quarterly growth since the first quarter of 2018 and is further strengthening the company's position as the largest mobile supplier without our own network.

Extended Alliance deliveries increased by 569 deliveries. But even more encouraging is the fact that we signed contracts comprising about 13,000 customers with expected start-up in the first quarter and second quarter 2020. From this point, we will also offer billing of broadband services to those of our partners that are in need for such services.

Okay. That's all from me so far. Birte will now dig into the financial details. The floor is yours, Birte.

[Birte Strander, executive]

Thank you, Rolf. For me as well, of course, it is a pleasure to be here today, bringing you, in my opinion at least, good news.

I'll go straight on. Starting with the net revenue performance being solid also this time. It's up 13% year-on-year, and all segments are positively contributing. As both Rolf and Morten mentioned, the net revenue is -- the growth in net revenue is driven by improvements in the margins on our variable products both in the Consumer and in the Business segment, us benefiting from strong price management and also a falling price curve in the second half of the quarter. Last 12 months' net revenue is up 18% year-on-year, and it's driven 70% by margin improvements.

EBIT performance is also strong. It's up 26% year-on-year. It's driven, of course, of the net revenue improvement. OpEx is up 7%, and still, it's primarily driven by sales and marketing costs. The EBIT margin is 36%. That is an increase of 4 percentage points year-on-year. As you can see from the last 12-month graph to the right on the slide, nominal EBIT performance is also increasing, 23% year-on-year. And it's a stable development in the EBIT margin the last 12 months at the level of 36 -- 37%, well in line with our guiding.

As you already had seen from my former pages, it is a solid growth in all segments both in net revenue and in EBIT. But a few comments on each of them still, starting with the Consumer segment. Adjusted net revenue in the Consumer segment is up 10% year-on-year, and the EBIT margin is up 1 percentage point. A strong performance with no growth in volume due to the normal -- the warmer-than-normal weather that we experienced this quarter. And just like for the group, the results in the Consumer segment are driven by improvements on the variable products.

The Business segment has an adjusted net revenue growth of 18%, and adjusted EBIT margin improvement is up 6 percentage points, reaching now 55% this quarter. The improvement is driven both by increase in value-added services and also margins on the variable products. And the Business segment now has a 6% product portfolio on variable products. Aiming to increase that going forward.

New Growth Initiative segment also has strong numbers, an increase of 86% in net revenue, both driven by the mobile service offering and also the Alliance segment, approximately 50-50 contribution. The improvements are driven by increase in number of mobile subscribers and also electricity deliveries in the Alliance segment and also us optimizing the product portfolio in both segments.

Some comments also on the balance sheet, starting with net working capital. It has been a significant drop in net working capital quarter-over-quarter, decreasing by NOK 471 million. It's driven by, of course, the volume of the consumption being lower this second quarter than it was in the first quarter, but also lower elspot prices. Year-on-year, it is also decreasing with NOK 195 million due to drop in elspot prices, but we always have some variations also in the invoicing pattern.

We ended the second quarter with a net cash position of NOK 292 million despite us paying you a dividend in May. It's, of course, driven by the significant drop in the net working capital. But as you can see probably from the dotted box in the slide, also this quarter, we have a strong underlying cash generation with a cash EBIT adjusted of NOK 95 million compared to the NOK 98 million in the EBIT adjusted from the P&L.

Now Rolf will make some comments on the outlook.

[Rolf Barmen, executive]

Thank you, Birte. You probably know our outlook very well. We don't change a lot on that. But following the strong results in the 2 first quarters of this year and also due to improvement in management capacity due to the reorganization we made at the first quarter, we have decided to increase our capital expenditure guiding for 2019 and 2020 to around NOK 50 million, up from NOK 40 million. And the increased funding will be invested in R&D project related to, inter alia, digital customer interaction, full-scale introduction of real-time monitoring of electricity consumption and smart home integration. So we are very glad that we made this decision, and we -- the results and the extended management capacity have, together, made us -- enabled us to accelerate our investment in these initiatives.

So that will complete our presentation. It is a very solid quarter. We are very satisfied with the performance from the entire Fjordkraft organization.

And Morten will now facilitate the Q&A session. So Morten, you take it from here.

[Morten A. W. Opdal, executive]

Yes. We're moving over to the Q&A session. So if there's any questions, feel free to ask them.

No question? Okay. That concludes the presentation, and thank you for your attention.