Fjordkraft Holding ASA

F:1ZK

Earnings Call Transcript 2019-Q3

[Morten A. W. Opdal, executive]

All right, welcome, everyone, to Fjordkraft's Third 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.

We are very happy with our continued growth in both net revenue and EBIT this quarter and also our growth in the mobile segment. Rolf Barmen and Birte Strander will take you through the details, and then we'll wrap things up with a Q&A session.

Starting off with Mr. Rolf Barmen.

[Rolf Barmen, executive]

Thank you, Morten. Good morning, everyone. Very pleased to be here and reporting your results.

Of course, the past quarter is always a difficult one, low activity, summer vacation, not that much happens. So with that in mind, we are very pleased to report a really good performance this year.

We continue to improve and expand both our net revenue and our adjusted EBIT year-on-year. Net revenue is -- adjusted net revenue is up 14% and adjusted EBIT is up 8%. Both volume growth and margin improvements have positive impact on the results, and we have had a particularly strong growth in the mobile segment. The intake this quarter is actually the best we have had since we launched the service back in 2017. We are also very pleased with the fact that we are ranked #1 on EPSI's customer satisfaction service in the Norwegian mobile consumer market this fall, very good achievement from our mobile service department.

Building upon the Klimanjaro initiative that was awarded the United Nation's Climate Action Award in December last year, we are now announcing what we call the KlimaHub. This is a nationwide database providing information about firms, climate actions and focus fully functional from the first quarter in 2020. This will include an easy-to-use solution for businesses to calculate and register their CO2 emissions. And we, at Fjordkraft, of course, we're counseling the participants here and we also will provide them with CO2 quotas, if needed.

We truly believe that we can use our purchasing power, and we want to stimulate by this action other companies as well to make their supply chain climate-neutral. And we strongly believe that this tool will help other companies to request climate neutrality from their suppliers going forward.

A little bit about the market development. The elspot prices increased during July, but have been quite stable thereafter throughout the quarter. Although the temperature was higher in 3 out of 3 months relative to a normal over time frame of 30 years, we have realized that it actually were colder 2 out of 3 months compared to last year. And this obviously will have an impact -- a positive impact on our volume growth. The growth of 22,000 deliveries year-on-year in the Consumer and the Business segment also contributes positive when it comes to volume growth.

Going to the Consumer segment. It shows a positive trend, driven both by organic growth and acquisitions. The underlying organic growth is, of course, very encouraging, driven by particularly good activity in the summer months. We have a really high activity during the summer months, and we really got paid off. The Consumer segment comprised now 542,000 electricity deliveries at the end of the quarter, which represents a total growth of almost 10,000 deliveries from the second quarter.

The volumes sold in the third quarter was up 9% from last year, and the increase in average volume per delivery of 6% is the main driver of the increase.

As mentioned last quarter, we increased our CapEx guiding, inter alia, to improve the digital customer experience. And during this quarter, we launched an updated app with improved user interface where our customers will have a fairly good overview of their consumptions, invoices, monthly benefits in our beneficial program, among other things. I'm very pleased with the launch of this app.

Going to the Business segment. At the end of the quarter, the segment comprised 78,000 deliveries, up almost 2,000 deliveries from second quarter. The volume, however, had a decrease of 4%, and this is mainly due to loss of tender in the less profitable large enterprise segment.

At the end of the quarter, the number of mobile subscriptions was 92,000. And as stated, this is -- the growth in this quarter was really, really good, the best we have had since we launched the mobile services back in 2017. There are multiple drivers for the growth, some one-offs and some more sustainable drivers.

Alliance volume is down 5% year-on-year as Vesterålskraft now is included in the Consumer and Business segment following the recent transactions.

One new Extended Alliance partner, Orkland, with 6,200 deliveries was implemented this quarter. We also have signed 2 new Extended Alliance partners, Austevoll, with 5,500 -- 4,500 deliveries; and Fosen with 5,500 deliveries. We also have signed up Svorka for 8,000 broadband deliveries, and expected start-up of all these deliveries is the first part of 2020.

Before I leave the floor to Birte now, I want to -- just want to mention that this is her last appearance for a while. She happens to be pregnant, so she will leave for maternity as from the 1st of February. And then it's a pleasure to also introduce [ Uliwan Longnas ] who will be her acting CFO in her absence. He is our Head of Accounting, and he's been with us in the company for a long, long time now. So he will make a really good effort as acting CFO in the period when Birte is back home.

Okay, Birte, the floor is yours.

[Birte Strander, executive]

Thank you, Rolf. Hope you are eager now on some more details on the financials, starting with the net revenue like always. We have an improvement across all segments. In this quarter as well, the net revenue is up 14% year-on-year. The growth is driven both by margin improvements and also volume growth, and they differ a bit in the 3 segments. So I'll come back to more details on the segment slide.

On LTM basis, the development in net revenue is 17% year-on-year, and the nominal level of NOK 1.226 million is a new all-time high level. The growth on LTM basis is driven 75% by improved margins.

The growth in EBIT continues, and it's up 8% this quarter. Both Consumer and Business segments are contributing to the year-on-year growth. The net revenue growth, of course, is the main driver for the growth in EBIT. OpEx is up year-on-year, and it's driven by sales and marketing costs, customer service costs and also administrative costs.

Adjusted EBIT margin decreases 2 percentage points year-on-year. However, on LTM basis, it's up 1 percentage point and -- year-on-year. And it's also stable quarter-over-quarter, and it's been stable now the 3 last quarters.

Moving then to the segments, starting with the Consumer segment. Adjusted net revenue is increasing by 15%. It's driven 60% by volume growth this quarter. And as Rolf already mentioned, the volume in the Consumer segment is up 9%, and it's both driven by increase in average consumption but also our growth in number of deliveries.

The nominal EBIT adjusted level is increasing NOK 3 million in nominal kroners, but the EBIT margin is down 2 percentage points. It's driven by our increasing OpEx level.

The Business segment is up 9% year-on-year in net revenue driven by margin improvement, and it's mainly value-added services that drives the revenue in the Business segment. Nominal EBIT level is up NOK 2 million, and it's giving us a marginal contraction on -- less than 1 percentage point in the EBIT margin. And it's driven by increasing sales and marketing costs, but also, of course, the decrease in average volume per delivery is affecting the EBIT level year-on-year.

Looking into New Growth Initiatives segment. It has an increase of 35% in net revenue year-on-year, but -- and it's driven both by Mobile and Alliance segment, 60/40. But the segment is affected this quarter by the loss -- by loss of revenue in both EBIT from the Vesterålskraft transaction. But our full year expectation is in line with the guiding for 2019 still.

Also some comments on the balance sheet. Net working capital is decreasing, both year-on-year and quarter-over-quarter. And it is, in fact, negative for the first time since we were listed. Seasonal decrease in volume by 14% is an important driver for the decrease, but there is also a positive effect from the post-payment practice that we have on our certificates throughout the year as well as our continuous improvements in the invoicing process also affecting this positive development.

As you also can see from the slide, the graph on -- the capitalized sales commissions expense is increasing, and it's driven by the increased sales performance that we experienced this quarter.

Moving to my last slide. Our underlying cash generation is still very good. We have a cash EBIT of NOK 55 million, and you probably remember that the EBIT from the P&L is NOK 63 million. Going out of the quarter with a cash -- net cash position of almost NOK 500 million, it's up almost NOK 200 million from last quarter. And the main driver is, of course, the change in net working capital that normally occurs this time of year because of lower consumptions from our customers.

Now Rolf, you will make some short comments on our outlook.

[Rolf Barmen, executive]

Yes. Sure. We revised our outlook a bit. Net revenue growth is expected to be somewhat higher than targeted for 2019, and this is, of course, due to growth in the consumer segment. Except from this, we uphold our guiding, and we look forward to present our new look -- outlook on our Capital Market Day, taking place here in Oslo here at Felix on the 13th of February 2020.

So I think that will conclude our presentation. And now Morten will facilitate Q&A.

[Morten A. W. Opdal, executive]

Yes. We are moving over to the Q&A session. So if any of you have any questions, feel free to ask them.

[Unknown Analyst]

One question on the cost level. Top line is growing 14%, 15%, same level as the cost base. Is there any special effects that is lifting the cost base in this quarter? Or is this something we should also expect going forward?

[Birte Strander, executive]

No. It's -- the main driver or the main cost driver is sales and marketing costs, and that is needed to have the organic growth that we experienced at these levels. There is no -- the only special thing this year has been the introduction of the Elhub and driving customer service costs, but there are no huge one-offs or special things happening this year. So it's important for us to spend money to earn money in this kind of business in the sales and marketing, especially.

Yes. But of course, just one more comment. It, of course, have been driving also the cost base being listed. Working -- it's both the fees to the, of course, the stock exchange, but also working a lot more a bit with governance and compliance, of course. So it's more people in my accounting department now than it was before we were listed.

[Morten A. W. Opdal, executive]

Other questions? No. Okay. I guess that concludes the session, and have a nice day.