TMX Group Ltd

TSX:X

Good morning and welcome to our fourth quarter 2024 presentation. My name is Rolf Barmen, Head of the Elmera Group. Our CFO, Henning Nordgulen, is as usual with me and will take us through the financials. Morten Opdal, our Head of Investor Relations, is also with us and will take questions during the presentation and address them to Henning and myself in our Q&A session following the presentation.

As promised on the third quarter presentation, we have indeed worked very hard to replicate the strong results from the fourth quarter in 2023. And even though the volumes came in lower than expected due to mild weather, we delivered an EBIT adjusted in line with fourth quarter in 2023. We have successfully mitigated the volume decrease from high temperatures and reduced consumption through our product management efforts. We have increased core margins in both the Consumer and the Business segment. The changes in our product mix over the last years have also increased our financial robustness, which we now are reaping the benefits of.

When it comes to 2024 as a whole, I am proud to say that we have delivered on all our financial targets. Net revenue increased year-over-year in all segments. The cost development was stable year-over-year and the proposed dividend of NOK 3 per share represents an attractive payout to our shareholders, in line with our dividend policy. The dividend proposal also takes into account the gain of NOK 139 million from the sale of Elmera Group's 40% ownership in Metzum, which was completed in December. This sale underscores our strategic capability to develop and realize value through spin-offs, a strategy also demonstrated with the sale of 39% in Fjordkraft Mobil back in 2022.

Moving on to the segments, where all segments were affected negatively by the mild weather in the quarter. In Norway, average monthly temperatures were 3% to 5% higher than in fourth quarter 2023, which obviously contributed to reduced consumption. Despite that -- this, the Consumer segment increased its profitability through margin improvements. During this quarter, increased competition, a seasonal trend typically observed from Black Week through Christmas temporarily impacted our customer acquisition in this segment. That said, we remain on course to achieve our long-term target of 1% to 2% annual customer growth in this segment. The Business segment increased net revenue margin per kilowatt hour year-over-year, driven by increased core margins.

Reduced average consumption per delivery due to mild weather resulted in a slight year-over-year decrease in EBIT adjusted in the quarter. But for the full year, 2024 was in line with our financial targets and both net revenue and EBIT adjusted increased from the year before. At year-end, we are just short of the 130,000 deliveries milestone and the segment is well set up with a robust product range and a strong track record. New growth initiatives delivered stable EBIT adjusted in the period. While the Business segment was just short of the 130,000 deliveries milestone, a new milestone was reached in Ordway, the group's service provider of rating and billing services, which implemented its first 13,000 grid customers in the quarter. We really look forward to further growth in this segment and to capitalize on the benefits of scale from the Elmera platform.

In the Nordic segment, we observed a seasonal decline in demand for spot products. During winter, customers tend to favor fixed price contracts as spot prices typically reach their annual peak. As we transit into spring and summer, we are all -- we are very well positioned to leverage the anticipated seasonal rebound in demand for spot products. Sales commission spend in this segment was significantly reduced following the termination of an external sales partner as our in-house sales capacity has been increased. OpEx was temporarily hiked in the segment this quarter, which Henning will give you more details on. So to summarize, 2024 has definitely been a good year for Elmera Group. And now we look ahead for an equally exciting 2025. But first, Henning will take you through the financial.

Henning, the floor is yours.

Thank you, Rolf and good morning. The group has delivered another quarter with solid operations and financial performance. We normally do not comment on smaller variations in temperature and changes in consumption behavior but we make an exception this quarter. Average temperatures were 3 to 5 centigrades higher in Q4 '24 compared to Q4 '23 and this was the main contributor to the 9% reduction in volumes sold year-over-year. We estimate that the difference in average temperature had a net revenue impact of NOK 10 million to NOK 15 million in the Consumer and Business segments. On this backdrop, we are quite pleased with the results in the quarter. And as Rolf said, we have delivered on the growth targets from our Capital Markets Day in June.

Net revenue adjusted ended at NOK 486 million compared to NOK 474 million in the fourth quarter of 2023. EBIT adjusted was NOK 154 million compared to NOK 157 million in Q4 last year. For the full year 2024, net revenue ended at NOK 1.793 billion, which was up 3.5% from 2023. EBIT adjusted ended at NOK 569 million, which was an increase of about 11% from the previous year. Operating expenses in the fourth quarter were NOK 332 million compared to NOK 317 million in the fourth quarter of 2023. And with that, we also delivered on a flat nominal cost level compared to full year 2023, absorbing both core inflation of close to 3% and payroll increases of over 5% in Norway.

Total assets at year-end were approximately NOK 6 billion, down from NOK 8.3 billion year-end 2023, primarily driven by lower spot prices. The book equity ratio was 24%, up from 19% a year ago. The cash generation in the quarter was strong and we also benefited from the NOK 160 million cash proceeds from the sale of the Metzum shares. On this basis, it is the Board's opinion that the dividend of NOK 3 per share is a balanced proposal to the AGM for our shareholders and other key stakeholders.

And starting on the market development on the left-hand side, we experienced significantly lower average prices in the fourth quarter compared to Q4 of 2023. Due to improved hydropower resources in the Nordic region, volatility was also reduced apart from a few individual hours with extremely high prices. To the right, you can see that monthly supply changes in Norway more or less tracked the trends for the fourth quarter of 2023. Supply changes typically pick up towards the end of the year as seasonally higher spot prices drives more awareness among consumers.

Then over to the segment and starting with the Consumer segment, where we have succeeded with project management and pricing efforts during the quarter and also in 2024 as a whole. The improvement in margins drove an increase in net revenue, which was up by close to 8% year-on-year. The number of deliveries came down by 4,000 in the quarter, partly attributed to increased competition from point of sales competitors. And looking back to the second quarter, we lost approximately 4,000 B2C customers after implementing the necessary risk-reducing change in the terms of the virtual battery project, Solkonto. On that basis, we are satisfied with the balance between growth and profitability. Operating expenses in the segment have been significantly reduced during 2024. The fourth quarter OpEx was also down NOK 2 million year-on-year but note that we are now comparing to the quarter in 2023 where the group's cost program has started to take effect. EBIT adjusted increased from NOK 50 million to NOK 68 million, largely due to increased revenues.

In the Business segment, the number of deliveries was up 3,000 year-on-year. Also in the Business segment, volumes were affected by the milder weather. For the full year, volumes sold was marginally down, partly as we have phased out certain low-margin tender customers. Average margin increased driven by improved core margins but with the reduction in volume delivered, net revenue decreased by NOK 9 million year-on-year. Operating expenses increased by NOK 4 million, resulting in an EBIT adjusted of NOK 76 million in the quarter. In the Nordic segment, the continuing phaseout of legacy fixed price products and mild weather led to a volume reduction of 31% year-on-year. And as Rolf said, B2C customers seek more towards fixed price alternatives in the winter. But despite this, the net revenue adjusted increased by NOK 4 million year-on-year due to improved margins.

Operating expenses increased year-on-year, primarily because we are continuing to build internal sales capacity and also due to increased loss provisions and amortization due to the rising bankruptcy trend that we see in Sweden. Consequently, EBIT adjusted came down to NOK 4 million in the quarter. Also within the new growth initiatives, the volumes sold in the Alliance concept decreased as a result of the mild weather compared to Q4 of 2023. The number of mobile subscribers remained stable quarter-on-quarter and the sloping trend that we have seen is abating. In terms of the figures, the development in both revenue and EBIT adjusted was fairly stable in the quarter. The net working capital at quarter end was in line with seasonal levels, reflecting the lower spot price and lower volumes in the quarter.

On the right-hand side, net interest-bearing debt ended at NOK 802 million. The cash generation also in this quarter was strong. EBIT adjusted was NOK 224 million. CapEx ended at NOK 16 million and payments to obtain contracts -- new contracts came down to NOK 27 million, which partly corresponds with the sales force buildup in the Nordic segment. This resulted in a very robust cash EBIT adjusted in the quarter of NOK 181 million.

And with that, I leave the floor back to you, Rolf.

Thank you very much, Henning. So with a strong 2024 behind us, what do we expect for the future? History has shown that we are able to deal with uncertainty and unexpected externalities. We have handled geopolitical issues and energy crisis. We have handled customer migration, new risks and political intervention. Since the volatility in 2021 and 2022, we have made several strategic changes. We had derisked, transformed and we have adapted and we have made our business model more robust in all material aspects. The residual legacy portfolio with volume and profile risk in NGI has reduced to less than a 50% share of the Nordic portfolio. The historical variable contract portfolio in Norway is reduced to less than 5% of consumer deliveries.

And we have met the corresponding volume loss and margin compression by growth on spot-based products, repricing, active product management and cost cutting. Our brand position across all of our brands is strengthened and transparency, governance and compliance are improved. The guarding political party in Norway, the Labor Party has proposed an improvement in a subsidizing scheme implemented back in 2021 to support private households. If the proposal in its current form secures the necessary support from the Norwegian parliament, consumers can, in future, choose between the existing subsidizing scheme with [ active special of NOK 0.93 per kilowatt hour ] include VAT or a year-round fixed price solution at [ NOK 0.50 ] per kilowatt hour including VAT. The proposal is currently under active political and professional debate.

Also, please note that the upcoming election in Norway this fall might influence the outcome. There has been speculation in the press whether this proposal will affect the role of the retailers, specifically concerns that grid operators might replace retailers. The Energy Department and the Minister for the Energy Department has stated very clearly that the improved subsidizing scheme will not affect the role of the retailers. I repeat, it will not affect the role of the retailers. In fact, if the grid companies were to start selling electricity, this would have been a violation to both the Energy Act in Norway and to the European Economic Area legislation.

And for the record, most experts as well as the politicians expect increased consumption if the fixed price subsidizing scheme is being implemented, which will affect our net revenue positively. As the leading player in the industry, with a cutting-edge technological platform and the largest customer base in Norway, we will continue to assist and advise our customers in optimizing their energy consumption as well as their grid rents through our digital solutions and customer service, also with an improved subsidizing scheme in place. We are well set up for the future.

On this note, our financial targets remain unchanged. We continue to target growth in net revenue in all our segments and a stable OpEx adjusted in line with 2023 level, also for 2025. When it comes to EBIT adjusted, our target is between NOK 550 million and NOK 600 million with a positive trend from the NOK 569 million from 2024. Our dividend policy remains unchanged with a payout ratio of 80%. Before I end this session, I take the opportunity to repeat our key investment highlights. We are operating in the attractive Nordic electricity market with a stable demand and a potential increasing demand in Norway if an improved subsidizing scheme is implemented. And we are really optimistic when it comes to growth opportunities, particularly in Sweden and Finland, where our market share still is [indiscernible]. Our value propositions and product offerings are sought after, empowering customers towards sustainable and efficient electricity consumption, also when it comes to optimizing the grid rents.

We are the largest player in Norway with strong brands and a leading IT platform that supports economy of scale and further growth across the Nordics. We are the largest power purchaser in Norway with significant potential to optimize our cost of goods sold as volatility will prevail in the future energy markets. The in-sourcing of our power purchasing activities is well on track. Our pan-Nordic platform gives us excellent opportunities for bolt-on acquisitions in Sweden and Finland going forward. And at last but not at least, our financial profile is attractive with a high cash conversion rate and limited capital requirements, resulting in a solid dividend capacity.

So that's all for me. Let's start the Q&A session. I invite Henning to the podium and Morten, do you have any incoming questions first?

We have received a couple of questions and we can start with the following. The governing party, the Arbeiderpartiet or the Labor Party has suggested a fixed markup on electricity if they win the election. How do you reflect on this?

Well, a fixed market has been suggested by left-wing parties a couple of times during the past years. From a macroeconomic perspective, this is considered to be a really bad proposal. But even more important is that the proposal violates the European Economic Area legislation, which actually is already implemented in Norway. So that's my reflection on that question.

Thank you very much. We have another question, which is the following. Can you elaborate on how you interact with politicians and the regulator to influence processes that are of urgent interest to your operations?

We do indeed work a lot with both the regulator and political parties actually to clarify how the different political intentions can be carried out in real life. Our engagement in this perspective secures that we are invited into the processes before final decisions are being made. And actually, as we speak, we are in close contact with the regulator to see how the Labor Party's proposal can be arranged in a commercial manner. We are also working very closely into the legal aspects of the proposal, particularly on the question whether it follows the European Economic Area legislation or not. So we are very up to speed when it comes to talking and discuss both the political parties but also, of course, with the regulator and the minister.

A question on the customer development. In 2024, it seems that the Elmera Group lost around 10,000 customers in the Consumer segment. Is this what we can expect also going forward?

No. As Henning mentioned, our target is customer growth also in the Consumer segment. Overall, half of the loss stems from the fact that we did significant changes in our product offerings to our solar customers and Fjordkraft last year as Henning talked about and half of the loss stems from [indiscernible]. Also, as Henning reflected on, when it comes to the development in the fourth quarter, this was expected as Fjordkraft, as you probably all know, is no longer present in retail channels, which normally peak sales from Black Week to Christmas. And I would say that the underlying sensitivity is very good. So no, we aim for growth definitely in 2025.

We have received a question on [indiscernible] and the retailers' role and you already addressed it in your presentation but I think it's worth repeating. And the question is, are you in talks with the government about what the role of [indiscernible] or electricity retailers will play?

Yes, definitely. And they have clearly stated that our role will not change. Every consumer will have to have a product from a retailer and the grid companies will probably administer the arrangement as they do with the existing support scheme. So no need to be worried about our role. We will have the same role in new -- with a new and improved spot scheme that we have today.

Okay. Okay. A question on max cap on retail margin. Will you be able to be competitive if there is such a maximum cap on the market?

Obviously, we will be competitive. We can take out scale advantages across the company but this will very clearly violate the European Economic Area legislation. So we don't think that this will be a realistic path for the governing party at all.

Okay. A question on the cost development. Can you comment on the cost development in the Nordic segment?

Yes, I can do that. The increase in OpEx in 2024 is related to our own sales teams. We have moved more away from external telemarketing teams to have more control over the sales process, also from a quality and compliance perspective. This means that we now have the OpEx directly in our P&L quarter-to-quarter, while we have previously capitalized CPOs, which then by definition is lagging in terms of OpEx. So the OpEx development is a planned development. Having said that, while committing to a level of cost -- nominal cost development also in '25, we will, of course, work across the group for finding efficiencies also in the Nordic segment.

Thank you very much. And that actually concludes the Q&A session. So we would like to thank you all for your attention and I wish you all a nice day.