Earnings call transcript: Elmera Group Q1 2025 reveals revenue decline

Elmera Group ASA reported a 9% year-over-year decrease in net revenue for Q1 2025, totaling 502 million NOK. The company’s stock responded with a 1.83% decline, closing at 34.85. According to InvestingPro analysis, Elmera is currently trading below its Fair Value, with a P/E ratio of 10.75x and a market capitalization of $363.72M. Despite operational successes, such as the insourcing of power trading and customer growth, financial challenges and mild weather impacting electricity consumption have affected performance.

Key Takeaways

• Net revenue decreased by 9% year-over-year to 502 million NOK.
• Stock price fell by 1.83% following the earnings announcement.
• Insourcing of power trading and customer growth were key operational successes.
• Mild weather negatively impacted electricity consumption.

Company Performance

Elmera Group ASA faced a challenging Q1 2025, with net revenue declining to 502 million NOK, a 9% decrease from the previous year. Despite this, the company achieved operational milestones, including successful insourcing of its power trading function and customer growth in both consumer and business segments. The overall competitive landscape remained stable, though the company noted increased margins among market players due to rising costs.

Financial Highlights

• Revenue: 502 million NOK (9% decrease YoY)
• EBIT Adjusted: 174 million NOK (down from 230 million NOK in Q1 2024)
• Operating Expenses: 327 million NOK (slightly up from 320 million NOK)
• Net Financial Cost: 49 million NOK (down from 54 million NOK)

Market Reaction

Elmera’s stock price declined by 1.83%, closing at 34.85. The decrease reflects investor concerns over the reported revenue decline and the company’s forecast that net revenue and EBIT adjusted will fall below targeted levels for 2025. With a beta of 1.03, the stock shows moderate market correlation. The stock’s performance is within its 52-week range, with a high of 39.95 and a low of 28.2. InvestingPro data reveals the company maintains a "GOOD" overall financial health score of 2.81, suggesting resilient fundamentals despite current challenges.

Outlook & Guidance

Looking ahead, Elmera expects net revenue and EBIT adjusted for 2025 to be below targeted levels. Unlock deeper insights into Elmera’s valuation and growth potential with InvestingPro, which offers exclusive access to 10+ additional ProTips and comprehensive financial metrics, helping investors make more informed decisions. However, the company anticipates net revenue growth from 2024 to 2026, with EBITDA projected to range between 550 and 600 million NOK. Elmera is actively pursuing potential acquisitions across the Nordics, maintaining its dividend policy.

Executive Commentary

CEO Wolfgang Baumann highlighted the company’s competitive strategy, stating, "We are prepared to spend some more money to win such a competition." He also noted the increased activity in the market, emphasizing, "The activity in this market has definitely increased." Baumann acknowledged the challenges of predicting temperature impacts, saying, "Temperature is not easy to predict."

Risks and Challenges

• Weather conditions: Mild temperatures have already impacted electricity consumption.
• Financial performance: Expected revenue and EBIT below targeted levels.
• Market competition: Increasing margins among competitors could pressure Elmera.
• Regulatory changes: Potential electricity support schemes could alter market dynamics.
• Acquisition risks: Pursuing acquisitions could introduce integration challenges.

Q&A

During the Q&A session, analysts inquired about the impact of mild weather on volumes, M&A opportunities in the Nordic energy market, and the status of power trading insourcing. Elmera addressed these concerns, providing insights into its strategic initiatives and market positioning.

Full transcript - Elmera Group ASA (ELMRA) Q1 2025:

Wolfgang Baumann, Head of Emera Group, Emera: Good morning, and welcome to our first quarter twenty twenty five presentation. My name is Wolfgang Baumann, head of the Emera Group. Our CFO, Hany Nugyal, is, as usual, with me and will take us through the financials. Wolfgang Noctowl, our head of investor relation, is also with us, and we’ll take questions during the presentation and address them to Henning and myself in our q and a session. The first quarter of twenty twenty five was characterized by mild weather.

The temperatures were above seasonal norms and approximately two degrees centigrade higher than in

Hany Nugyal, CFO, Emera: the first quarter last year.

Wolfgang Baumann, Head of Emera Group, Emera: As most of you know, electricity consumption is negatively correlated with temperature as a significant part of the energy consumption in the Nordic countries is related to heating of homes and commercial buildings. Therefore, average consumption decreased across all the group’s reporting segments, leading to a 9% decrease in volume sold from last year, which again was the driver for the 9% increase in net revenue year over year. Certain factors like the temperatures and climate are out of our control, and we adapt to these factors as best as we can. However, something that is in our control is our operational performance, and customer growth is an important measure to mitigate the effects of milder weather. Therefore, we are very proud of the strong development in our customer base this quarter.

We experienced solid growth both for the consumer and the business segment with an accelerating trend throughout the quarter, and the trend has continued into April. Further, we are excited about our b to b initiatives in the Nordic segment to further fuel this development, which I will come back to in the outlook such such section. The dividend for 2024 was distributed yesterday at 3 Norwegian kroner per share. It represents an attractive dividend yield for our shareholders underpinning our capital light business model and dividend capacity. Moving on to the segments where reduced consumption due to model data played a significant part of all the reporting segments that revenue developments.

Hanning will provide you more details on his part of the presentation later on, but I will say a few words also because Shiba segment grew by 2,000 deliveries in the quarter with positive contributions from both the fuel cost and the Gjerba Salaaneshi brands. This demonstrates the robustness of the group’s diversified branding strategy. And in the context of increased markets over the last years, which has been necessary to compensate for both increased financing costs and increased system and balancing costs in the Nordic power market, we are particularly satisfied with this development. Meanwhile, the business segment has paused the milestone of 30,000 deliveries and has recorded consecrated in growth over the past four quarters, underscoring the stability and consistency of the segments. And while average consumption decreased year over year due to the weather, we were able to partly compensate for this through increased average net revenue margin per kilowatt hour year over year.

Within the group’s new growth initiatives, the mobile business experienced a trend reversal in number of subscribers this quarter, where the growth was approximately 2,000 subscribers. Further, the pipeline for new partners in the group’s alliance concept and the Albright brand is strong in the second half of twenty twenty five. In the group’s Nordic operations, growth was moderated by seasonally low demand for spot based products. However, the trend for Nordic quarter was post positive also here. So in all, it has been an operationally strong quarter, and I will come back later to present our revised outlook.

But first, Hanning will take you through the financials. Hanning, the floor is yours. Welcome.

Hany Nugyal, CFO, Emera: Thank you, and good morning. As Rolf mentioned, this quarter’s financials were notably affected by the temperatures, which on average were approximately two centigrade above last year. Volume sold was down 9% year over year, which corresponded to the 9% reduction in net revenue compared to q one twenty twenty four. Net revenue adjusted ended at 502,000,000 NOKs compared to 550,000,000 in the first quarter of twenty twenty four. EBIT adjusted was hundred and 74,000,000 compared to 230,000,000 in q one last year, And the last twelve months revenue was 1,744,000,000.000, in line with the comparative level for q one twenty twenty four, while the last twelve months EBIT adjusted was 513,000,000, a decrease from 545,000,000 for q one twenty twenty four.

Operating expenses at group level were at 327,000,000 compared to 320,000,000 in the first quarter of twenty twenty four. We confirm the stable nominal OpEx guidance for 2025, and in fact, we already now commit to stable nominal OpEx also in 2026. Paul will come back to this later in his presentation. The group’s net financial cost in the quarter was 49,000,000, a decrease from 54,000,000 in q one twenty twenty four, driven by a lower average held spot price level and reduction in volumes sold. Payments obtain new contracts also decreased year over year and amounted to 32,000,000 this quarter compared to 40,000,000 in q one twenty twenty four.

Over the last twelve months, the aggregate cash burn was hundred and 35,000,000 NOKs. And over to the market development and starting with the export price levels, on the left hand side. And as you can tell from the chart, prices have been volatile, but on average, sales book prices were lower this quarter compared to the first quarter of twenty twenty four. This led to a reduction in the net financial cost, but also a reduction in the credit compensation invoiced to business and alliance customers. To the right, you can see that monthly supply changes in Norway continue to be more or less on track with the trend from 2024 and remain at a low level.

This is partly the enabler for realizing growth while reducing the cash spent on customer acquisition. Then over to the segments and starting with the consumer segment. We are very satisfied with the customer growth 2,000 deliveries this quarter, and the growth was distributed across both the fuel craft and Grupo Salz and AGI brands. The net revenue development was impacted by the higher than normal temperatures, which drove the 25,000,000 decrease year over year. This was also the basis for the decrease in EBIT adjusted year over year as the operating expenses in the segment were fairly stable.

The variable contracts continued slow runoff and represented approximately 4% for the segment’s deliveries at quarter end. The business segment maintained its strong growth momentum. However, the increased temperatures led to reduced consumption volumes year over year, which in turn had an impact on the net revenues. The number of deliveries ended at 31,000 at quarter end, realizing the 30,000 deliveries milestone. Volumes sold decreased by 9% year over year due to the milder weather.

All of this was partly offset by an increase in the net revenue margin compared to q one twenty twenty four. Adjusted for the effects of the mild weather, the underlying financial performance remained solid. Operating expenses decreased by 1,000,000 ochs, resulting in an EBIT adjusted of 86,000,000 in the quarter. In the Nordic segment, the continued phased out of legacy fixed price products and the mild weather led to a volume reduction of 13% year on year. As communicated in the q four presentation, the demand for spot based contracts during the winter is seasonally softer, and this affected customer intake in the quarter.

That said, we experienced a positive trend throughout the quarter, and we look forward to capitalizing on increased internal sales capacity over the next quarters. In the short term perspective, the increased, sales capacity also contributes to an increase in the operating expenses. And while there has been a corresponding significant reduction in external sales commission, this has also not been fully reflected in the p o n l statement as capitalized CEO amortizes over time. EBIT adjusted ended at 4,000,000 in the quarter, which was a decrease of 11,000,000 from last year. Within the new growth initiatives, the volume sold in the alliance concept also decreased as a result of the milder weather compared to q one twenty twenty four, although not as much as in the four segments.

We were pleased to also achieve a trend reversal with mobile, realizing a growth of the 2,000, subscribers in the quarter. And at quarter end, the portfolio amounted to a 13,000 subscribers. Apart from the reduction in volumes sold in the Alliance concept, net revenue was also impacted by reduced credit compensation due to the lower export prices compared to q one twenty twenty four. EBIT adjusted was 4,000,000 in the quarter, and the reduction year over year was distributed across the various initiatives in the segments. The net working capital at quarter end was 451,000,000 knocks, a decrease year over year driven by lower volumes and reduced export prices.

And on the right hand side, net interest bearing debt ended at 754,000,000. The cash generation in the quarter was hundred and 87,000,000, driving the reduction in net debt quarter over quarter despite the increase in net working capital. And then I give the call back to Europe.

Wolfgang Baumann, Head of Emera Group, Emera: Thank you very much, Hany. Let me begin with a brief comment on Nordisk, please, which you probably have heard a lot of recently. And this is the proposed addition to Norway’s electricity support scheme. The proposal has not been adopted by the Norwegian government yet, as the consultation period closed on April. We observed that there is still somewhat uncertainty around the final structure.

That said, one key aspect remains clear. The role of electricity retailers will not change. Customers will still need to maintain a relationship with a retailer. And we still believe that the government will take a decision, on whether implement or not in June. Industry experts anticipate that if implemented, no disputes could lead to an increase in energy consumption potentially by up to 10%.

This would likely result in a positive impact on the group’s, net revenue. For that reason, we view the potential introduction of noise base as a net positive development. Next, we are pleased to report that the power training function has been successfully in sourced and has now been fully operational for approximately two weeks. As outlined during our Capital Markets Day, this move enhances our ability to improve consumption forecasting accuracy, directly impacting the group’s electricity costs. Additionally, it enable us to engage in intraday trading, which is a key measure in managing the rising system and balancing costs currently, affecting all participants in the Nordic power markets.

We’re also approaching the highly anticipated launch of Jokka Vertag, our brand’s officially in entry into the Swedish b to b market. We already secured a distribution partner with strong market presence and extensive reach positioning us well for growth. Building on the success of our Norwegian business segment, which over the last decade or so has transformed from a breakeven business to a key contributor to the group’s results, we are confident in the potential of growth both in Sweden and Finland, but starting off now in Sweden. Lastly, we actively pursuing acquisitions where we observe that the activity has taken up, and we see increased market opportunities. Okay.

Let’s talk a bit on our financial targets. We have previously disclosed our targets for 2025. However, given the very mild start of the year with four out of four months with warmer weather than last year and correspondingly low volumes, we expect that our net revenue and EBIT adjusted will likely be below targeted levels for 2025 unless the second half of twenty twenty five answer significantly colder than normal. Our OpEx target is it reiterate it for 2025, and we also extend our guidance to imply apply for 2026, meaning that we expect net revenue growth from 2025 to 2026 and actually also from 2024 to 2026. We expect that OPEC suggest that we’ll continue a nominally stable trajectory and that EBITDA will be in the targeted interval of 550 to 600,000,000 and likely for 2026 in the higher end of this interval.

Our dividend policy remains unchanged. So let’s start the q and a session. Morten, do you have any incoming questions for us? So please, Hannes, join me.

Morten, Investor Relations/Moderator, Emera: Thank you, Hof. We have a question on volume developments, and it goes like this. The volume in the business segment seems slow compared to the LHUB data. Can you comment on

Wolfgang Baumann, Head of Emera Group, Emera: this? Yeah. It is correct that the LHUB data for the non household segment is fairly flattish, though it does not break down average consumption and customer growth. Our experience is that our customer base is relatively sensitive to temperature changes also in the business segment, and this differs from the aggregated other data. Additionally, we have decreased our exposure towards the large tenant customers, which will affect average consumption slightly without having any significant impact on earnings, actually.

And finally, I would like to end up on what I stated that we have strengthened the margin and and during the quarter, and this strengthened margin partly offsets the volume reduction caused by the temperature for the business segments.

Morten, Investor Relations/Moderator, Emera: K. We have the next question. You mentioned in the outlook section that you see increased opportunities for m and a. Can you elaborate a bit

Wolfgang Baumann, Head of Emera Group, Emera: on this? Yes. We see that, more and more retailers now, find it quite difficult to be both smaller parts and constellations in this market. And we see good opportunities, you know, over the next twelve months, to, acquire interesting prospects, actually. So the activity in this market has definitely increased, and this is actually the situation for the entire Nordics.

So whether it will be in Finland, Sweden, or Norway, we don’t know yet, but, the activity across all these countries are taking up.

Morten, Investor Relations/Moderator, Emera: Okay. We have a question on the power trading, insourcing. What is the status of your new trading, or power purchase division?

Wolfgang Baumann, Head of Emera Group, Emera: Status is that we are now complete when it comes to money. We have approximately 20 people now working continuously with our own trading. We have landed up twenty four seven, three hundred and sixty five days year, and we are fully functional. We was what we were fully functional by the April 28. So now we are the balancing responsible party for 46 parties where six of these parties are our own companies.

And this is quite exciting, actually. The sign so far is that we we we are quite accurate in our forecasting. So we look forward to report more on this topic, of course, when we come to our, second quarter presentation in in August.

Morten, Investor Relations/Moderator, Emera: Thank you. The next one is, how do you expect Nordisk, please, to impact the margin in the consumer segments? Do you expect increased competition in 2025?

Wolfgang Baumann, Head of Emera Group, Emera: It is we haven’t seen Cyno this yet, actually. And the switching rate, is still on a very low level. We are prepared we are prepared to spend some more money, to to win such a competition, of course. But it might seem that, the introduction on August piece also have a beneficial beneficial impact on the m and a or m and a agenda, actually. So, it is quite quite difficult to say how this will turn out in the end, but we are prepared, and we are looking forward to a decision, whether it goes in the the direction of implementation or maybe it will be postponed.

But we don’t know for sure yet.

Morten, Investor Relations/Moderator, Emera: K. This one is probably for, for the CFO. How should we think about depreciation of acquisitions for 2025 and 2026?

Hany Nugyal, CFO, Emera: The the depressures depreciation has, has been reducing over time. This year, it will amount to approximately 85,000,000 because it’s quite quite predictable with historical, the historical, transaction that have been executed. For next year, the level will come down to about 35,000,000.

Wolfgang Baumann, Head of Emera Group, Emera: Thank you.

Morten, Investor Relations/Moderator, Emera: Question on guidance here. You state that you expect 2025 EBIT below the guidance. Is this only due to the q one miss, or do you expect the coming quarters to also be below your initial expectations? If so, why?

Wolfgang Baumann, Head of Emera Group, Emera: Temperature is not easy to predict, actually. And, obviously, we had hoped that April was a bit colder, than it was. So April has been a lot warmer than we hoped for. And also the May has been terrific when it comes to weather and but not that terrific when it comes to volume, con consumed. So, it is, all above temperature, actually.

And it is extremely hard for us to to to, to mitigate a high volume quarter that’s this quarter normally is, with the third and with the second and third and fourth quarter. But if it turns out that we will have a very cold period from August to December, then obviously, we can we can mitigate some of the losses, in the first quarter.

Morten, Investor Relations/Moderator, Emera: Thank you. A question on the consumer margin. The consumer margin was slightly down year over year despite price increases, and also increased contribution from margins on variable contracts. Can you explain a bit on this?

Hany Nugyal, CFO, Emera: Intake side. Yeah. So, over time, the composition in the in the consumer segment has changed, that question indicates. The, the variable contracts continue to to take growth. This has an effect.

And, as you have observed, we have successfully repriced our core products, and essentially, it falls from, the 4% now variable. It’s variations of of of the spot prices. So, so this is just, we see it as a module to a module difference. We have been quite successful in our opinion in, in compensating for the recent the reduced variable portfolio and also in in in fees and the consumer business, invoicing fees, etcetera, with an increase of, both the margin and the the monthly fixed price.

Wolfgang Baumann, Head of Emera Group, Emera: And I I would also add that, the the margin segment, are quite strong. We are very satisfied with with the margin development. And as you said, we had to meet mitigate, also the invoicing fees, and the reduction of invoicing fees. What more? The system cost, as, as I stated earlier, the the all the system cost have have increased.

So, there there’s a lot to mitigate, and we had done this in in a very good, manner, I would like to say. So the the margin in consumer segment is strong also for first quarter.

Morten, Investor Relations/Moderator, Emera: Thank you. Next question. It seems like the market is relatively stable given low market churn on supply changes. We’ve also seen you and some competitors lift markups or prices. Can you share some insight on the competitive situation also between your segments?

Wolfgang Baumann, Head of Emera Group, Emera: It’s fairly stable. The competition, the competition from the active partners are at the same level, as they’ve been in the last twelve to eighteen months. And I think that, most of the players now, they see that they have have they had to, increase their margins because, the costs are increasing. So, I don’t think we will see a worse competition situation the next six or to twelve months. I think that the conditions of the competitive situation will be, as it is today and as it has been the last ten or twelve months.

Morten, Investor Relations/Moderator, Emera: Okay. The last question. You have lifted your fixed charge for a large share of your existing customers from 49 to 69 kroners per month. When will this have full effect on earnings?

Hany Nugyal, CFO, Emera: Well, it has I I assume this is related to consumer sentiment in Norway, which there has been a change recently that will have a part effect in the second quarter and full quarter effect in the third quarter.

Morten, Investor Relations/Moderator, Emera: Okay. That concludes the q and a session. So we’d like to thank you all for your attention, wish

Wolfgang Baumann, Head of Emera Group, Emera: you all a good day. Have a good day. Bye bye.

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