Earnings call transcript: Elmera Group Q4 2024 sees steady revenue growth

Elmera Group ASA reported its Q4 2024 financial results, showcasing a steady increase in net revenue and a stable earnings performance. The company’s net revenue for the full year 2024 rose by 3.5% year-over-year, reaching 1.793 billion NOK. Despite a slight decrease in Q4 EBIT adjusted compared to the previous year, Elmera maintained a strong financial position with a significant improvement in its book equity ratio. According to InvestingPro data, the company currently offers an attractive 7% dividend yield and appears undervalued based on Fair Value analysis. The stock experienced a minor decline of 0.76% in pre-market trading, reflecting a cautious market reaction to the earnings announcement.

Key Takeaways

• Elmera Group’s full-year net revenue increased by 3.5% to 1.793 billion NOK.
• Q4 2024 EBIT adjusted slightly decreased to 154 million NOK from 157 million NOK in Q4 2023.
• The company improved its book equity ratio to 24%, up from 9% a year ago.
• Stock price decreased by 0.76% in pre-market trading following the earnings release.

Company Performance

Elmera Group demonstrated resilience in its financial performance for 2024, with a notable year-over-year increase in net revenue. The company’s strategic initiatives in digital solutions and market expansion contributed to this growth. Despite a slight dip in Q4 EBIT adjusted, Elmera’s overall financial health remains robust, supported by a strengthened book equity ratio.

Financial Highlights

• Full Year 2024 Net Revenue: 1.793 billion NOK (+3.5% YoY)
• Q4 2024 Net Revenue: 486 million NOK (vs. 474 million NOK in Q4 2023)
• Full Year 2024 EBIT Adjusted: 569 million NOK (+11% YoY)
• Q4 2024 EBIT Adjusted: 154 million NOK (vs. 157 million NOK in Q4 2023)
• Total (EPA:TTEF) Assets: 6 billion NOK (down from 8.3 billion NOK in 2023)
• Book Equity Ratio: 24% (up from 9% year ago)

Outlook & Guidance

Elmera Group remains optimistic about its growth prospects, particularly in Sweden and Finland. The company has maintained its financial targets, aiming for net revenue growth across all segments and an EBITDA target of 550-600 million NOK. InvestingPro analysis indicates the company maintains a GOOD financial health score of 2.82, supporting its commitment to an 80% dividend payout ratio. Analyst consensus from InvestingPro suggests moderate upside potential for the stock, with targets ranging from 2.14 to 3.92 USD.

Executive Commentary

• "We have derisked, transformed, and adapted," stated Rolf Farmer, Group Head, highlighting the company’s strategic evolution.
• "We are well set up for the future," Farmer added, emphasizing Elmera’s readiness to capitalize on upcoming opportunities.
• "Our value propositions empower customers towards sustainable and efficient electricity consumption," Farmer noted, underlining the company’s focus on customer-centric innovation.

Risks and Challenges

• Potential regulatory changes in electricity subsidization could impact market dynamics.
• The reduction in total assets from 8.3 billion NOK to 6 billion NOK may pose challenges.
• Seasonal variations in product demand could affect revenue stability.
• The competitive landscape in the Nordic electricity market requires continuous innovation.

Elmera Group’s Q4 2024 earnings call presented a stable financial outlook with continued growth potential, despite minor challenges in the current market environment. For deeper insights into Elmera’s financial performance and future prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro, which provides detailed analysis of the company’s valuation, growth metrics, and market position.

Full transcript - Elmera Group ASA (ELMRA) Q4 2024:

Rolf Farmer, Head of Elmira Group, Elmira Group: Good morning, and welcome to our fourth quarter twenty twenty four presentation. My name is Rolf Farmer, head of the Elmira Group. Our CFO, Henning Nogul, is, as usual, with me and will take us through the financials.

Moth Nogtan, our head of investor relation, is also with us and will take questions during the presentation and address them to Henning and myself in our Q and 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 and 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 know 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 3 krono 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 A139 million from the sale of Almero Group’s forty percent ownership in Metso (OTC:MXTOF), which was completed in December. This sale underscores our strategic capability to develop and realize value through spinoffs, a strategy also demonstrated with the sale of 39% of short CO2 from beer 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 twenty twenty three, which obviously contributed to reduced consumption. Despite that, 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 modules. 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 this 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 30,000 deliveries milestone, a new milestone was reached in All Rate, the group’s service provider of rating and billing services, which implemented its first thirteen thousand 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 Almera platform. In the Nordic segment, we observe 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 as we transist 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 Almera Group.

And now we look ahead for an equally exciting 2025. But first, Hany will take you through the financial. Hany, the floor is yours.

Henning Nogul, CFO, Elmira Group: 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 three to five centimeters higher in Q4 twenty twenty four compared to Q4 twenty twenty three, and this was the main contributor to the 9% reduction in volume sold year over year. We estimate that the difference in average temperature had a net revenue impact of 10 to 15,000,000 NOx in the consumer and business segments.

On this backdrop, we are quite pleased with the results in the quarter. And as Rob said, we have delivered on the growth targets from our Capital Market Day in June. Net revenue adjusted ended at NOK $486,000,000 compared to NOK $474,000,000 in the fourth quarter of twenty twenty three. EBIT adjusted was $154,000,000 compared to $157,000,000 in Q4 last year. For the full year 2024, net revenue ended at $1,793,000,000 which was up 3.5% from 2023.

EBIT adjusted ended at $569,000,000 which was an increase of about 11% from the previous year. Operating expenses in the fourth quarter were $332,000,000 compared to $370,000,000 in the fourth quarter of twenty twenty three. 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 NOK6 billion NOx, down from NOK8.3 billion year end 2023, primarily driven by lower export prices. The book equity ratio was 24, up from 90% a year ago.

The cash generation in the quarter was strong and we also benefited from the NOK 160,000,000 cash proceeds from the sale of the Metsuem shares. On this basis, it is the board opinion that the dividend of 3 kroner 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 twenty twenty three. Due to improved hydro power 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 trend for the fourth quarter of twenty twenty three.

Supply changes typically pick up towards the end of the year as seasonally higher export prices drives more awareness among consumers. Then over to the segment and starting with the consumer segment, where we have succeeded with product 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 a necessary risk reducing change in the terms of the virtual battery product, Solkontu.

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 2,000,000,000 year on year, but note that we are now comparing to the quarter in 2023 where the group’s cost program had started to take effect. EBIT adjusted increased from $50,000,000 to $68,000,000 largely due to increased revenues. In the business segment, the number of deliveries was up 3,000 year on year.

Also in the business segments, volumes were affected by the milder weather. For the full year, volume 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 $9,000,000 year on year. Operating expenses increased by NOK 4,000,000, resulting in an EBIT adjusted of NOK 76,000,000 in the quarter. In the Nordic segment, the continuing phase out of legacy fixed pipes products and mild weather led to a volume reduction of 31% year on year.

And as Rolf said, B2C customers seek more towards fixed pipes alternatives in the winter. But despite this, net revenue adjusted increased by $4,000,000 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 $4,000,000 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 twenty twenty three.

The number of mobile subscribers remained stable quarter on quarter and the sloping trend that we have seen is a big thing. 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 low export price and lower volumes in the quarter. On the right hand side, net interest bearing debt ended at $8.00 $2,000,000 The cash generation also in this quarter was strong. EBIT adjusted was $224,000,000 dollars CapEx ended at $16,000,000 and payments to obtain contracts new contracts came down to $27,000,000 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 181,000,000. And with that, I’ll give the floor back to you, Rolf.

Rolf Farmer, Head of Elmira Group, Elmira Group: Thank you very much, Hanni. 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 have 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 NGE is 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 brand, is strengthened and transparency, governance, and compliance are improved. The governing political party in Norway, the Labour Party, has proposed an improvement in the 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 threshold of €93 per kilowatt hour including VAT or a year round fixed price solution at €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 of 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 in electricity, this would have been a violation to both the 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 a 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 EBITDA yesterday, our target is between $550,000,000 Nokkes and 600,000,000 Nokkes with a positive trend from the $569,000,000 from 2024. Our dividend policy remains unchanged with a payout ratio of 80%. Before I end this session, I’ll 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 minutes.

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 maps. 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 insourcing or power purchasing activities is well on track. Our Pan Nordic IT 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 and A session. I invite Hannig to the podium. And Mohsen, do you have any incoming questions first?

Moth Nogtan, Head of Investor Relations, Elmira Group: We have received a couple of questions, and we can start with the following. The governing party, the Alberta Party or the Labour Party has suggested a fixed markup on electricity if they win the election. How do you reflect on this?

Rolf Farmer, Head of Elmira Group, Elmira Group: 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.

Moth Nogtan, Head of Investor Relations, Elmira Group: 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?

Rolf Farmer, Head of Elmira Group, Elmira Group: 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 a regulator to see how the labor part of this 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.

Moth Nogtan, Head of Investor Relations, Elmira Group: A question on customer development. In 2024, it seems that the Almeri Group lost around 10,000 customers in the consumer segment. Is this what we can expect also going forward?

Rolf Farmer, Head of Elmira Group, Elmira Group: No. As Hanley mentioned, our target is customer growth also in consumer segments. Overall, half of the loss stems from the fact that we did significant changes in our product offerings to our solar customers and fuel growth last year, as Hanning talked about. And half of the loss stems from price centers in Gilbastela and Ashid. Also, as Hanning reflected on, when it comes to the development in the fourth quarter, this was expected as Shorcroft, as you probably all know, is no longer present in retail channels, which normally peak their sales from Black Creek to Christmas.

And I would say that the underlying sensitivity is very good. So, no, we aim for growth, definitely, in 2025.

Moth Nogtan, Head of Investor Relations, Elmira Group: We have received a question on Novus Pries 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 the Strambler or electricity retailers will play?

Rolf Farmer, Head of Elmira Group, Elmira Group: 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 a new with a new and improved support scheme that we have today.

Moth Nogtan, Head of Investor Relations, Elmira Group: Okay. Okay. A question on max cap on retail margin. Will you be able to be competitive if there is such maximum cap on the market?

Rolf Farmer, Head of Elmira Group, Elmira Group: Obviously, we will be competitive. We can take out scale advantages across the 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 going party at all.

Moth Nogtan, Head of Investor Relations, Elmira Group: Okay. A question on the cost development. Can you comment on the cost development in the Nordic segment?

Henning Nogul, CFO, Elmira Group: Yes, I could do that. The increase in OpEx year 02/1934 is related to our home sales teams. We have moved more away from external telemarket 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 opinion 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 is a planned development.

Having said that, while committing to a level cost of a nominal cost development also at 25, we will of course work across the group for finding efficiencies also in the Nordic segments.

Moth Nogtan, Head of Investor Relations, Elmira Group: Thank you very much. And that actually concludes the Q and A session. So we would like to thank you all for your attention and wish you all a nice day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.