Elmera Group ASA (STU:1ZK) Q3 2024 Earnings Call Highlights: Strong Revenue Growth and Improved EBIT

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Fri, Nov 8, 2024, 12:02 AM 4 min read

Net Revenue Adjusted: NOK368 million, up from NOK350 million in Q3 2023.
EBIT Adjusted: NOK79 million, compared to NOK50 million in Q3 2023.
Operating Expenses: NOK289 million, down from NOK297 million in Q3 2023.
Free Cash Flow: Strong performance noted in the quarter.
Net Interest-Bearing Debt: Decreased by NOK178 million.
Cash EBITDA Adjusted: NOK90 million.
CapEx: NOK15 million.
Payments to Obtain New Contracts: NOK39 million.
Consumer Segment EBIT Adjusted: Increased from NOK1 million to NOK33 million year-on-year.
Business Segment EBIT Adjusted: Increased by NOK8 million year-on-year.
Nordic Segment Net Revenue Adjusted: Increased by NOK10 million year-on-year.
New Growth Initiative Segment Volume Sold: Increased by 9% compared to Q3 2023.

Warning! GuruFocus has detected 8 Warning Signs with STU:1ZK.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Elmera Group ASA (STU:1ZK) reported strong net revenue growth year-on-year, driven by increased core margins across all electricity retail segments.
The company successfully reduced operating expenses, contributing to a significant improvement in EBIT adjusted, which increased from NOK50 million in Q3 2023 to NOK79 million in Q3 2024.
The Nordic segment showed strong customer growth, particularly in the B2C segment, due to enhanced in-house sales capacity.
The refinancing process was completed, securing credit facilities to support the group's updated sourcing model effective May 1, 2025.
The Fjordkraft brand has seen improvements in loyalty, reputation, and customer satisfaction, with historically low churn rates.

Negative Points

A restatement in book equity and an increase in direct cost of sales were necessary due to a failure by a key supplier to invoice correctly, impacting historical figures.
The new growth initiatives segment experienced a decrease in net revenue and operating profit year-on-year, attributed to strong comparable figures from the previous year.
The Nordic segment faced a 25% year-on-year volume reduction due to the phase-out of legacy fixed price products.
Payments to obtain new contracts increased in the third quarter, indicating potential challenges in maintaining cost efficiency.
M&A activities have been stalled due to pricing issues, despite having financing and scale advantages.

Q & A Highlights

Q: Can you elaborate on how the Fjordkraft brand in the consumer segment has developed this year in terms of loyalty, reputation, and customer satisfaction? Also, can you confirm the timeline for launching the Fjordkraft brand in the business market in Sweden and Finland? A: The Fjordkraft brand has developed very well this year, with brand perception and reputation at an all-time high among customers. Customer satisfaction is also high, and churn rates are historically low. Regarding the business market launch, we will introduce the Fjordkraft brand in Sweden and Finland, starting in the first quarter of next year.

Q: Regarding your outlook, you state an EBIT adjusted range of NOK550 million to NOK600 million for 2024 and 2025. Considering the last 12 months ended at NOK572 million, are you ahead of schedule? A: We uphold our target without further granularity, but we are very satisfied with the last 12 months' performance. We are working hard to match the strong comparables from the fourth quarter of last year.

Q: You didn't mention anything about M&A activities in your presentation. When can we expect progress, and where? A: We continuously evaluate prospects in Norway, Sweden, and Finland. While price issues have been a barrier, we have the financing, scale advantages, and know-how to make deals profitable. We are prepared to act when the right target is identified.

Q: Can you explain the unallocated revised net revenue in the quarter of NOK12.6 million? A: This relates to an operational deviation in invoicing from a supplier, affecting historical figures from 2019 to 2024. The NOK12.6 million increase in direct cost of sales in the third quarter is due to this nonrecurring contract event.

Q: The business margin was strong in the third quarter. What is driving this, and should we expect it to continue? A: The strong business margin is driven by active project management and optimizing opportunities in the business market. We have a positive outlook on maintaining these margins going forward.

Q: Payments to obtain contracts were up in the third quarter. What should we expect going forward? A: With current supply change statistics, we are in a favorable environment with fewer supply changes, allowing us to maintain moderate marketing and sales spending. An annualized level of around NOK140 million is a good indication for the time being.

Q: Can you give a status update on the initiatives regarding the optimization of costs of goods sold mentioned on the capital markets day? A: We are recruiting manpower and are nearly fully staffed. We are on track to take over the entire model from Fjordkraft by May 1, 2025, and are excited about the opportunities to benefit from having this operation in-house.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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