Good morning, and welcome to our fourth quarter presentation. My name is Rolf Barmen, Head of Elmera Group. Our CFO, Henning Nordgulen, is, as usual, with me and will go through the financials. After he has finished his section, I will come back and give you some words on our focus areas for the coming years—for the coming quarters. Excuse me. Morten Opdal, our Head of Investor Relations, is also in the room with us today. He takes questions during the presentation and address them to Henning and myself in our Q&A session. But first, some reflections on the quarter and the full year, from me. The fourth quarter was characterized by strong operational performance across all of our business segments, and for the group, it turned out to be a historically strong fourth quarter.
So we are very satisfied with how the group is developing. But before we dig into the quarter, let me give you some reflections on the full year. I'm personally, especially proud of how the organization has executed on our cost reduction program, and the fact that our annualized OpEx run rate has been reduced, by around NOK 100 million, compared to year-end 2022. This has been an important measure for us in order to mitigate effects such as changes in our product mix and increasing financing costs. Cost discipline will continue to be an important focus area for us, and I will come back to our ambitions on the topic in the outlook session.
I'm also very satisfied with how the consumer segment has managed to change the product portfolio from dependent on variable products to a more robust structure, mirroring the governmental price support scheme. I'm also proud of their boldness when it comes to increasing the market to put a fair price on the value proposition. Furthermore, I'd like to mention the app's development and penetration, and not to forget the availability of the customer service, which is now significantly increased. As for the business segment, we have seen proof of concept when it comes to cross-border product management during the year, and we also saw an unparalleled implementation of a completely new range of fixed price contracts separated from the financial marketplace here in Norway.
As for the Nordic segment, they have obviously done a tremendous job improving profitability, reducing risk exposure, and they've also taken giant leaps when it comes to the Nordic Green Energy brand positioning. When it comes to the new growth initiative segment, the past year, we also made the largest migration of service product customers within telecom in Norway, which in turn improved profitability significantly. The valuation of Fjordkraft Mobil when Telia bought 39% of the shares showed that the group is able to create valuable assets, and we are looking forward to do the same within other business areas in the years to come. So onto the fourth quarter. Both the consumer and the business segment shows growth and volume sold year-on-year.
This was partly driven by cold temperatures in Norway, particularly in November and December, which increased average consumption per delivery. In the consumer segment, we have successfully increased the price on a substantial share of spot contracts, and the customer churn related to price increase was in line with our expectations. As we have communicated over the last couple of quarters, we prioritize profitability over growth and therefore focus less on maintaining low-contributing customers. Financially, the year-on-year improvement in the segment was significant, which in part can be explained by a weak fourth quarter in 2022, which obviously was affected by losses on variable contracts. Through the changes in the product portfolio over the last year, the segment has become more robust, with substantially reduced price and volume risk.
The customer growth in the business segment also contributed positively to the volume growth. The segment delivered strong results in the quarter, despite less favorable price development in the quarter, and the segment maintains the position as the leading player in the Norwegian B2B market. In our portfolio, new growth initiatives, I would like to highlight that after some customer churn following the migration, the number of mobile subscribers did stabilize in the fourth quarter, and the trend has continued into first quarter this year. The rationale behind the network migration was to improve profitability, and the year-on-year improvement we observe in the quarter is in line with the pre-migration guidance, which we, of course, are very satisfied with. The Nordic segment is also developing according to plan.
Our strategy of phasing out legacy fixed price contracts resulted in a significant improvement in financial performance year-on-year. The customer satisfaction development in the Nordic B2C market is truly a success story, where we have gone from being actually blacklisted in Sweden to positioning among the top three players in Finland. So that's a really good story. Regarding dividend, the board of directors proposed to the AGM a dividend of 2.3 NOK per share. This is equivalent to a distribution ratio of 109%. On that note, it is appropriate to inform that the part sale of Fjordkraft Mobil to Telia in 2023 did not have a P&L effect, but strengthened our equity and generated cash proceeds of NOK 117 million.
For now, I will leave the floor to Henning, who will go through the financials. The floor is yours, Henning.
Thank you, Rolf, and good morning. The fourth quarter is typically a high-contributing quarter for the group, given the seasonality in consumption. In the fourth quarter, the average temperature in our markets was lower than normal, further boosting delivered volumes. Net revenue adjusted for the group ended at NOK 474 million, and EBIT adjusted was NOK 157 million. In fact, this was the second-best fourth quarter in the group's history. The increase year-on-year was driven by improvements in the consumer and the Nordic segments, which I will get back to. Operating expenses were NOK 317 million, down from NOK 344 million in the fourth quarter of 2022. With that, we reached our target run rate reduction of annualized NOK 100 million.
The free cash flow in the quarter was strong, aided by a reduction in cash spend on external sales commissions, which was reduced by more than 50% year-over-year. On market development, as you can see from the chart to the left, we experienced higher average prices and some more volatility in Q4 compared to the previous quarter. We do not expect price shocks for the rest of the winter, mainly due to an improved energy supply situation in Europe. Still, this might be disturbed by periods of unusually cold weather or geopolitical turmoil. To the right, you can see the monthly supply changes in Norway. The development is stable and reflects the moderate price sentiment and the continued power support scheme for consumers. Moving on to the segments.
Over the last quarter, we have talked in our earnings calls about the need for price increases to mitigate the effect from increased working capital costs and changes in product mix in the consumer segment. Compared to the fourth quarter of 2022, deliveries were down by 18,000, primarily related to variable contract migration early in 2023, and a minor increase in churn following price increase notification in the last quarters. The volume per delivery has been increasing, supporting the volume growth trend. We attribute this to less focus on energy saving, continuation of the power support scheme, the price level, and the temperatures. On this basis, net revenue increased 38% year-on-year. In comparison, the fourth quarter of 2022 was soft, as we had negative effects from the product migration and hedging imbalances related to the variable products in the segment.
Combined with the reduction in operating expenses, this led to a significant improvement in EBIT adjusted from Q4 of 2022. Moving to business. Volume in the business segment increased both year-on-year and over the last 12 months due to an increase in the number of deliveries. The fourth quarter was also positively influenced by increased consumption due to the weather conditions. Net revenue decreased by NOK 8 million from Q4 2022, primarily as a result of lower Elspot prices, which had a negative impact on credit compensation. EBIT adjusted ended at NOK 89 million in the quarter, mainly driven by the reduction in net revenue. Over to the Nordic segments, and in the Nordic segment, the number of deliveries has stabilized over the last quarter after phase-out of legacy fixed price contracts with volume and production profile risk from early 2022.
Net revenue adjusted more than tripled year on year as a result of the revised product strategy, and we did not experience the adverse profile effects that we had in Q4 of 2022. Overall, the risk in the Nordic segment is significantly reduced. We have strengthened our organization and technological platform. We consider the market dynamics in Sweden and Finland attractive, and we are well positioned for growth, both in the B2B and B2C markets. Within the new growth initiatives, we have a temporary reduction in volume sold in the alliance concept, as we lost some partners over the last 12 months. This was mainly due to mergers of vertically integrated energy companies, but this will level out as new partners have come on board during the fourth quarter.
EBIT adjusted for Fjordkraft Mobil is developing in line with pre-migration guiding, where we expected an annualized improvement of about NOK 30 million. The net working capital was marginally negative at quarter-end. This was primarily a result of power purchase settlement effects. Normalized for these timing effects, the underlying working capital would have been around NOK 700 million at year-end, which is in line with our expectations given the season and the price levels. On the right-hand side, net interest-bearing debt decreased by NOK 295 million to NOK 569 million, driven by the strong cash generation. EBIT adjusted was NOK 290 million in the quarter. CapEx increased marginally to NOK 50 million, while payments to obtain new contracts came down to NOK 28 million. This resulted in a strong cash EBIT adjusted in the quarter of NOK 176 million. Turning to cost.
You are all aware of our commitment and our program to reduce the baseline cost level during 2023. We are very pleased that OpEx came down NOK 27 million in Q4 2023 compared to Q4 2022. This represents an annualized reduction in the run rate cost level of more than the target of NOK 100 million. Our cost efficiency focus will continue into 2024, and our goal is to maintain a nominal cost level in line with 2023 for the next years. To elaborate on the cost development, the trend of reduced cash spending to acquire contracts continued in Q4. In fact, the cash spending in 2023 was down 41% compared to 2022, and 47% from 2021. In the fourth quarter, the amortization cost in the P&L was NOK 45 million, down from NOK 50 million in Q3.
This shows that with the current cash spending level, amortization cost will continue a reducing trend over time. I then give the floor back to Rolf.
Thank you very much, Henning. In this section, I would like to give you an update on the status for key development initiatives, as I usually do. First off is revenue growth, and particularly our activities in the Nordic segment. As I mentioned before, Nordic Green Ene rgy has seen a significant improvement in customer satisfaction readings lately. The reason for this is the introduction of our smartphone application to the Finnish B2C market, enabling our customers to monitor their consumption and cost of electricity. This is something we have learned to take for granted in Norway, but the Finnish market is less mature than the Norwegian market and has historically been dominated by fixed-price products, which this sort of price awareness has been less relevant.
Now that the market is transitioning towards more spot-based products, we experience success in exporting our know-how and expertise from the Norwegian market to our neighboring countries. Next up is Sweden, where we plan to launch our app during first quarter. Further, we of course expect to continuously leverage from our cross-border management in the business segment, which so far has proven to be a success. When it comes to the consumer segment, we continue our journey towards strengthening value proposition and increased transparency. From the first of March, we will reduce the invoice fee. Financial impact of this will be minor, as the share of customers on this product is relatively low. Going forward, we are excited about our new concepts relating to our loyalty program and the marketplace.
We intend to strengthen the Fjordkraft ecosystem by allowing customers to earn loyalty points and use them on the marketplace. Currently, the financial impact from this initiative is marginal, but as our products and services become increasingly more digital, we believe the ecosystem will become an important tool in building customer loyalty going forward. Gudbrandsdal Energi will roll out the marketplace in their brand during the second quarter. The next key development initiative is to improve cost efficiency. As mentioned, I'm very proud of our efforts in reducing annualized run rate OpEx by NOK 100 million compared to year-end 2022. For the next two years, we target a stable nominal cost level in line with 2023. That is, we will continue to increase our efficiency in order to neutralize inflation and increasing wages.
One of the measures to obtain this increased efficiency is that we, during the next 12-14 months, will migrate both Gudbrandsdal Energi and Nordic Green Energy onto our Elmera IT platform, around 250,000 customers, which, from our opinion, will bring scale advantages to the group. Another way to improve cost efficiency is to capitalize on our existing platform and set up with additional customers. Our opportunistic approach to M&A is still valid and will pursue high-quality assets, though only if the pricing is attractive and the acquisition is sufficiently accretive. Finally, our new businesses. After the migration to Telia network, our mobile business is positioned for growth, both financially and in terms of market share. We have a lean and dedicated organization in place that also is capitalizing on the brand and resources from the Fjordkraft organization.
Within our rating and billing services, we have signed our first grid company and expect implementation during the third quarter. This opens up a new market for us. Lastly, we see asset development opportunities within the group's subsidiaries and associated companies, and we are intrigued about the development and growth opportunities ahead. Before we start the Q&A session, I'd like to remind you about our upcoming events. Our first quarter presentation takes place on the eighth of May. And we will also arrange a Capital Market Day in June, and the exact date we'll communicate it in May. So let's start the Q&A session. Will you come up here with me, Henning? And Morten, can you please tell us some interesting questions that I believe you have got?
... We have some questions, we have received from the audience, and the first one is the following: the results in the consumer segment was weaker than expected, given the high volume in the fourth quarter. How should we think about the future?
Thank you. From our perspective, we have succeeded with our revision of the product strategy in the consumer segment. The fourth quarter margins are up across all the brands, but of course, there is still room for improvement. We observe that close to all players in the consumer segment in Norway increase their markups now. The markups must reflect the cost of running a retail business, and it is obvious that the owners of the retail companies do not find it sustainable over time to cover deficits year after year. Secondly, value propositions are strengthened a lot. Proof of concept is that retailers like Fjordkraft, Gudbrandsdal Kraft, and Trøndelag Kraft helps customers to reduce their total bill of electricity as the customers utilize the features these retailers offer from their value propositions.
So, the willingness of payment is increasing. I will also highlight the scale advantage. There are scale advantages on the cost side, both when it comes to processing, sourcing, and marketing. From our perspective, migrating around 250,000 customers to the Elmera platform the coming year will bring scale advantages to our operations in at least 2025. We also see potential on the sourcing side going forward, which we'll put even more efforts into to leverage from. And finally, from the top of my head, when it comes to scale, having a strong brand perception, being top of mind, is a prerequisite to have the most efficient marketing span on the playing field.
All in all, I'm convinced that we are well positioned to develop the consumer margin in a positive way going forward.
Okay, a couple of questions on the cost guidance. Can you clarify whether your cost guidance is in nominal terms, include depreciation or not? And what is the reference figure for 2023?
It includes depreciation, includes inflationary effects, and payroll effects. So the guidance figure is the full year figure for 2023-
Yeah
... or NOK 1.219 billion.
OpEx adjusted. So it does not include the depreciation of acquisitions, but all other regular depreciation and amortization of-
Thank you for clarifying that. No, that is correct. It does not include depreciation on acquisitions. Operating costs, adjusted.
A second question on the cost program: How do you consider your targeted level relative to the competition?
I think that we have to see that we are a large group now. Our costs do not only reflect the same cost structure that our competitors in the consumer segment, for example, have. So, all in all, I would say that our... We are competitive when it comes to cost structure, to, for example, Fjordkraft, the company of Fjordkraft, the business of Fjordkraft, definitely.
I can add a little bit on that. We are, as Rolf explained, carrying out two quite substantial migrations in technological terms, bringing in Gudbrandsdal Energi and Nordic Green onto our platform. Normally, those are projects that will increase cost, you know, in interim. We are still guiding on a stable nominal cost level, and of course, this positions us for increasing our efficiency going forward from 2021, 2025 onwards.
Okay, the next question is on in the customer segment. Deliveries in the consumer segment has dropped, and you look to be more focused on profitable customers. What should we expect going forward? Is deliveries supposed to be declining, or where do you see growth?
We have said that we have, we do let the price hunters go. That's our strategy. But we also see that we got a lot of new customers as well. So, I think that we can expect that during this year, the customer loss, particularly in the consumer segment, will level out. And my expectations is that we will see, actually, an increase in the customer population, at least the second part of this year.
Okay, a question on the Nordic segment. Nordic was strong in the quarter. Is this a level we can expect going forward?
Well, we are very pleased with the development in the Nordic segment, and as we explained, the, the market risk is significantly reduced. We also lost on volumes, so now we focus on growing the customer base and increase profitability. Likely, there will be-
... We do not expect any big surprises on the downside in the results going forward, and we are positioned for recovery in revenue and EBIT over time. But we are stably building that business, so it will take some time to develop significant results.
Thank you. Next question is on the business segment. How do you see the competitive landscape in this segment?
No doubt that we have some tough competitors, but we are the leading player in the Norwegian market. We have seen that the fixed-price contracts that was implemented last year is no more attractive than they were a year ago due to the price level coming down. We have this in our portfolio, so we definitely have an edge in this marketplace. I think that we are very strong when it comes to competing with the other players at least in Norway. And then we are an upcomer and a disruptor in Sweden and Finland, and we are looking forward, of course, to grow in the Nordic segment with our business activities as such.
Okay, a question on M&A: Do you expect any acquisitions in 2024 in connection with market consolidation in the Nordics?
That's a difficult one. We expect every year M&A transactions, but we have to look thoroughly into the prospects. And still, we see that price expectations are a bit too high. But yeah, it is possible with acquisitions this year, so we have to wait and see.
Okay, a question on the consumer segment again and on pricing: You and many of your competitors have lifted prices, slash markups recently. Can you share some light on the current market dynamics?
It is tough, but it definitely is the situation that almost all other players have to increase their markups. The cost side is developing, so they just have to have a sustainable business, they have to increase margins. And this, of course, we leverage from as a larger group. So I think that even though it is tough competition, I think that both Fjordkraft and Gudbrandsdal Energi and Trøndelag Kraft, regionally in Trondheim, are doing very well in the competition.