Good morning, everyone, and welcome to our Q3 presentation. My name is Rolf Barmen, Head of Elmera Group. Our CFO, Henning Nordgulen, is with me today, and will, as always, go through the financials. After he has finished his part, I will give you some words on our focus areas, for the coming quarters. Morten Opdal, our Head of Investor Relations, is also in the room with us today. And he takes questions during the presentation and address them to Henning and me in our Q&A session. So overall, we are satisfied with the group's financial performance this quarter. Seasonality normally affects both sales development and profitability during the summer months, and 2022 was characterized by some very positive effects connected to the development in the Elspot during the quarter, this being a tough comparable to this year's Q3 results.
The consumer segment came in slightly weaker than we expected. This mainly due to delayed implementation of the announced price increases. Increased volume year-on-year is a good indicator when it comes to whether we are able to capitalize on the increased markups. It's also a very good indicator going forward, that the segment has managed to make price announcements without significant customer churn during the quarter, and it is indeed, a relief to see that Fjordkraft's reputation actually is improving. Speaking of reputation, worth mentioning is also the improvement of the Fjordkraft app ratings in the Google Play and the Apple App stores, as the app is a major brand, a major part of the value proposition, to the brands. I come back to that in the outlook part.
As for the business segment, we are very pleased to see volume increase also here. Operationally, we have deployed improved efficiency within customer service, and we have also managed to make our sales resources more effective. The business segment has also managed to mitigate the most significant market trend affecting the demand side this quarter. Thus, we are also really satisfied that with the development in the number of customers. Volume in the Nordics develops according to plan. We continuously monitor our fixed price portfolio, phasing out non-strategic customers, and sales within core business is according to plan. The organization in the Nordics is, together with Gudbrandsdal Energi, preparing for migration to the Elmera IT platform next year. The New Growth Initiatives segment is performing really well this quarter, financially speaking. Multiple business lines contribute, mobile in particular.
We expect a strong Fjordkraft Mobil going forward, but this quarter is, to some extent, extra fueled by campaigns. As you can see from the chart to the left, we have experienced a historic low price sentiment this quarter. We do not expect this to be the new normal, but we expect this throughout Europe. What might disturb this scenario is much colder weather than normal or geopolitical turmoil, potentially affecting the gas price. To the right, you see monthly supplier changes, the development obviously reflecting lower prices. Kantar's second tertial report 2023, the most recognized market survey within electricity retail in Norway, was newly released. The Fjordkraft trend continues when it comes to market share, reflecting the brand's undisputed pole position as the market leader in the Norwegian electricity retail market.
Fjordkraft stands out as the most attractive player for customer considering a new supplier. Fjordkraft also upholds the clear number one position when it comes to top of mind and brand knowledge, with solid margins to the closest competitors. Now Henning will go through the numbers. The floor is yours, Henning.
Thank you, Rolf. The Q3 is typically a low contributing quarter, given the seasonality and consumption. Net revenue adjusted ended at NOK 350 million. Our reduction was year-on-year, driven by product mix changes in the consumer segment. In comparison, the Q3 of 2022 was very strong, partly as we had favorable hedging effects related to the variable products. The reduction in the consumer segment was partially offset by a strong development in the NGI segment, driven by mobile post-integration with Telia. We had marginal one-offs in the quarter, amounted to NOK 2 million, which were related to our cost-saving program. Operating expenses were NOK 297 million, down NOK 6 million from the Q3 of 2022, despite inflationary pressures on salaries and other expenses during the last 12 months.
Our prognosis still indicates that we will reach our target run rate level in the Q4 of this year. The free cash flow in the quarter was strong, and financing costs were reduced from Q2, as expected. Also, in this quarter, we saw a reduction in net working capital and net interest-bearing debt. This was due to seasonally lower volumes and reduced Elspot prices. Some of you may have noticed comments in Norwegian media about Fjordkraft customers who have exercised their right to cancellation and then received a refund of their electricity invoices. The fact is that a very small number of customers utilized the cancellation option, and we made a minor provision for this in Q2. We have now concluded the matter, and the net effect in Q4 will be marginal. In the consumer segment, I'd like to focus on two important factors.
Firstly, the deliveries remain stable from the Q2, despite price increase notifications to many of our customers. So far, the notifications across our consumer brands have not had measurable impact on churn. Our growth ambition is unchanged, but for the time being, we prioritize profitability over growth. Accordingly, we accept that some of the price hunters find other suppliers. Secondly, we observe that the volume per delivery is increasing, supporting the volume growth trend, and we attribute this to less energy saving due to the lower Elspot prices and continuation of the power support scheme. Despite these drivers, net revenue decreased 33% year-on-year. This was due to the reduction in the share of variable contracts from 27% at the end of Q3 last year to less than 7% at this quarter end.
In addition, we did have positive hedging effects in Q3 last year, but as we remember, this also turned to a demanding Q4 of 2022. That is, we deliver more predictable results and with significantly reduced risk compared to a year ago, and the price changes that we have announced will have part effect in Q4 this year and full quarter eweect from Q1 of 2024. Then over 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. Net revenue decreased by NOK 11 million year-on-year, primarily as a result of low Elspot prices, which had a negative impact on credit compensation and success fees. EBIT adjusted was NOK 30 million in the quarter.
The year-on-year reduction was partly driven by increased IT costs related to our digital products and services. In the Nordic segment, the number of deliveries has been quite stable over the last quarters after phase out of legacy fixed price contracts with profile risk from early 2022. The Q2 of this year was particularly strong, given that we also experienced favorable price and volume development. The risk is reduced, the competitive situation in Sweden and Finland is attractive, and we continue to focus on our organic growth in both the B2B and B2C markets. Within the new growth initiatives, we've had some reduction in volume sold in the Alliance concept, as we lost some partners over the last 12 months, but we are now in the process of initiating operations with new companies who have joined us from October.
Then we have promised that Fjordkraft Mobil would give a measurable positive contribution when the migration to Telia was completed. This was definitely the case in Q3, where we also had a unique effect due to the discontinued data, voice, and traffic during the migration period. Sorry, discounted data and voice traffic during the migration period. Going forward, we expect a NOK 30 million improvement in the annual EBIT adjusted for mobile compared to the level pre-migration. The net working capital came down to NOK 190 million at the end of the Q3, which is a reduction of NOK 432 million compared to 30th of June. Seasonally, lower volumes and lower Elspot prices were the main drivers for the decrease.
With stronger group liquidity, the overdraft facility utilization was reduced by a further NOK 415 million in the quarter. This picture will change as we come into the winter months with increased consumption, but also depending on price development. On the right-hand side, net interest-bearing debts decreased by NOK 471 million to NOK 864 million, driven by the reduction in the net working capital. EBIT adjusted was NOK 119 million in the quarter, CapEx stable at NOK 9 million, and payments to obtain new contracts came down to NOK 39 million. This resulted in a cash EBIT adjusted in the quarter of NOK 76 million. So finally, let's elaborate on contract acquisition. The trend of reduced cash spending continues.
In fact, the annualized run rate, based on the cash spending year-to-date, is down 43% compared to 2021 and also significantly below 2022. Our brand strength and competitive position has allowed us to maintain and grow the customer base while simultaneously lowering the acquisition cost. This contributes to strengthening the operating free cash flow. In the Q3, the amortization cost was NOK 50 million, while the cash spend was NOK 34 million. That is a difference of NOK 16 million. Over time, the amortization will converge towards the cash spend level, which, all else being equal, will improve the group's results. I then give back the floor to you, Rolf.
Thank you very much, Henning. When it comes to outlook for the power market, prices are expected to be significantly lower the coming winter and spring than in 2023. As I said, abnormal weather conditions and also geopolitical issues potentially affecting the gas price can disturb this picture. But all in all, we have every reason to expect consumption to come up and cost of financing to come down compared to last winter. Having said that, the positive cost of finance effect from reduced Elspot prices will be somewhat reduced by increased NIBOR. The financial power trading marketplace has been characterized by lower liquidity than normal, affecting product management and price offerings negatively.
We stated in our Q2 presentation that we expected improved conditions, and the government announced in their budget proposals termination of the windfall tax as from the October 1 this year, positively affecting liquidity on the marketplace. When it comes to regulatory issues, we uphold that we do not expect new regulations with significant effect on the group's financial performance. Finally, I will give you an update on our key development initiatives. For the business segment, we still focus on increased penetration cross-border. The operation is developing according to plan. And in Norway, the demand for fixed-price contracts, which we offer together with Statkraft, is slowly picking up speed as prices now are coming down.
As stated initially, we are working on efficiency in this segment, and we look forward to seeing strength and results from this work going forward. When it comes to the consumer segment, we made a revision over our consumer product portfolio this spring, and we have reduced our different products significantly. Our variable portfolio, offering a fixed price for 30 days to the customers with no requirements to a corresponding binding period, currently seems to have flattened out slightly below 7%. From a risk perspective, this represents a volume that we are comfortable with, but we do no activities to uphold this share. That being said, we are welcoming initiatives from the authorities to fuel some kind of fixed price offerings also in the consumer segment, as we did for the business segment.
We have also decided not to actively address the price hunter sentiment for time being. Investment in app development and relevant value propositions require focus on profitability. Gudbrandsdal and Fjordkraft are the most attractive brands in Norway, and particularly Fjordkraft has recently launched multiple service in the app that customers find very attractive. The app itself is being used by several hundreds of thousand customers, and the attractiveness has really peaked this quarter. And we are very pleased to observe that the app now is acknowledged with a very high score in the app stores of Google and Apple. The app continuously develops to bring more value to the customers, thus justifying the increased markups we have initiating during the quarter. I'll give you two examples. This picture shows what we call Døgnmaks, a service that helps customers to optimize their grid rent.
The pricing of the grid rent depends on how frequently the customer's momentary consume passes a threshold value, which actually can increase the grid rent with hundreds of NOK each month, if not monitored closely. Our new service alerts the customers so that the consumption can be reduced when the household is getting close to the threshold. As you know, we already offer our EV charging customers with smart charging. But this picture shows Fjordkraft's new service called Prisprognose, where prices five days ahead are predicted, so customers can plan general consumption even better. When it comes to our cost efficiency program, we have put in place project to migrate both Gudbrandsdal and Nordic Green Energy to the Elmera IT platform during 2024. Around 250,000 customers altogether.
Our NOK 100 million cost reduction target is on track, with NOK 25 million cost reduction in Q4 this year compared to last year. When it comes to our acquisition M&A agenda, we still pursue accretive acquisitions. We have credit lines available, and we monitor all three countries. There are prospects to be looked upon, but we are cautious, and up to now, prices have been too high. And finally, when it comes to developing new revenue streams, we are exploring opportunities within solar installations and corresponding financing solutions, particularly in the B2B segment. This ends our presentation. We are ready for the Q&A session. Morten, do you have any questions for us?
I do, Rolf. We can start off with a question on the consumer segment and whether we can elaborate a bit on how to think about profitability in that segment going forward.
Yeah, a very important question. First of all, we observe that close to all the players in the consumer segment in Norway, you know, increase their markups. 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 to cover deficits year after year. So this observation is really important. Secondly, value propositions are strengthened a lot. Proof of concept is that retailers like Fjordkraft, Gjensidige, and Trøndelag Kraft, help customers to reduce their total bill of electricity as the customers utilize the features these retailers offer from their value propositions. 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 next year will bring scale advantages to our operations. We also see potential on the sourcing side going forward, which we will put even more efforts to leverage from. Finally, 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. So I think these three elements are crucial when we are looking upon the segment's ability to earn money going forward, and we are well positioned here.
Thank you. The next question is on the business segment, and the fact that the margins in the segment have decreased. Why have they decreased, and should we expect a further decrease in margins going forward?
The increase is, as we have said earlier, it stems primarily from IT costs related to digital products and services, and this area is an important differentiating factor for us, so we need to make sure that the quality of our offerings and services is at the top level. That being said, we continuously work on the cost side of this operation, particularly when it comes to efficiency in terms of handling inquiries and sales processes. When it comes to the net revenue side, the extraordinarily high Elspot prices until spring this year have given some tailwind to revenues, as certain revenue streams are correlated with price level and positively affected by an increased Elspot price. But I want to say that the segment is performing very well.
We have a strong position, and we will, we will continue to further develop the business in this segment.
Thank you. Can you give an update on your dialogue with regulatory entities?
Yes, of course. Let me say that we work closely with regulatory authorities and politicians to ensure an attractive energy market for all players, also in the future. I've said many times, we have experienced almost 10 years now with high predictability when it comes to the regulatory framework. The regulators' focus has been concentrated on leveling the playing fields, and multiple measures, which we have acknowledged, and highly supported, have been put in place. The situation in Ukraine and the impact the gas situation had on the prices in the power market did not put the pressure on the regulatory framework as such, but we do understand the need for the politicians to take action. The support scheme that was launched, and still is in place, was a good measure to mitigate negative effect to end users.
From our perspective, the instrument eases the burden, and at the same time, it still stimulates energy saving. Our take, based on multiple, meetings and conversations with stakeholders and politicians, is that the majority of the decision makers understand that the way the retail market is regulated in Norway actually is the best way of organizing such a marketplace. And this is also the recommendation from the Electricity Price Committee, who just hand over their conclusions to the government. So, this is why we believe that the regulator will continue to regulate the market in a balanced way and continue the path they have followed for a long time now: level the playing fields, increase transparency, support to the Trygg Strømhandel certification, and strengthen focus on the importance of the retailer's role in the value chain.
All right. We have a question on the New Growth Initiatives, which show strong figures this quarter. Can you quantify the network effects in the quarter and what the underlying EBIT adjusted would be?
The effects in the quarter is a result of multiple business lines within the NGI segment.
we have not disclosed the exact effect of the network change. So that will have to be worked out by the analysts and the investors. The important message from us that we now see a clear picture of a profitable mobile business, increasing our EBIT adjusted by NOK 30 million per year going forward.
The next question is on the product Spot med forvaltning, spot with management in English, and we've had loss on that product.
Obviously, the product has a long history of beating the spot price. This is a product or a service to level out spot price over time. It's quite clear that in the price sentiment we have been seeing the last couple of months, it's not that easy to win. So it will be some highs and some downs. It is important to understand that the purpose of this product is to reduce the peaks in the spot price. And this is what happens also over time. So you cannot only take the good part, you have to join the product also when it goes a bit down. And overall, it's been a very good product for a long time now.
Okay. Can you comment on the share of variable contracts at the end of the quarter, and what do you expect for the Q4?
I can take that, yes. As we had said many times, we are phasing out the product. We have provided our customers with thorough information about the price plans and alternatives. I think that it is fair to say we now have around or slightly below 7% of our customers have got this product now. It is difficult for us to actively reduce it anymore. But the margins, it's very important for us that we have solid margins on this product because it is an asymmetric deal we have. The customers can leave us the next day, but we are obliged... We have to secure and hedge the volume, their volume for the next 30 days. So we need a good margins.
I think that when we have the share, the number of customers that we have now and the volume we have now, it is from our perspective a satisfying risk perspective. Satisfying in a risk perspective. But we believe that this product will be phased out. We have seen it flattened out, but it might have its renaissance when the liquidity of the market is putting up speed again. Because then we can have other kind of products that, or services that can give the consumers a fixed price for 30 days, or for 60 days, or for 90 days.
So, but for now, we are happy with the share, and we do not do any active activities to uphold the number, actually.
Couple of questions on the cost program. Can you please provide an update on what we should expect from the cost program for the Q4 and onwards? Yeah.
Yes, just to repeat our target, it's a reduction in our run rate and OPEX of NOK 100 million annualized, which translates into a NOK 25 million reduction in the Q4 of this year, which was reported NOK 344 million in the Q4 of 2022. So in this quarter, we report a NOK 6 million reduction year-over-year. And as we have said in earlier earnings releases, it will be backloaded. We'll have most of the effects materializing towards the last quarter in this year. This is still the case. Particularly in this quarter, we also had project starting activities which are expensed, not capitalized. So in that sense, we are better ahead than the NOK 6 million improvement versus Q3 last year indicates.
So we are on track. Our prognosis indicates that we will reach our target, and from then on, this will be a continuing process of managing cost efficiencies.
Is it the consumer segment that will see most effect from the cost-cutting program?
All things being equal, yes, that's where we have seen and will see most of the effects. But we are, this is a program for the group. It's on all business units. It's on all cost lines. It's a comprehensive program, but most of the effects have and will materialize in consumer.
Then there's a question on the price notification, and price increase in the consumer segment. Can you give an estimate on the expected net revenue effect from the price increase within consumer for 2024?
No, we cannot guide for 2024. As we said earlier in the earnings call, we had very limited effects in Q3. We will have part quarter effect in Q4, and then the Q1 with full quarter effect is Q1 of 2024. But we cannot give you the details of the effects.
Okay, the next question is the following: Is it correctly understood that the decline in the business segment this quarter is driven by the low Elspot prices and not driven by any structural changes?
Yeah, I would say so. We have... The segment has been very good in mitigating the market trends. But of course, the interest and the financial income from higher Elspot price is not that easy to mitigate. So, I would say that's a correct take.
Thank you. There's been some discussion in the media about a lack of availability of hedging products in the financial markets, due to tax regulation and other matters. Can you comment on whether this has an impact on the profitability in the business segment?
I think that we have been in a good position when it comes to liquidity, well, just for the business segment. I think that it is the consumer segment that are being most hurt, actually. So the business segment, we also have replaced some of the demand for those kind of products with the fixed price contracts we are doing together with Statkraft. I think that the lower liquidity has first and foremost affected our ability to launch certain fixed price products or what we call roof prices and that kind of stuff in the consumer segment.
Okay. We have a question on financing and interest expenses. Could you please comment on the dynamics between the variations in interest expense, power prices, and how the NIBOR development is affecting your financing costs?
Yeah, quite a comprehensive question. I think then I have to start with the last part. NIBOR is easy to follow. All our financing is NIBOR plus spread-based, to some extent, detail also in the notes to the quarterly report. So, significant increasing of our financing expense over the last several months, given the sharp increase in market rates. And we will not speculate in market rates going forward, apart from the fact that there is--it's more likely that we see a leveling out, at least in terms of the NIBOR market rate. When it comes to dynamic, it's relatively complex to explain in a short comment. We have both our long-term financing related to M&A activities.
We have our short-term financing arrangements, which are part of our working capital arrangements, and we have a supply credit arrangement with our sole provider of electrical power and also financial products, Statkraft Energy, which are also based on NIBOR plus a spread. So, in that part, it will fluctuate quite logically with consumption volumes and electricity prices, and the reason why this has come down significantly in Q3 compared to Q2.
Okay, and the last question, and it's a follow-up question on the consumer margin and price changes. Can you confirm that the net revenue effect from price increases in the consumer segment will be considerable for 2024?
No, we do not guide for 2024, and accordingly, we cannot give insight with respect to that question. It will materialize in the quarters to come.
Okay. That concludes the questions.
Thank you very much. Have a nice day.