COMPANY PRESENTATION 1 Fjordkraft at a glance a leading Norwegian - - PowerPoint PPT Presentation

COMPANY PRESENTATION

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| Company Presentation | 2019

Service offering to local and regional electricity producers Mobile offering launched in 2017 New Growth Initiatives (“NGI”)

Fjordkraft at a glance – a leading Norwegian electricity retailer for both consumer and business customers

Alliance Mobile

70% 27%

Consumer Business

3%

Source: Company information 1) Number of deliveries and subscribers at the end of 2018

Private households buying electricity for everyday life SMEs, large enterprises and public sector customers purchasing electricity and advisory services Typical customer Typical customer

SMEs Large enterprises, public sector Primary homes Secondary homes

= Share of 2018 net revenues (adj.) Electricity retailers

Distribution system

• perators (DSO)

Transmission system

• perator (TSO)

Energy production End-customers

Gross revenue NOK 6,721m EBIT adj. NOK 390m # of electricity deliveries1 ~605,000

2

Net revenue adj. NOK 1,088m

 

Deregulated:

 

1.4 million people are supplied with electricity from Fjordkraft!

2018 financials

# of mobile subscriptions1 ~66,000

| Company Presentation | 2019

8 82 49 48 59 87 43 45 68 52 31 78 226 304 325 354 390

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

A highly successful strategy execution has resulted in an impressive profitability shift and net revenue growth

Impressive net revenue and EBIT development… Net revenue adj.1

in NOKm

2002-2012 2013-2018

Source: Company information 1) NGAAP until 2015, IFRS for 2016 and 2017. 2016, 2017 and 2018 excluding estimate deviations, other gains & losses, special items and depreciation of acquisitions

Fjordkraft established 2001 through merger of BKK and Skagerak Energi’s respective electricity retail operations

…enabled through optimisation & focused investment 2014

New management and strategy in place

Today

Optimisation of product management Investment in top-of-mind and loyalty programs Investment in sales resources Investment in

• perational excellence

2014

3

EBIT adj.1

in NOKm

199 293 237 217 251 273 244 245 326 362 336 422 593 724 767 924 1 088

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

| Company Presentation | 2019

• Regulatory changes
• Merging of grid companies
• Merging of counties and municipalities
• Intensified competition
• Technology development
• Complexity and scale

The market is evolving in a direction of increased complexity in every part of the value chain - growing the need for scale The M&A target is now 150k deliveries within the end of 2020

Ambitions & opportunities

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Roadmap to growth 2019-2020

Vision / Target

2 million (+0.6 million) people supplied with electricity from Fjordkraft 875k deliveries (+235k) through growing the customer base

Organic Alliance M&A

• Continue leverage market leading brand and

distribution capabilities

• Product development to expand market reach
• Capacity to expand alliance partner base on

current Fjordkraft set-up

• Cost efficient operations and increasing

investment savings attractive to partners

• Fjordkraft one of very few with scale and

capacity to consolidate

• Market and regulatory developments

supportive – increased push for consolidation

Drivers for consolidation

| Company Presentation | 2019

Fjordkraft – Summary investment highlights

A proven business model providing ‘need to have’ electricity combined with sought after value-added services - supporting differentiation and margin robustness

1

The leading and most recognized electricity retail brand in Norway

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Attractive financial profile based on a robust business model with limited capital expenditure requirements resulting in solid add-on acquisition- and dividend capacity

3

Strong competitive advantages and a robust platform for further organic and bolt-on acquisition driven growth

4

Unmatched platform for distribution of best in class service offering to consumer and business customers across Norway

5

Operating in the attractive Norwegian electricity retailing market with an unparalleled demand profile and a level playing field favouring strong national brands such as Fjordkraft

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5

| Company Presentation | 2019

231 267 265 42% 40% 35% 35% 35% 33% 0% 10% 20% 30% 40% 50% 50 100 150 200 250 300 FY 2016 FY 2017 FY 2018

EBIT adj. EBIT margin adj.

3

• 30
• 29
• 100

100 200 300 FY 2016 FY 2017 FY 2018

EBIT adj.

93 119 154 47% 49% 53% 0% 10% 20% 30% 40% 50% 60% 50 100 150 200 250 300 FY 2016 FY 2017 FY 2018

EBIT adj. EBIT margin adj.

23 23 31 200 400 600 800 1 000 FY 2016 FY 2017 FY 2018 197 241 291 200 400 600 800 1 000 FY 2016 FY 2017 FY 2018 548 660 766 200 400 600 800 1 000 FY 2016 FY 2017 FY 2018

Impressive results driven by accelerating growth and strong product management

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Business segment Consumer segment New Growth Initiatives

• Adj. net revenue (NOKm)
• Adj. net revenue (NOKm)
• Adj. net revenue (NOKm)

72.7 32.2

• Net revenue improvement driven by growth

in # of deliveries and product optimisation

• Fairly stable development in adj. EBIT

margin1, with a slight decrease due to increased competition

• Adj. EBIT (NOKm)
• Net revenue improvement driven by growth

in # of deliveries and launch of new products and services

• Increasing adj. EBIT margin, driven by net

revenue performance and economies of scale

• Launch of Mobile in April 2017 – rapid

growth, now ~75k mobile subscribers

• Significant loyalty effect from the

bundling

• Expected EBIT positive 2nd half

2020

• Ext. Alliance concept launched late 2017
• Adj. EBIT (NOKm)
• Adj. EBIT (NOKm)

Sources: Company information 1) The dotted line is adjusted for differences between amortisation of contract assets and payments to obtain contract assets

1

| Company Presentation | 2019 363 132 (109) 518 (111) (34) (283) (100) (112)

• 100

200 300 400 500 600 700 800 900 Net cash 31.12.17 Change in NWC EBITDA adj. Payments to

• btain contract

assets CAPEX ex. M&A Acquisitions Dividend Tax, non-cash NWC elements and other items Net cash 31.12.18

Strong underlying cash generation with low investment needs, supporting attractive dividends and acquisitions

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Change in net cash Y-o-Y (NOKm)

OpFCF1 before tax and change in NWC («Cash EBIT adj.»): NOK 373m

Sources: Company information 1) OpFCF defined as EBITDA adj. less CAPEX excl. M&A and payments to obtain contract assets 2) Non-cash NWC relates to items included in “change in NWC” that are not affecting net cash position. Other includes interest, tax, change in long-term receivables, proceeds from non-current receivables, proceeds from other long-term liabilities, share based payment expense, change in post-employment liabilities, payment of lease liability and adjustments made on EBITDA. 2

| Company Presentation | 2019

Financial targets for the next two years1

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• Targeting mid-single digit net revenue growth on an organic basis

Consumer

• Targeting around double digit net revenue growth on an organic basis
• Targeted to gradually go down towards a sustainable level of slightly above 30% on an organic basis, driven by increased

competition

Business

• Targeted to increase to above 55% on an organic basis, driven by scale effects
• Targeting substantial growth in number of customers in both Extended Alliance and Mobile
• EBIT loss in 2019 targeted lower than 2018. Positive run rate EBIT expected from second half of 2020

Group New growth initiatives

• Targeting high-single digit net revenue growth on an organic basis
• Targeting a stable EBIT margin on an organic basis
• Ambition to act as a consolidator in a fragmented market

Growth EBIT margin

Cap.ex. Dividend

• Attractive and increasing dividend
• Target pay-out ratio of at least 80% of net income, adjusted for certain cash and non-cash items2
• Targeted to be in the area of NOK 40m annually on an organic basis

Growth EBIT margin

1) Base line for the financial targets is adjusted 2018 financials. All targets are adjusted figures 2) Adjusted EBIT + net finance – estimated tax – amortisation of acquisition debt

Leverage

• Moderate leverage with variations intra-year due to seasonality in net working capital
• Current balance sheet enabling substantial capacity to finance acquisitions

Revised after Q1 2019: Expected to be somewhat higher than targeted for 2019 Clarified in Q1 2019: Expecting ~25% improvement in nominal EBIT from 2018 to 2019 Revised in Q2 2019: Targeted in the area of 50 NOKm annually on an organic basis

| Company Presentation | 2019

Appendix

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| Company Presentation | 2019

System price in the day-ahead market

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Drivers for the electricity price level: Cost of:

• coal
• gas
• carbon

And renewable developments

• wind
• solar

Hydrological situation and temperature Long term Short term

Price determination is based on bids and offers from all market participants

PV Wind Hydro power CHP industry Nuclear power Gas turbines

Example demand curve

Marginal production cost TWh System price

Oil

x

Clearing point between supply and demand

Coal Heat power

The system reference price serves as a basis for financial trading and hedging through Nasdaq

ILLUSTRATIVE

| Company Presentation | 2019 11

Mandatory One Invoice Unbundling

2017-2018 2019 2020 - 2021 2021 - 2022

• Mandatory one invoice

imposes electricity suppliers to invoice grid fee

• Requirement for corporate and
• perational split of grid and

retailing:

• Brand
• ICT infrastructure
• Corporate
• Functional (+10.000 deliveries)

Smart meter (AMS)

• Roll-out of smart meters

through AMS started in 2017

• Targeting to be fully rolled-
• ut to all households by 1

Jan 2019

Digitalisation of the sector More accurate procurement and invoicing Enables growth through development of new value added services

Elhub

• 18 February 2019
• An ICT hub provided by

Statnett will centralize key tasks previously operated by the network providers based on data from AMS

Lowering technological barriers Limited effect on competitive environment for electricity retailers Some new niche players Economies of scale in billing All players must be rigged for handling the grid fee Significant loss of competitive advantage for (regional/local) players Significant positive effect for independent retail companies with existing strong national brands such as Fjordkraft

Regulatory developments providing significant

• pportunities for large independent electricity retailers

Regulatory milestones in Norway

Sources: Company information

| Company Presentation | 2019

Unmatched platform for distribution of best in class service offering to consumer and business customers

Source: Company information

More than

200

professional sales people working with telemarketing and field sales

1

750

real estate brokers selling electricity for Fjordkraft to people moving homes

2

Large and well-known distribution partners

3

1.75 million

sales conversations annually

4

100%

increase in sales from digital channels last 5 years

5

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Consumer - balanced distribution mix Business – focus on direct sales

Direct External partners

 Large in-house sales force with nationwide coverage dedicated to business customers  The only electricity retailer focusing on all business customer segments  High-quality advisory services offered to business customers

Share of new customers added in 2017

46% 54%

Unmatched distribution platform Attractive partner-based benefit programmes

Triggers for customers to choose and remain as Fjordkraft customers

| Company Presentation | 2019

PROFIT AND LOSS ACCOUNT

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| Company Presentation | 2019

ADJUSTED EBIT reconciliation cont.

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3) Special items consists of one-time items as follows: 4) Depreciation of acquisitions consists of depreciation related to customer portfolios and acquisitions of companies accounted for in intangible assets in the consolidated statement of financial position. The Group has decided to report the operating profit of the segments adjusted for depreciation of

• acquisitions. In order to accommodate this, historically reported figures have been adjusted accordingly:

2) Other gains and losses, net consist of gains and losses on derivative financial instruments associated with the purchase and sale of electricity NOK in thousands

FY 2018 FY 2017 Adjusted operating profit (before unallocated and estimate deviations) 390 142 355 730 Adjustment: (Positive)/negative estimate deviations previous year 1) 5 449

• 12 156

Other gains & losses 2)

• 10 578

7 884 Special items 3)

• 21 755
• 27 002

Depreciation of acquisitions 4)

• 36 375
• 1 834

Operating profit 326 883 322 620 Interest income 15 178 11 801 Interest expense

• 4 927
• 175

Other financial items, net

• 5 277
• 2 779

Profit/(loss) before tax 331 858 331 467

NOK in thousands

FY 2018 FY 2017 Special items incurred specific to:

• the process of listing the company on Oslo Stock Exchange
• 11 323
• 12 176
• acquisition related costs
• 11 643
• the launch of new products and services
• 14 826
• compensatory damages

4 080

• legal costs related to the compensatory damages above
• 460
• strategic costs related to markets abroad
• 2 409
• Non-recurring
• 21 755
• 27 002

| Company Presentation | 2019

BALANCE SHEET

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| Company Presentation | 2019

BALANCE SHEET cont.

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| Company Presentation | 2019

CASH FLOW

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| Company Presentation | 2019

CASH FLOW cont.

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For more information: Fjordkraft’s Investor Relations Morten A. W. Opdal +47 970 62 526 morten.opdal@fjordkraft.no