Elmera Group ASA (ELMRA) Earnings Call Transcript

Thank you, Rolf. And hello, everyone. My main goal in this presentation is to give you all a deeper understanding of our view on the regulatory drivers and why we believe that the market is even more ready for consolidation and for Fjordkraft. In this presentation, I will start with the regulatory changes in the electricity market. Then we will take a look at the mobile market, before focusing on the M&A landscape and our rising opportunities. We are now facing substantial regulatory changes as a response to the need for more innovation, cost-efficient grid development and fair competition. In November 2019, the EU Third Energy Package was implemented in Norwegian law. And this secures implementation of clearer roles and more level playing field. The authority to write new regulations lies with the Ministry of Petroleum and Energy and decision can be appealed to a new independent appeal body. And in last 2 years, we have seen a digitalization of this industry. The new smart meters and Elhub has provided us with more accurate consumption data with higher granularity and more streamlined processes between all the players. And we have also seen unbundling of vertically integrated companies and separation of end-user business and monopoly part of the companies. We will now take a deeper look at the regulations, and I will start with electricity. And this is a very important page if you want to understand the ongoing and upcoming regulatory changes. At the left, we listed the main changes going on right now. The regulation requires vertically integrated companies to separate the grid company and the retail business in several ways. The brand unbundling means that the integrated players no longer can use the same brand on a grid company and a retail company. And this has been on a public hearing and is expected from 1st of January 2021. And the demand for ICT split -- the split of ICT infrastructure is already decided with the deadline of 1st of January 2021. And the deadline for separation of companies and functions, it is also set to the same date. The functional split does not apply to companies with less than 10,000 deliveries. All unbundling is increasing competition, adding complexity and fueling consolidation. And at right, you see the expected changes in 2022 and 2023. And the most important is the introduction of mandatory grid rent invoicing, which imposes all the retailers to include the grid fee on their invoice. This will lead to better customer experience and more cost-efficient processes. And we also expect a new grid fee model, introducing max load tariff, also in the consumer market. And both regulations will lead to increased complexity and more competition. All in all, unbundling is the game changer, which gives a level playing field. And it opens up for a tougher climate -- competitive climate and even more need for scale. And we now see attractive possibilities connected to digital user experience, both in the Consumer and the Business market. Fjordkraft has during the last few years, increased the innovation focus in the user interface, helping the customers to benefit from the new possibilities in the green shift. We will come back to that later, both in innovation part and in the Consumer and Business part. All these effects are beneficial for us when it comes to M&A. And you will hear more about that under the M&A part. We will now take a short look at the mobile market. The Fjordkraft has been present since April 2017. And there are 2 big players, Telenor and Telia with several sub-brands, and they are present in the whole value chain. And are here being attacked by ice, who are also -- also on their own grid. And they're also being attacked by a handful service provider, including Fjordkraft. Telenor, are a regulator, and they must give access to their grid and to offer nondiscriminating prices and technology to the other players. And today, the regulator is conducting margin squeeze tests biannually to Evaluate Telenor's pricing. This has led to several price actions to our wholesale procurement. But the rules are still unbalanced, highly favoring network operators. The regulator ANCOM has published new market regulations, but they have conducted an extra hearing with deadline last week. And there are some important changes that I would like to highlight. The modeling players' size in the margin squeeze test is reduced from 5% to 3%. And Telenor will be mandated to provide both linear prices and bulk price models. And we expect these changes to lead to more fair and competitive wholesale prices. And more robust business models for the service providers. And this also gives the service provider a better range of tools to innovate, and it gives the customer better solutions. And the regulator has also confirmed that there can be no delay in giving the service provider competitive access to new tech generation as, for instance, 5G. The new rules are expected to have effect from Q3 this year. Then it's time to move from regulations to the most important subject, M&A. And I will focus on both our ambitions and our opportunities. And you will learn more about the prospects, the drivers and our road map to growth, and how we have developed our standardized methodology. Initially, we'll take a closer look at the fragmented market and the prospects for M&A. We have chosen to divide the market into 3 segments. The national, the regional and the local players. If we start from the top, the national players with strong regional position and national presence, having typically more than 50,000 deliveries each. Here, we have identified around 10 players with a total of 1 million deliveries. In the mid segment, the regional players, typically with a strong regional position, having 10,000 to 50,000 deliveries each. And here, we have identified around 15 players with a total of 350,000 deliveries. In the lower segment, the local players were typically very good local customer relationship, having up to 10,000 deliveries each. And here, we have identified around 100 players with a total of 250,000 deliveries. These are attractive prospects, both for standard alliance and for M&A. And the smaller companies are facing all the regulatory changes, except only the functional split. All the segments are facing big changes, and this adds up to a great potential for consolidation. The national players are facing ever-increasing competition from larger national and international players and the regional players are facing inevitable unbundling and increased regional consolidation. And the local players are facing limitation to scale and a fading possibility to run a stand-alone retail business. And here, we have listed the most important drivers to consolidation. First, regulatory changes, which we have addressed in the previous part. Now we have merging of grid companies and whole groups, this both supports a more horizontal structure in the sector. And the consolidation might lead to divestment of the retail part of the best business. A merging of counties and municipalities. This is important since they are all significant owners of our prospects, and that substantial value comes into play. Intensified competition, driving costs in most processes. This will also lead to higher churn, which erodes their local market shares and forces them out of their protected home area. Building up a strong defense and adding more sales and customer services, resources are costly. And then we have technology development and customer expectations, which are changing the whole value chain and the customer offerings. The incumbents are facing an increasing technological debt due to the digitalization of both internal and external processes, plus changes in the customer interface and value-added services competition. And last but not least, complexity and scale. The incumbents are facing a more challenging technological stand-alone setup, no longer having the possibility to lean on the monopoly part of the group. And all in all, this is driving costs per customer at a rising speed for all the prospects. The increased competition and rising costs will lead to margin pressure and scale challenges. M&A being that important, leads to the question, how is Fjordkraft addressing the opportunities? And one of the answers is that we seek to standardize our methods and use every opportunity to improve our process. And when it comes to our approach, we have experienced that money is not enough. Therefore, we have adjusted our offerings and opened up for co-ownership and local jobs. And I would like to pinpoint that co-ownership requires 2 important preconditions. First, to be connected to our extended alliance concept so that we can utilize scale in the Fjordkraft Factory. Second, that the business is based on a strong regional or national brand, which we believe has additional growth potential, regionally or nationally. And regarding the valuation, we have learned that the most important factors are EBIT per customer, existing and expected churn rate, potential cost synergies and the effect on the competitive landscape. And the great variation of these factors is implying that even EBIT multiples and customer value can deviate substantially among deals. On the right, we have list -- we have highlighted the typical cost synergies. And even though all the steps in the process are important, the realization of cost synergies is a key factor. Both by securing the value creation and by serving as an important input to upcoming cases and their valuation process. Our road map to growth also commented by Rolf, showed that we are upholding our M&A ambitions of 150k deliveries. Remaining 140k deliveries in 2020. This is, of course, ambitious. And here, I would like to highlight important reasons for us to be the consolidator. Number one, our system and process architecture, the Fjordkraft Factory has, over the last years, proven significant scale and synergy effects. Number two, Fjordkraft has grown to an attractive industrial partner, having provided scale to true industrial partnership for many years. We have now modified our strategy and decided to invite to joint ventures under the condition of running the business on the Fjordkraft Factory. We have also opened up for co-ownership in other parts of the value chain. I will tell you more about that under the innovation section. Number three, being able to offer the prospects, the opportunity to stay exposed to the downstream part of the value chain gives us an opening to a softer approach [ come joined ] the Fjordkraft Universe. When it comes to our road map to growth in a longer perspective, our M&A ambitions in the period of 2020 to 2022 is at a total of 265k deliveries. And it's also important to inform you that time is working for us here. And we must be both aggressive and patient. And we will only close deals that are at an acceptable price level for us. And before I end my presentation, I'd also like to pinpoint that our M&A goals are within our existing financial capacity. Then I would like to summarize the main points from this presentation. We expect that M&A activities will fulfill a major part of our road map to growth. We are both aggressive and patient. Regulations, both in electricity market and mobile market are supporting Fjordkraft's growth strategy. And the electricity market is highly fragmented and provides a substantial number of attractive prospects. Fjordkraft has the ambitions and the experience to consolidate and represent a range of attractive M&A alternatives. M&A, both financial and industrial, represent the fundamental part of our business growth and fuels our possibility to achieve a long-term edge in the market. It's also important to highlight that our road map to growth is ambitious but realistic. And my team is working hard every day to fulfill the goal of 140,000 deliveries from M&A this year. Thank you.

Thank you very much, Arnstein. We are a little bit behind schedule, but we'll take a 10-minute break, and then we'll continue with the next section of the program. [Break]

Okay. Hello, again, everyone. Then it's time to focus on our innovation strategy and our innovation portfolio. We live in a deflated world, everything gets cheaper. And to optimize our value creation, we need sustainable growth in our core business. And we need to establish new business areas. Our innovation portfolio is focused on increasing the earnings from existing customers as well as providing us with new, profitable customer. Fjordkraft is constantly seeking new sources for growth. And we have adopted TNS Kantar's model based on 2 fundamental parts to growth. More business from existing customers, the horizontal axis. And growth in number of customers, the vertical axis. And the growth category #1, loyalty and new purchases related to core business; number two, new customers, organic, M&A and extended alliance. And number three, new products and services from other industries; and number four, new markets and internationalization. Our competitive advantage will normally be that we have the most cost-efficient muscles for new growth areas. However, we must also be willing to build up new competitive advantages, if needed. Fjordkraft consider it very important to develop new business areas related to the role as a power supplier. And we believe our setup is suitable for delivering intangible services in general. Examples so far are the electricity insurance delivered for more than 5 years, climate change solutions from 2017, mobile services launched in 2017 and solar panels to household customer launched in 2019. And timing is crucial when entering new markets. And the most important factors to optimize timing technological maturity and changes in regulations. And we also have great attention on developing our business models, and this has convinced us that now it's time to develop platform business models in parallel with our linear business models. This means that we will collect value from product and services in a traditional business model, and we will also focus on collecting value from our platform users. And we have already gained useful experience from platforms in our customer benefits program. And when it comes to technology-driven innovation, especially related to hardware, we will primarily use a fast second strategy, which requires careful timing and the ability to scale fast. We decided clear criterias regarding when the markets are mature enough, especially looking for a dominant market design to emerge. To ensure rapid implementation when the opportunity arises, it's important to have access to both capital and the right expertise to achieve an efficient innovation process. Fjordkraft will also consider different collaboration models with a role in the value chain and the business model supports industrial corporation. Here, you can see the traditional value chain with power producers, grid companies, power exchange and electricity, retailer and customer in the center. We now experience that the green shift is challenging every part of the value chain, driven by climate change and digitalization. At the same time, electricity is a central part of the solution due to the fact that there is a change from fossil energy to renewable electricity. And in this green zone, new business opportunities related to local production, energy management and storage of electricity are emerging. We will take a closer look at our most important initiatives and how we build business models based on our market muscles and our position being closest to the customer. Here we present our ongoing and upcoming new services and businesses. In the consumer market, we are focusing on building a new digital customer front, and we already gave our customer a much smoother experience, and we have several initiatives to be launched through digital customer front in 2020. So far, Fjordkraft has primarily been a service provider, and many of our services needs hardware. We will launch a marketplace where Norway's best supplier can sell related hardware and installation service, combined with our digital customer front. And Christian will tell you more about these initiatives. In the business market, we have seen an increased demand for local energy solutions, such as full-service solar panels, heat pumps and EV charging, et cetera. Fjordkraft will take the role as a service provider and use partners for other tasks. We are partnering with strong national players. And Roger will tell you more about these initiatives. I will also comment on our latest spin offs. First, to our joint venture software company, Metzum, offering standardized software components from the Fjordkraft Factory to grid companies Nordic and electricity suppliers outside the Norwegian market. Here we commercialize nonstrategic components from the Fjordkraft Factory. We have set up a joint venture tech spin-off with Rieber & Son, who has extensive experience in building software companies in a number of industries. And the goal is to create a company that owns, delivers and develop best-in-class software to retailers and grid companies in Northern Europe. Fjordkraft and Extended Alliance partner will be the only retail companies on the solution in Norway. Secondly, I would like to comment on our new established company that will take a different role in this market. We have experienced that the grid companies, to a greater extent, now outsource their rating and billing activities. This comes as a result of new regulations and the inevitable unbundling. We are now offering these services together with Metzum, which becomes part owner. And together, we have the expertise and the capacity to further develop the service. This company will also deliver the related services to Extended Alliance segment. And this is an important step to further strengthen the services offered under our NGI. We have a 40% ownership in Metzum, and more than 80% ownership in a rating and billing spin-off. Our financial exposure in these 2 companies is limited. Our total investment is in the area of NOK 15 million. And we expect these initiatives to be contributing positively to the group's results within 2021. Finally, our Klima initiative, Klimanjaro, has also been further developed. And Fjordkraft will launch a KlimaHub, where climate-neutral companies can register and easily use the UN methodology. A dashboard ensures that you have a professional tool to help managing your supplier portfolio. And klimahub.no simplifies the implementation of climate-neutral value chains and facilitates an increased positive domino effect. Accelerating problems needs accelerating solutions. Here are 4 key highlights to summarize this part of the presentation. Our focus is to stay closest to the customer and develop our core business. In parallel, we're looking for new growth areas. Our competitive advantage will normally be that we have the most cost-efficient muscles for new growth areas. And when it comes to technology-driven innovation and especially hardware, we will primarily use a fast second strategy. And we now find the timing right, both to generate spin-offs and to develop platform business models in parallel with our traditional business model. Thank you.

Thank you very much, Arnstein. We are now continuing with the Consumer segment with Christian Kalvenes.

Yes. Hello, everybody. As Morten said, my name is Christian Kalvenes, Head of Consumer. I'll now give you a quick look into the Consumer segment. The Consumer segment comprises of energy sales to private households all across Norway. Fjordkraft have a nationwide presence and a leading market position. After the acquisition of Vesterålskraft last summer, we now have an office and a local presence in Northern Norway. Fjordkraft's stronghold across Norway, customer-wise, at the West Coast, Trondelag, Oslo the region in and around Telemark and Vestfold and now Sortland. In Trondelag, we operate the brand TrondelagKraft, which was created after the acquisition of TronderEnergi Marked in 2018. Both Fjordkraft and TrondelagKraft target consumers with an attractive offering that includes a fine menu of value-adding services. To the upper right, we see that Fjordkraft have a leading market position as a recognized brand, which is proven by various consumer service. In the Consumer segment, Fjordkraft are the #1 retail brand -- electricity retail brand. The #1 top-of-mind brand. Winner of Norway's best customer service at Kantar service day -- customer service days. This study includes answers from more than 120,000 customers across brands. Winner of BearingPoint's digital leader award. Nominated as the world's best energy brand in the CHARGE Awards. The key numbers at the bottom of the page shows the Consumer segment's importance to Fjordkraft. The Consumer segment represents 70% of Fjordkraft's total net revenue, 87% of our total number of electricity deliveries, and just above half of delivered volume. Fjordkraft's total market share in the Consumer segment market exceeds 20%. To the bottom left, you can see the composition of our net revenue, which consists of 77% core products and 23% value-adding services. Being able to differentiate from competitors by offering a wide product range, including value-adding services has been a key factor to our success within sales as well as profitability. A few comments on the different contracts starting in the top left corner. The spot price products follow the spot price in Nord Pool in each of the 5 different price zones across Norway. This can lead to large price variations during the month and even throughout the day. The customers are fully exposed to the spot price volatility. For Fjordkraft, the spot price products have a fixed number of markup, representing no price, no volume risk. The variable priced products have a notification period for price changes of up to 14 days. For the customer, prices are more stable, more predictable and are announced in advance. The variable price products offer one price all across Norway. For Fjordkraft, this product represents a short-term fixed-price risk within the notification period. However, this product offers margin opportunities on the back of price volatility, though it might be difficult to foresee timing and magnitude. We target a 50-50 split between spot and variable products in our portfolio. These products cover different customer needs with the broad offering of tailor-made price brands. And we believe that a balanced split gave us the right balance between risk and profitability due to the market's volatility. The value-adding services are supplementary products that enriches the customer experience. A few examples are affiliate insurance, fixed bill with flexible payment solutions, solar panels and home charges for electrical vehicles. I will now give you a quick look into the competition among electricity service providers. Traditionally, the value proposition has been spearheaded by 2 main assets, that is price and local affection. The national players are mainly focused on price while the local and regional players are more focused on local affection as they target the consumers within their local areas. If we look ahead, we believe that customer experience will make a massive impact in the battle for customers. Due to a rise in smart phones and the digitalization of private households and society in general, customer experience has emerged as an important part of the value proposition spearhead to attract and retain customers across most service industries. Until lately, customer interaction between electricity service providers and their customers has been a monthly invoice and a phone call to customer service, when in trouble. This is about to change. On October 10, we released our brand-new Fjordkraft app. Customers using the app will be able to follow how the electricity consumption evolves per day during the month and a full control of their mobile subscription and data usage. The app will give a 24/7 access to the most attractive customer benefits that the Fjordkraft universe has to offer. Fjordkraft is perfectly positioned for making digital customer experience, a competitive advantage with a strong brand, a large customer base and financial assets. By now, 4 months after the release, we have more than 100,000 downloads of the app, and we target 250,000 unique users per year within the end of 2022. The digital universe also creates opportunities for new revenue streams as we bring forward new attractive, value-adding services for the customers. The first one out is ID-security, which was launched just before Christmas. ID-security give customers professional help in the case of identity theft or misusage of personal information and pictures on the Internet. More services will surely follow. But most importantly, we position ourselves with a new app to develop and launch attractive products and services that can create new revenue streams and great customer experience. As digital maturity evolves in society, new customer demands will appear. Customers using the Fjordkraft app will be able to access the best services that the Fjordkraft universe has to offer. During 2020, a wide range of services will be developed and offered through the app. Some examples, quick and easy overview of electricity consumption, mobile data usage and customer benefits. Control the charging of electrical vehicles and controlling smart units within consumers' homes. These services all help customers to a more friction-free daily life. New technologies, new business opportunities. In the app, customers can check how much electricity they can produce through solar panels on the roof of their house and the cost of buying and installation. Customers who produce their own electricity from solar panels can save excess electricity in the app's [ solar count ]. And withdraw kilowatt hours to reduce the size of their bills whenever they want. By creating attractive value propositions, we can influence consumers to make sustainable decisions as we want to contribute to accelerate the green shift. The services offered will be a mix of services that are chargeable and free of charge. Now at this point, the focus will be on growing the customer base, user base. We believe that great customer experience through the Fjordkraft app will play an important part in reducing churn, improving customer satisfaction, reducing time to market for new products and services and increasing sales through digital channels. Along with the adoption of IoT in the consumers' homes, the demand for household appliances and gadgets that can be connected and controlled will increase. In the Fjordkraft app, we want to build services that enrich our customers' usage of those appliances and gadgets. So how can Fjordkraft help the customers by offering high-quality smart products and at the same time stay intangible? We believe that the answer to this will be the Fjordkraft marketplace. The marketplace will be based upon a platform business model, as Arnstein mentioned earlier. It will be the perfect place for customers to buy quality goods from quality third-party vendors. The products offered through the marketplace will be products that complement and strengthen our core value proposition. This can be mobile phones, solar panels, phone charges and smart products for home and travel. With this approach, we can focus on making services that enrich the vendors' products. In this way we enhance each other's value proposition and the customer experience. By creating a marketplace, we facilitate a shopping experience between our customers and third-party vendors. The marketplace will also allow more than one vendor offering the same product. In this way, we reduce the chance of the marketplace, getting out of stock and create a healthy competition on price and quality. To make sure that the third-party vendors are as passionately focused on customer experience as we are, we will let the customers rate the vendors based upon shopping experience. Introducing the marketplace, Fjordkraft will stay intangible, gain new revenue streams and reduce customer churn. An example of a new revenue stream can be commission per order sold on the marketplace. Financing solutions instead of cash settlement has a proven record of reducing churn, and will also be an available service. The Fjordkraft marketplace will play an important part in our digital ecosystem, along with the Fjordkraft app, providing quality products and services to enrich our customer experience. We expect to launch in the second half of 2020. There's fierce competition in the market. A lot of competing brands offer some of the same products and services as we do, but we believe that no other service provider -- electricity service provider offers such a broad range, and an attractive value proposition as Fjordkraft, ranging from solar panels, home chargers, mobile subscriptions, the Fjordkraft app and a wide range of electricity services and popular customer benefits. We also believe that our brand strength and distribution power will be important in the years to come. To succeed in the digital age, you need the best and most attractive partners to create value for your customers. Our brand strength, distribution power and customer base make us an attractive partner as they are great assets in creating value for our partners. The electrification and digitalization of the society and the consumers' household will increase the cost for electricity service provider to stay relevant and attractive. The ante has raised and financial strength becomes even more important. The same goes for the size of the customer base. It's harder to invest heavily in developing a competitive digital ecosystem the fewer customers we've got. This is a numbers game. The return on investment stems from reduced churn, new revenue streams and higher customer satisfaction. The more customers you've got, the more value you create. New revenue streams will emerge due to the value-adding services we will be able to add to our total value proposition. By increasing our digital competitiveness to stay attractive and relevant to the customers, we also protect our core products' existing revenue streams. For the next few years, we have done a positive revision of the financial targets for the Consumer segment. To the left, you can see that we are currently targeting a mid-single-digit net revenue growth and an EBIT margin slightly above 30% on an organic basis. The target for net revenue growth remains the same. This will be realized through organic growth of about 2% to 3%, a stable core product margin and increased net revenue per delivery through expansion of value-adding services. To the right, you can see that we are increasing our targeted EBIT margin compared to our current target. The new targeted EBIT margin is a sustainable level of about 32% to 34%. We believe that the competition in the market will increase. We will have to continue to invest in digital solutions and customer experience in order to stay relevant and attractive in the market. Now moving over to Mobile. The Mobile business area comprises of mobile phone connectivity sales to consumers all across Norway and are a part of the NGI segment. The market consists of 3 MNOs that is mobile network operators, 2 MNO [ fighting ] brands and several service providers, including Fjordkraft. Fjordkraft are the largest service provider and reached 100,000 subscriptions at the end of 2019, a milestone that few other service providers have ever done before. The market is basically a duopoly with Telenor and Telia keeping massive market shares between them. But even in the market with such competitive challenges, Fjordkraft has made a massive impact. We are the largest service provider with more than 100,000 subscriptions. The highly recognized EPSI study show that we have the most satisfied customers in the market. We have highly attractive and competitive pricing on all data plans. We have world-class coverage and data speed using Telenor's award-winning network. Now let's have a look at the targets we have in sight, starting at the top left. We are on track towards our target of 125,000 mobile subscriptions by the end of 2020. And we have set our sights for targeted growth momentum of about 20,000 to 25,000 a year for 2021 and 2022. To keep growing at this pace, we need to have a continuous focus on improving our value proposition, sales channels, getting enough awareness through marketing and delivering top class customer experience. That is why we launched a new mobile portfolio in January to stay relevant and attractive to existing and potential customers. As a part of the planned Fjordkraft marketplace, we will offer mobile phones and financing services. As I said before, financing services has a proven record on reducing churn. Now moving over to the top right. The financial ambitions are also on track towards our target of a positive EBIT by the end of 2020. For the next couple of years, we target a significant contribution to overall NGI guidance in 2021, 2022, constituting of about 1/3 of total NGI EBIT in 2022. Strong portfolio management to secure an offering that is both attractive and profitable is of great importance to us. New technologies, enhance demand for new value-adding services. ID-security is a new value-adding service that was launched just before Christmas and it has been embraced by our customers. As Arnstein has mentioned earlier, we are expecting the new market regulations to take effect in Q3. NKOM has announced several new obligations on Telenor to create a more even playing field for service provider competing with the duopoly. I will now finalize my presentation with these 4 key success factors for the Consumer segment. We are the #1 electricity retail brand in the Consumer segment. We have an industry-leading nationwide distribution platform and an omnichannel strategy. We have a market-leading value proposition, addressing differentiated consumer needs. We are perfectly positioned for creating competitive advantages in the digital age. Thank you.

Thank you very much, Christian. We will now welcome Roger to elaborate a bit on the Business segment.

Hello, everyone. My name is Roger Finnanger. I'm Head of Business in Fjordkraft, and I will give you a closer look at the Business segment. Fjordkraft has a strong position with over 78,000 customers and -- 78,000 deliveries and 32,000 business customers. Through increased visibility, we've accomplished an awareness of 94%. Fjordkraft is measured to be the most attractive supplier in the Business segment. We are an award-winning customer service. Our portfolio is highly diversified. Fjordkraft is the largest supplier to municipalities. Business customers have a higher consumption and more complex products to which the customers are willing to pay for. Therefore, we have a higher revenue for each delivery than the Consumer segment. According to the regulator, our market share exceeds 21% in the Business segment. There are almost 20 national players in total. Fjordkraft among 2 other competitors are the only ones operating the entire Business segment, which includes SMEs, large customers and the tender market. This is a strength for us, and it contributes our awareness and our position as a professional player. Most national players are putting their efforts into the SME market. We believe that the reason for this is that there are lower entry barriers in the market and the conditions to a small degree are controlled by regulation. This give room for long lock-in periods and prepayments. The profitability per kilowatt hour is typically higher in SME market compared to the other 2 segments. Our biggest competitive advantage is our distribution, and our national presence with sales offices in Trondheim, Oslo, Sandefjord, Bergen, Stavanger and Sortland. Our presence does reflect a segmented national commitment. We have 20 sales resources within telemarketing, handling the smaller customers. We also have a portfolio team handling the customers' relationship. In the SME market, 30% of our sales are done through external partners. This gives us the flexibility and opportunity to quickly respond in a market with high activity, if necessary. We reach the medium customers through traditional sales activities. We have 4 teams, booking meetings and visiting the customers to give counseling at the customers' location. The small and medium customers are served with standardized products. All our customers are offered our digital reporting solution, Min Bedrift. I will come back to the details of this service later in my presentation. We have a dedicated team handling large customers and public entities. These customers demand a tailored solution that handle all risk associated with purchasing electricity. The advisers are conducting follow-up meetings, and we are seeing higher revenue, loyalty and a customer satisfaction when the customer use more of our services. We are making money in the tender market, but the price pressure is considerably tougher. If a public entity leaves us or joins us, it has a limited impact on the total profitability of the Business segment. Public entities represents no counterparty for Fjordkraft. In total, there are more than 80 sales resources representing Fjordkraft in the B2B market every day. Fjordkraft offers a wide range of products designed to meet every customers' need. This includes spot products for those who can handle price volatility, variable products for the ones who need more price stability and spot products, including risk management, for business customers that have a great need for predictable power costs. We can also offer bilateral agreements, such as [ area ] price hedging and options. Customers that can handle the price volatility often choose spot products. The spot products follow the normal spot price and can lead to large price variations during the month. Variable products are steadier and more predictable. Variable contracts offers the customer the same price all across Norway, regardless of location. We have succeeded with building out variable product portfolio in SME markets, and we will continue to grow this going forward. Many of the business customers have a great need for predictable power costs. Therefore, they choose electricity plans that include risk-management products. This moderates price quotations and help customers manage their cost budgets. 46% of our deliveries in the B2B segment are deliveries with risk management. And there is a higher loyalty and satisfaction from the customers that have electricity plans, including risk management in combination with other value-adding services. We believe value-adding services will increase customer satisfaction and our profitability. I will comment on the value-adding services later. Fjordkraft has no risk associated with trading risk management because the customers fully own their own positions. Our portfolio is highly diversified. Business customers' awareness and interest in climate change is increasing. New challenges demands new solutions. Fjordkraft has over the last years built the largest distribution in our industry. This gives us a great position as a preferred partner to launch new sustainable concepts in the market. We recognize that different customers need different solutions, and we are targeting specific segments of the market. We have dedicated resources working towards the construction industry. The construction industry needs to electrify its activities. They also need digital solutions to deal with a large number of deliveries. We have developed digital solutions to manage relocations of the customers' deliveries. In our portfolio, we handle more than 1,850 corporative housings. In this segment, we can deliver more cost-efficient heating solutions. And we will, during the third quarter, be able to help them with solutions to handle and invoice the charging of electrical vehicles. We are focusing a lot on a close cooperation with nationwide procurement cooperations and organizational change. This increases our efficiency and our hit rate in our sales channels. It also strengthens loyalty. We also see that an increased share of business customers are tenants. We put a lot of our effort in developing solutions that suit owners of corporate properties and helping them to administrate energy for their tenants. Properties will have several energy sources in the form of solar, heat pump and energy storage. We will serve our customers with new sustainable solutions that will reduce their CO2 emissions and optimize their energy consumption. High awareness, wide distribution power and a large customer portfolio make Fjordkraft an attractive partner. We will use this position to move from being a traditional supplier to become an energy partner. You see that the interest in climate change fuels the willingness to invest in new technology and new energy sources. New technology is disruptive to our business. It is both a risk and a big opportunity for us. Fjordkraft will take lead in bringing new solutions to our customers through sustainable business models. We have an online customer portal, Min Bedrift. We offer all our customer reports on consumption, comparison of consumption with temperature, cost reports, price forecast and risk management reports. We also offer our customers a climate reporting tool that uses the greenhouse gas protocol standard. Our customers receive a weekly market update in Min Bedrift, which give them the information they need to make a sensible decision about their electricity risk profile. Through our experience and partners, we can help our customers reduce consumption. We experienced improved loyalty from both of our customers to take advantage of our energy consulting and energy efficiency programs. We offer all our -- offer our customer electricity with guarantees of origin, which is the financial instruments supporting the production of renewable energy and the willingness to pay for this is increasing. Last year, we launched a flexible and scalable energy management system for our customers. Min Bedrift reports on the customers' electricity consumption from the grid. EMS reports on all energy sources and give a complete overview of what and how they use energy from different sources, such as electricity from the grid, gas, district heating, solar and water consumption. The system provides control of the tenants' consumption and offers correct distribution of all energy costs. This system is module-based and give us the possibility of our tailor-made solutions that meet each customers' need. We also offer energy mapping and energy rating. Energy mapping is a complete inspection of the energy usage of the building. So the customer will get a full report of their energy consumption and how to reduce the consumption with return on investment. Energy rating for buildings is mandatory by law every 10th year and was first implemented in 2010. As mentioned, this year we expand our product range with local energy solutions, such as solar, heat pumps and electric vehicle charging. We'll offer our customers solar in the form of energy-as-a-service. With our partner, we will offer the customer a power purchase agreement. Our partner will take the investment and handle solar production on the customers' roof. Fjordkraft will offer the customer a long-term agreement on solar energy produced on their own roof. This gives Fjordkraft, our partner and the customer low risk and predictability. The customer will get a better certification of the building and predictable power cost. We will also launch heat pumps in the form of energy-as-a-service. The heat pumps normally used today uses synthetic coolants. These coolants will be legal in the coming years. Our partner will serve our customers with heat pumps using only natural coolants. This solution will be using the same business model as solar, offering our customer a fixed electricity price, predictable costs and reduced emissions. We will, in the near future, launch electrical -- electric vehicle charging and services that enable simple and easy charging in corporate housings and corporate properties. Some words on the revised financial targets in the Business segment. We maintain our double-digit net revenue growth target for 2020. Going further, we target a mid-single-digit net revenue growth. With our sales capacity, we expect an organic growth in number of deliveries around 5% annually. Improved energy efficiency is expected to reduce consumption per delivery, but we expect new value-adding services to offset the volume decrease. For the next years, we target a sustainable EBIT margin of 52% to 54%. We expect the competition to increase over the coming years. To [ seek ] our share of the value chain and further growth, we are expanding our product range by offering electricity from local energy sources. We will continue to capitalize on our strengths, which are sales capacity, brand awareness and customer service. We will invest in functionality related to our new concepts, training our sales resources and marketing of the value-adding services. A lot of the business customers purchase energy across the Nordic countries. To secure competitiveness, we will establish Nordic deliveries through partnerships. We signed an agreement with a Swedish partner for deliveries in Sweden this week, and expect our first customers established in the end of 2020. To summarize, we are well positioned for further growth. Our strong distribution power provides rapid market penetration on newer sustainable products and services. We will invest to further develop our sales representatives and ensure the confidence to sell our new products. We have in the latest years invested in a high awareness and strengthen our position as a national player with a large customer portfolio. That makes Fjordkraft an attractive partner for new solutions. To win the market in the long run, our focus in 2020 is to expand our product range. Launch of additional services improves our attractiveness in the market, enabling us to target new customer segments as well as expanding our business with existing customers. It also strengthens our climate commitment. New services with long-term contracts reduces churn and defending our revenue. Customers who use multiple services are more loyal. Fjordkraft is well organized and ready to establish new profitable concepts and further growth in the Business segment. Thank you.

Thank you very much, Roger. To sum up this presentation, we will go through our new financial targets, which will be presented by Ole Johan, and then we will open up for questions afterwards.

Yes. We summarize our outlook for 2020 for -- and 2022 in this page starting with group model. We're keeping our target of a high single-digit net revenue growth on an organic basis and increasing our adjusted EBIT margin to a target of 36% to 38%. In addition, we are keeping our ambition to act as a consolidator in the market. Moving on to the Consumer segment. As Christian presented earlier on, we are maintaining our target of a mid-single-digit net revenue growth on an organic basis and increasing our adjusted EBIT margin target to a sustainable level of 32% to 34%. That being said, we still expect intensified competition in the Consumer segment going forward. In the Business segment, as Roger told us, we are targeting a double-digit net revenue growth in 2020, followed by a sustainable mid-single-digit annual growth in '21 and 2022. The EBIT margin is targeted at a sustainable level of 52% to 54% on an organic basis, and we expect intensified competition also in the Business segment. In the new growth initiatives, we are targeting a stable nominal adjusted EBIT from 2019 to 2020. We expect positive development in both Alliance and Mobile, while new spin-offs negatively affect the segment EBIT in 2020 within the area of NOK 10 million. That being said, we are targeting that the NGI segment will comprise of up towards 5% of group EBIT in 2022. Regarding CapEx, we are keeping our targets of being in the area of NOK 50 million on an organic basis and especially for international investors, it's nice to know that the prevailing tax rate in Norway is 22% for 2020. Leverage, we are keeping our targets of moderate leverage and stating that our current balance sheet is enabling a substantial capacity to finance acquisitions going forward. Regarding dividend, we confirm our target as well, announcing an attractive and increasing dividend of at least 80% of net income adjusted for certain cash and noncash items, as stated in our dividend formula. That's it. Thank you.

Thank you very much. We are moving over to the Q&A session. So if you have any questions, please feel free to ask them and please use the microphone. Petter?

Petter, ABG. One question on the M&A. If I remember correctly, you now have a 20% market share in the Consumer business and you're saying that you expect a total delivery, including M&A, by 2022 of NOK 1.1 million. Do you think that could be any risk from a regulatory point of view that you are seeing a too high market share?

We don't think so. Do you hear me? It's okay? Yes. We don't think so. We think our experience in, for instance, the telecom market tells us that we, at least, can grow to a 35% market share before the regulatory authorities will restrict further growth. So the answer is no.

Okay.

Let me just add that the total market size is around 3 million deliveries. So it will take us slightly above 30%.

Perfect. Then on your guidance on the Consumer business. If I understand it correctly, you're saying that net revenue margin is expected to be fairly stable, while the EBIT margin is expected -- is being lifted. Isn't it such that 2019, you have seen a quite favorable development in the net revenue margin? And should we read the guidance as such that you expect that trend also to continue into 2020?

In the Consumer segment, we have an EBIT margin of 37% in 2019, and we are targeting 32% to 34%. So it's a decrease from what we deliver in 2019, which has been affected by positive market dynamics, as you all know. And as Christian mentioned, it's about the need to invest in digital services in order to stay attractive for the customers. So that's the main rationale behind lowering that EBIT margin a little bit, if that was a response to the question?

Yes.

One question about numbers. If you start with your EBIT margin at 36% to 38% and try to translate that into a required rate of return on your capital, right? What is your cost of capital? What is -- in your mergers and acquisitions in your new project, what is the required rate of return on new investments in your company? So that's a simple numbers' question.

Yes, we haven't disclosed our cost of capital in such a sense. And we don't have a specific target on return on equity or such. But we stick to the EBIT target -- EBIT margin target of 36% to 38%.

But that depends on what you have invested, but that's says nothing about how much you have invested in order to get those EBITs. So isn't it difficult to have any targets related to net earnings or profitability without having any idea what is the return on your capital invested?

What we have said is that when we are investing in new M&A transactions, those should be accretive. So that's what we have said. And that will be a guidance for us, of course, when we are investing in new M&A transactions.

Could I ask a more fussy, but still important question? I'm not deep into this industry, but listening to you, I think of you as an intermediary in the sense that you sell energy produced by others. You buy, I mean, and you sell it. So you're an intermediary between the producer and the consumer. And as you say, that's a business with very strong competition. And what you're trying is trying to protect yourself by all these add-on products, which makes very much sense to me. But that's how to, say, create barriers to entry or whatever. But still that seems something all your 10 competitors can do right there. So then my question is, what is unique about your business model compared to your competitors in terms of doing the core business, but then protecting it with the add-on products? I understand this is a difficult question but I think this -- in a way, this is what it boils down to in terms of protecting your margins.

Yes. We are in the retail business. And we are a retail company, buying stuff and selling stuff. And as all other companies, being in the retail industry, we have to do several things to protect and to develop our business. And all -- what we call our competitive advantages is extremely important to win this marketplace. Being the #1 brand, investing continuously in the brand is very important, particularly when you are delivering low involvement product, which after all electricity is. And for the same reason, our distribution system is extremely important, and we have a major advantage when it comes to the number of salespeople selling our products. And the combination between the number of salespeople and having the #1 brand to sell is a very good combination, winning these kind of retail races actually. Moreover, we have proved to have a very cost-efficient infrastructure, what we call the Fjordkraft Factory, which handle all these data transactions, I spoke initially about, in a very cost-efficient way. So there are a number of things that differ us from the other players in this industry. I hope that was an answer that -- yes. Thank you. Thank you very much.

Any other questions to do? No? Okay. Well, that concludes the session, and thank you all for your attention.