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Edited Transcript of SCHA.OL earnings conference call or presentation 25-Oct-19 12:00pm GMT

Q3 2019 Schibsted ASA Earnings Call

Oslo Oct 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Schibsted ASA earnings conference call or presentation Friday, October 25, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jo Christian Steigedal

Schibsted ASA - VP & Head of IR

* Kristin Skogen Lund

Schibsted ASA - CEO & Country Manager for Norway

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Conference Call Participants

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* Andrew Geoffrey Ross

Barclays Bank PLC, Research Division - Research Analyst

* Eirik Rafdal

Carnegie Investment Bank AB, Research Division - Research Analyst

* Lisa Yang

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Silvia Cuneo

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Schibsted Q3 2019 Q&A and conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jo Christian Steigedal, Head of Investor Relations. Please go ahead.

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Jo Christian Steigedal, Schibsted ASA - VP & Head of IR [2]

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Good afternoon, everybody. My name is Jo Christian Steigedal. A warm welcome from Oslo to this Q&A session in connection with the presentation of the third quarterly report for Schibsted in 2019. Thanks to all of you for joining us today. Together with me here in Oslo are our CEO, Kristin Skogen Lund; and CFO, Mr. Ragnar Kårhus. This morning, we held a webcast presentation of the quarterly results here in Oslo, and many of you may have seen it already. But anyway, it's available for a replay on our website.

Adevinta reported its third quarter results yesterday morning and a recording of their quarterly presentation is available on adevinta.com.

But now, I'd like to hand the word over to Kristin Skogen Lund for a short introduction.

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [3]

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Thank you so much, Jo Christian. So this morning, I would say, we released a solid set of results, and we continue to perform well when it comes to the key strategic focus areas. Looking at the total figures, when we focus on Schibsted, excluding Adevinta, our group's revenue grew 1%, and maybe more interestingly, digital revenue grew 4%. Our EBITDA increased 6%, but was down when excluding the accounting impact from the IFRS 16.

Our most essential revenue and profit driver continues to be the Nordic Marketplaces business. And here both Finn in Norway and Blocket in Sweden had impressive progress past quarter, and a total revenue grew -- growth of 9%. Our key strategic focus is to grow revenues in the professional verticals, as we did in Q3. And at the same time, it's good to see that we're able to improve the revenue trends within digital advertising in both of those markets, and especially strong performance there in Norway. I would say that growth comes both from competent employees and hard work. And then margins are down in Blocket as they are increasing their cost to reinforce product and tech as long -- along with some new hires to ensure their long-term growth perspective.

Digital subscriptions continue to grow very well in our News Media business area, and we are now at 700,000 pure digital subscribers. The revenue growth from our pure digital subscriptions was 30% and that's a touch better than the already good trends we had in Q2. We are succeeding in converting more nonpaying users to subscribers, and at the same time improving revenue per subscriber with around 15%.

On the other hand, we have been struggling with our digital advertising development within the News Media business. And I would say we have been hit by some structural changes, like the big drop in the gaming industry's marketing spend in general, in Sweden. But at the same time, we also see a competitive market in Norway with an increasing price pressure.

To conclude on News Media, I think it's a satisfactory overall performance to deliver a 1% margin decline excluding the positive impact from IFRS on the back of a 4% revenue fall. I would add that we will follow-up the cost development in News Media closely going forward in order to address the negative margin effects of the revenue development that we are currently facing there.

Within financial services, we see a strong trend of technology-enabled innovative services being launched, and Schibsted will continue to focus on developing our market positions and competence in this area. Operationally, I am happy to report that our operations in this year regained momentum and grew their revenues now in the third quarter.

Lendo Sweden continues to grow at a steady double-digit pace. And in Norway, the development has now stabilized after several tough months, and we now see flat revenue development month-by-month. We continue to allocate funds to expanding Lendo internationally. And I am happy to say that in the third quarter, international operations now contributed to NOK 9 million of revenues and that we are particularly encouraged by the signals coming from Denmark.

In Schibsted growth, our distribution business is the prime driver for the positive development. Product and tech innovation have positioned Schibsted distribution to be a part of a strong megatrend of growth within e-commerce.

And finally, let me say a few words about capital allocation. Schibsted, excluding Adevinta, has a low debt level even after the 1% buyback that we have been doing during the third quarter. We have communicated to the market that we see the benefit of carrying some debt, and we have indicated a target range of net interest-bearing debt over EBITDA between 1x and 3x. We continue to see opportunities for value creating M&A in the Nordics and this is at the top of our management agenda and priority list. At the same time, we will continue to buy back shares and the intention is to fulfill the buyback program of up to 2% of the company shares in this coming quarter now. This is one way of step-by-step adjusting our balance sheet in the direction of the communicated target.

So to quickly summarize, Nordic Marketplaces are on track; strong top line growth both in Norway and Sweden combined with the margins; News Media, good development in digital subscription, tight cost control, but increasingly challenging advertising market, which results in a revenue decline there; and then good growth for Lendo in Sweden, signs of stabilization in Norway and investments in new markets now show encouraging signals.

And with that, I would like to hand the word over to our operator, who will organize the Q&A session. So operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question from Silvia Cuneo with Deutsche Bank.

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Silvia Cuneo, Deutsche Bank AG, Research Division - Research Analyst [2]

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My first question is on Finn and its revenue growth potential. In light of your comments from the results presentation this morning about jobs being somewhat more challenging entering Q4 and real estate being soft, can you please remind us of the sensitivity of your revenue base? Do you typically offer any volume-based discounts or subscription packages that could go back to you from cycle? And then second question, just on the new app you've launched, this morning you talked about the economics. So this is a follow-up question on the potential. Have you thought at all of offering on-demand delivery services as well? And why did you choose the before breakfast delivery window? And also can you please talk about how this proposition is different from maybe Amazon Prime currently in Norway? And if you could finally share some metrics about the reach of your distribution network, that would be great?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [3]

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Sure. Okay. So to Finn first, well jobs and revenue -- both jobs and real estate are, obviously, very important verticals for Finn. What I signaled today was that we have seen some very early signs late last quarter of some more volatile job market. This might not materialize into anything, but we thought it was correct to say it. So you just don't put like a linear automatic growth on the signals that we've shown so far. And on real estate, it's basically that the real estate market as such is actually quite positive here, but sometimes the market and the number of ads do not necessarily correspond. For example, if it's really easy to sell something, you don't need that many ads. So we've just seen a slight decrease in volumes of real estate ads, but there is really no reason to be very concerned about the market as such. When it comes to Svosj, the reason we deliver before breakfast is because it's delivered together with our newspaper. This is being distributed on top of our already existing distribution network that is set up for the newspaper distribution. We have a 90% reach of our households in Norway because this distribution system is made up of 3 main media partners, it's Schibsted, it's Amedia, our competitor, and it's Polaris where we are a part owner. So all of these networks are joined together in one company called Mediapost that we own together with Amedia, and then Svosj and helthjem are our other e-commerce distribution systems or concepts, they are buying services from this physical network. And the Svosj is -- the Svosj concept is quite similar to Amazon Prime. Actually, Amazon is not present with their concept here in Norway. So I would say that it carries quite a large similarities to that business.

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Operator [4]

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We will take our next question from Lisa Yang with Goldman Sachs.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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Couple of questions, please. So first one please check, it looks like you know the trends have been deteriorating quite meaningfully recently. Could you talk a bit more the plans, what are the exact lead points due to potentially turning this asset around? And maybe at some point would you be considering maybe other strategic options, such as even maybe selling the asset? That's the first question. Secondly, the advertising growth at Finn was pretty impressive, I think, plus 15%. Just wondering to what extent you think that's stable into Q4, into next year? And what kind of really happened beyond just the easy comps? Thirdly, on capital allocation, could you maybe give us some more precise timing in terms of where you think you can get towards, let's say, the mid- to upper end of your target leverage of 1x to 3x? Are we talking about 6 months, a year? And if M&A doesn't materialize in that timeframe, would you consider maybe more aggressive buybacks or dividends to get to your target?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [6]

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Sure. Prisjakt, well, there are a couple of effects there. First of all, I mean the consumer electronics market has had seen some difficulties in general, but this is also due to the fact that we did a platform change on Prisjakt, and then we have had some trouble with our leads generation and conversion and it has to do with sort of -- you need to reoptimize, for example, your search engine optimization on Google and other effects like that. So I think, this is something that we are going to work through and we have very good plans for how to grow Prisjakt further. So I would -- I am nowhere near sort of thinking that this is something we should give up upon or sell or something. I think this is a concept that we will be able to turn around, again.

When it comes to advertising in Finn, I hope, of course, to see the good results continuing because this is partly due to good sales work, but also because we have optimized the formats on the site. So in that sense, I think it's due to more permanent circumstances, but I have to remind you that the advertising market is so volatile that it's very difficult to predict how it will develop.

When it comes to capital allocation, the timing, the thing is that we are pursuing several very interesting opportunities for M&A. But, as you all know, it's hard to say exactly when they will materialize. We hope to -- we certainly hope to have achieved something concrete within a timeframe of the next 6 to 12 months indeed. And I would say that if by 12 months, we still have not, then I think it would be pertinent to reevaluate whether we would then need to do more of an extraordinary dividend or further buyback. I think if in a year's time we are there, then we would need to signal -- send some new signals on that. But I need to say, I am pretty confident we will deliver something within the next 12 months.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [7]

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Thank you, that's extremely helpful. Can I just follow-up on the last question. I think you mentioned this morning you're pursuing M&A opportunities in Sweden. And just like looking at the different verticals where do you see, I'd say, the most exciting opportunity, especially from a regulatory perspective, given you have originally high share already, I mean, with exceptional real estate but how would regulator, you think, would look at this?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [8]

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All right. Well, I think some of the circumstances have -- maybe are slightly altered. For example, the fact that we no longer are ourselves involved in the direct real estate for sale activities and things like that. But it is still a bit of a delicate regulatory situation and that's why we need to just proceed very diligently with how we evaluate this opportunity. But there are other opportunities. We can consolidate within jobs, there are opportunities in Finland, and so there are many options for us to look at.

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Operator [9]

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(Operator Instructions) And we will take our next question from Eirik Rafdal from Carnegie.

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Eirik Rafdal, Carnegie Investment Bank AB, Research Division - Research Analyst [10]

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A lot of questions covered now. I just have one on the digital advertising within News Media in Norway. I was just wondering, say, that you had some aggressive competitors there on price. And I was just wondering, in particular, is there any particular ones? Or number two, if it's kind of a more structural shift towards more aggressive pricing like my kind of understanding is that you see in Sweden?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [11]

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Yes. Well, let me also start by reminding you that VG had a very good strong quarter Q3 and also Q4 last year. So we are comparing to very strong numbers. But I don't say that to excuse, but to explain a little bit. But it is at the same time true that the market is becoming more competitive. VG, in particular, has an advertising mix that's made up of nationally based brand-type advertisers, and there TV is a strong competitor. I think it's fair to say that TV 2 among others have probably taken some of that -- some share in that segment. There is also -- it is also true that there is a price pressure, but I would not like to name anyone, but there certainly are some players out there that are not helping in keeping prices up these days to put it that way.

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Operator [12]

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We will take our next question from Andrew Ross with Barclays.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [13]

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And I've just got two, both on Lendo. First one, I wonder whether if you can share with us about what you have learned from your expansion strategy? It sounds like Denmark is going really well, and you sound a little bit less warm on Austria and Poland. So is there anything different between those markets that explains that, is it to how much investment you've put in and, I guess, anything you can share with us about which are the markets you may go into next? And then second question also on Lendo. Can you update us about what's going on in terms of competition within Norway? I imagine things must have been pretty tough (inaudible) side of all the regulatory changes. How do you think about kind of your market share and how Lendo looks in that context next year?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [14]

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Great, okay. So Lendo, yes, we have learnt a lot this past year in these different markets. And what you see is -- and it varies from market to market. I could take Poland as one example, where we see that we actually are -- we hit really well when it comes to the consumer interface. We have big traffic take up on our sites and good brand liking in all of this. But then the conversion when it -- into the banks is too slow. And the main explanation we see for it is that this is quite a new and unfamiliar way of doing credit checks and loan handling to put -- or loan processing. So it takes too long and hence the leads that we bring in, they don't convert the way they should and the trouble is on the banking side. So we just -- we're not giving up on Poland, but we need to work more on that and it's going to take longer.

Denmark, on the other hand, it was a really quick adoption and has just hit really well both in traffic and brand liking and perception and also the way things are handled with the banks. And that has to do also with that it's a Nordic context and they're digitalized. So it's easier and it has worked almost better than planned there.

And then Austria, I think you have a bit of both. You have still some very manual processing within the banking systems, which sort of hampers the whole concept of Lendo, which is to be a quick aggregator and lead generator and when you have some extremely manual processes, for example, a requirement that an offer needs to be handed by paper, things like that, really makes it difficult for now to have the sufficient progress. And let me also say that, of course, we don't pour marketing into markets where we don't see that the concept is ready to fly. So we monitor that very closely.

In terms of new markets, I don't think I would name any markets, although we have some hot candidates in mind, but I don't think, I'll say it now. But we have concrete plans for potential expansion, and we are excited about the prospects in some other markets. And, of course, the more we learn, the better we will be able to nail it better at the next entry.

When it comes to competition, in Norway, I think it would be fair to say that we have been rather prudent in Lendo in our business practices. I think you will find some more sluggish players in a Norwegian market. And I think it is also reasonable to say that our market share recently has, at least, not increased. I don't know if it's fallen that much, but I don't think we have taken market share because I think we have been rather prudent. However, I am absolutely convinced that, that will payoff long-term with the new market sentiment and the new regulation -- regulatory environment.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [15]

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Super helpful. And maybe just to follow-up on my last one, there's no sort of a change in regulation that you see coming into next year, right, that we should be worried about?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [16]

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Not that we know about, no.

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Operator [17]

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(Operator Instructions) And there are no further phone questions at this time. I would like to turn the conference back to our speakers for any additional or closing remarks.

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Jo Christian Steigedal, Schibsted ASA - VP & Head of IR [18]

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Okay, thanks a lot everyone for asking good questions. And we are, of course, available later for follow-ups on e-mail or on phone to the IR team. But for now, thanks a lot to all of you, and goodbye.

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Operator [19]

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Ladies and gentlemen, this concludes today's call. And we thank you for your participation. You may now disconnect.