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Edited Transcript of SCHA.OL earnings conference call or presentation 16-Jul-19 7:00am GMT

Half Year 2019 Schibsted ASA Earnings Presentation

Oslo Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Schibsted ASA earnings conference call or presentation Tuesday, July 16, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kristin Skogen Lund

Schibsted ASA - CEO & Country Manager for Norway

* Trond Berger

Schibsted ASA - Executive VP & CFO

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Conference Call Participants

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* Oliver Schüler Pisani

Nordea Markets, Research Division - Analyst of Consumer Goods

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Presentation

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [1]

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Okay. A warm welcome to our presentation of the second quarter results.

Overall, we present good Q2 results. We see continued digital growth and margin improvement, and there are a couple of challenges that I will address shortly. But to look at the overview for our main business areas. We see strong online classified vertical growth of 11%. We see that the digital subscriptions within News Media continued their high growth rate, they come in at 22%. And then we also see solid progress for good parts of the Next portfolio. We see that Prisjakt continue its growth, comes in at 10%. We see very exciting development in our Distribution business, the overall business there grows at 14%. But the new home delivery service is actually growing at triple digit so far this year.

When it comes to Lendo, it's a bit of a mixed picture, I'll come back to that. But we see good growth in our biggest market, Sweden. And we do see promising results from our international expansion with the most mature market there being Denmark. And then we also have high activity in our investment portfolio this quarter with several deals that we landed.

To take a look at the Nordic Marketplaces. As you know, we have a target of 8% to 12% revenue growth there medium to long term. So our 11% growth for verticals is well within that. We will also remind you that this is a bit of a challenging comparison given that we have a negative Easter effect roughly estimated at around 3% this quarter due to late Easter.

When it comes to our 2 main companies within the online market -- the classified sites, it's Finn and Blocket, it is exciting to see all the enthusiasm and activity going on in Blocket. They are confirming their growth trend. And Finn is continuing their strong performance.

It's worth noting that we now see a slight growth in advertising in -- across all our 3 classifieds market and that is a contrast to the decline that we saw in the first quarter.

So this growth that we see, it is -- comes from a lot of different factors, but we also see good results from renewals that we made to our product road map. And in Sweden, we especially see promising results from the work we're doing when it comes to the customer journey within the car segment where we now offer a more seamless experience with contracts, with payments, with registration of transfer of ownership, et cetera. And we do think these developments are very welcome as change of ownership of private cars tend to top the statistics of consumer complaints, so this is a good thing.

When it comes to our Finnish asset, Tori, we do see revenue growth of 14% and improved margins as well.

Then we come to the challenges. We have seen a quite sharp fall in display advertising for Aftonbladet. That is due to their exposure to gaming advertisements and there has been a shift in the regulations there that has taken the volume down in that segment. What we do is that we are working constantly to try to restructure our advertising mix for Aftonbladet to make them less exposed to such changes.

When it comes to Lendo, it's fair to say that the impact of the regulatory changes in Norway have hit harder than we expected and it will take some time before Lendo Norway will return to growth. However, we will use this market situation to improve our share and our position and we remain confident that these changes will be positive for the market and that they will gain the serious and responsible players like Lendo over time.

So to the dwell a bit further on Lendo. We are working to expand and grow that portfolio along 3 dimensions: one is the geographical expansion, which is well underway with Denmark, Australia and Poland. Then there is also the work to have more relevant and frequent customer interactions along a broader part of the customer journey. And then, finally, we are also chasing new customers and we have launched Lendo for business in Sweden and that service is showing initial promising results.

And then on the right side here, you see a quick summary of the main regulatory changes that have taken place in Norway. It's -- we're talking about more comprehensive credit checks, maximum duration on the loans and also the introduction of a debt register.

And I want to stress that Lendo, in anticipation of these changes, have actually complied with this way of doing business for more or less a year already, so the impact we see on our business now comes from the change of behavior on the hand of the banks and not so much because we need to change the way we do our business in Lendo. But let me repeat, we really do believe that these changes will be beneficiary over time.

Okay. Then as you probably have heard by now, we have decided to initiate an up to 2% share buyback. This is something that we have clearly communicated all the way since our Capital Markets Day in March, that we would carefully monitor our balance sheet and the capital allocation. We are constantly working and looking for interesting opportunities for growth and M&A, but we see that our balance sheet is of -- and I would say our outlook is of a character that we see that we at the same time have room for this buyback and that is the right thing to do at this moment.

Then, finally, just a quick view of all the different segments, and then you also have Adevinta, which was presented yesterday there, on the side. You see the different growth rate: strong growth in Marketplaces; Media doing well especially on the profitability side; and then we do see the effect of Lendo, both Norway and the cost of international expansion, in particular, in the Next numbers. And the growth, EBITDA growth numbers, in brackets there are the growth figures excluding the IFRS effect.

So on that note, Trond, I think I'll leave it to you to go through the different segments.

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Trond Berger, Schibsted ASA - Executive VP & CFO [2]

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Thank you, Kristin. If we go then to the Nordic Marketplaces, I'm happy to report that Finn continued to grow in this traffic, and traffic, is of course, the most important longer-term basis for revenue. So they have an 11% growth in traffic.

And also, if you look at the different verticals, Finn had 15% growth in real estate and 13% in job. So also Finn broadening the customer journey, so Finn continued to deliver quite well in this quarter and it's around 10% if we adjust for the Easter effect.

Going then to Blocket in Sweden. The trend turn in Q1 continued in Q2 that we saw now growth in the verticals, both the professional car market, the job and also we saw some improvement in advertising. And the Qasa integration also contributed in May, June quite well. So Blocket is on a different trend as we see it. They have invested some in product and tech that has taken, a little bit down, the margin from 53% to 47%. But the margin varies a little bit also between quarters, depending on marketing and other activity.

If we go then to News Media. The News Media, I mean it's quality journalism. That's the most important, of course, and that's the basis also for having then the revenue and people are willing to pay for it. And we have had different journalists writing both in Sweden, like in Aftonbladet and in Svenska Dagbladet. And the same we have had in Norway with VG and the subscription newspapers. So that is something that we are really proud of and that's the basis for, so to say, delivering longer-term revenue growth and healthy margins.

So if we then look at the News Media in total, you see that we had -- we have guided to the market that we will have a fairly flattish type of EBITDA development and also we have the same for the total revenues. But what is important here is that we are able to deliver on the digital subscription, that is up 22%. We are still hurt by the weak advertising market, especially in Sweden with display. There are differences between Norway and Sweden when it comes to structures and price levels. So Sweden is more challenging, right to say, on display advertising.

If we then look at VG. VG continued to deliver. They had strong margin also in Q2. And also, the important growth in the -- both in the ARPU and the subscribers is something that is also important for VG to continue to deliver healthy results.

In Aftonbladet, we have had some more challenges, fair to say both that, as I said, that the display advertising market has been more challenging, and at the same time, we also had some changes in the regulation when it comes to advertising meaning that gaming is now more regulated and that has penalized somewhat the advertising revenues in Aftonbladet. But again, we have focused on increase in subscribers. And in 2018, we had the World Cup and that boosted, so to say, the digital subscribers. It is more underlying healthy this year. So we have adjusted for that. We had also some growth on the digital subscribers in Aftonbladet.

Then going to the morning newspapers in Norway. Also there, I'm happy to report a very solid result and that we have increase in ARPU with 19%. And we see that people are willing to pay for good quality journalism. So that also has led, of course, to improvement in the EBITDA in this quarter.

If we then go to the financial services and growth, we see that Lendo. As Kristin mentioned, has been, so to say, under pressure in Norway due to the changes in the regulations and also that the banks now are [helding back] the somewhat heated consumer loan market. So that is something that we are working on, on the longer-term trend, to have a transparent and good service for comparison and we believe that is sustainable over time.

So Lendo in Norway, although we have seen weaker results, we have continued to do some marketing. We believe that is a, longer term, well positioning of Lendo Norway.

Sweden has delivered 10% growth, but also there we continued to do some marketing in order to gain market share. So Lendo, in total, of course, weaker result, first of all, as a result in Norway. But the trend in Sweden has, in a way, turned back to healthy growth.

Another good performer in our growth segment is the Prisjakt. There's a price comparison and we see, also there, a 10% top line growth. And we believe this is well positioned to have a transparent price comparison, first of all, for products in Norway and Sweden in the future.

Distribution was mentioned as one area that we believe we can further capitalize all the distribution network. And here you see that, first of all, deliveries with parcels and utilizing our network has contributed to a quite strong growth. So that's also something we see promising going forward.

Adevinta delivered their quarterly report yesterday. That was more or less as expected, fair to say. Still continuing to do well in France, Spain and some other European markets and -- but the display market is also a challenge in the Adevinta markets. So -- but the underlying verticals, which is the most important, also continued to do well there.

So Schibsted will continue to be supportive long term on Adevinta. And we will, of course, have the representation with Kristin in the Board. And it's a lot of activity going on in the classifieds space for time being, but we believe that our Adevinta position is quite strong and have many opportunities also in that market going forward.

If we then turn to finance. If you look at the changes between the 2 years, Nordic Marketplaces has contributed. And then, of course, first of all, Finn, News Media, again digital subscription is the biggest contribution there, weak in Sweden. And financial services has been then under pressure, first of all, Lendo Norway.

The Lendo expansion goes well, it goes according to plan. We have given guidance of NOK 70 million to NOK 100 million in expansion cost internationally. And then Denmark that we -- is the first market. The KPIs there are very promising. So that's something that we believe could be further developed in some key markets. And then that gives, of course, slightly weaker results as a sum of the explanation I've given.

If we look at the income statement for this, it’s Schibsted excluding Adevinta, but of course, we do consolidated figures as we own 60%. But these are Schibsted isolated. You see that we have a result, which is operating profit of NOK 557 million compared to NOK 518 million last year.

And not much special items to mention. Of course, we have the IFRS 16 effect now in '19 as all other companies also following IFRS. And then we have some special Adevinta spin-off cost that also is in the accounts for second quarter.

The underlying tax rate is around 24% and that's a mix of the tax rate and situation, first of all, in the Nordics.

Just to reiterate what we have said on the financial targets. We believe they are well-funded and still is, of course, something that we will strive to deliver on and also that's Nordic Marketplaces with 8% to 12% top line growth. News Media guided on stable margins for that segment. And we also see several M&A opportunities in the markets we are operating. And the dividend policy is -- continue as a stable to increasing dividend. And when it comes to leverage policy, we have now also initiated a buyback program that we have communicated to the market.

And then just to say that we have changes in the management team. I am stepping down as long-planned situation for my early retirement. And then Ragnar Kårhus coming from Telenor will take over as CFO as of September 1. But I will still work with Schibsted and work on some projects part-time going forward. So happy to do that.

And on the IR side, Jann-Boje, which has been working on financial performance reporting to me is now changing and being the new Head of IR as Jo

Christian is now also stepping down. He has also been long with the company. So that's, for him, an opportunity to start in corporate communication. And then also Espen Risholm will also step down. So these are changes, but I'm sure that these people that will come into this new position is high quality. It will be also good for Schibsted.

So key takeaways, Kristin, would you like to take them?

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

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Well, I can do that, yes. I'm sure you could do it, too. I have to say this is actually Trond's 84th quarterly presentation. It's quite amazing. Oh, yes.

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Trond Berger, Schibsted ASA - Executive VP & CFO [4]

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Okay, okay.

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [5]

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And we're very happy he'll stay with us for a while longer.

Anyway, as you've heard, healthy growth in online classifieds, digital subscriptions in Media growing well, solid progress in several parts of the Next portfolio, challenges in Lendo Norway and digital advertising for Aftonbladet. And then we have resolved to initiate a share buyback program that we will start now in the third quarter.

So I think that was a quick sum-up, and then we're very happy to take some questions.

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Questions and Answers

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Oliver Schüler Pisani, Nordea Markets, Research Division - Analyst of Consumer Goods [1]

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Oliver Pisani, Nordea. Just a quick one on Lendo. Because I think you were speaking about seeing a more healthy momentum in Sweden as well, but I note that growth in Q1 was about 14% in Sweden and fell to 10% in this quarter. So what should we think about the growth rate in Sweden for Lendo going forward?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [2]

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Yes. Well, actually, we had a bit of a weaker -- we had a few weak weeks in April due to a change of marketing concept and then we redid that and we were back to the same level. So that's what you see and you shouldn't read much more into it.

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Unidentified Company Representative, [3]

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Okay. We can take some questions from the webcast. First, there are a few people asking a little bit more about the buyback program.

One question is more philosophical or related to the policy of capital allocation. We were issuing equity only a few years ago. How do you sort of think about now starting to buy back equity only a short while after that? That's the one question.

And the other question is more specific. Will you buy back B shares or A shares or pro rata A and Bs? Can you say something about the plan there?

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Trond Berger, Schibsted ASA - Executive VP & CFO [4]

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When it comes to the mix of A and Bs, that's something that we will report to the market when we have done the buyback, so we're not disclosing that upfront. Then on -- I mean Schibsted and Adevinta has been through several quarters of strong earnings improvement of the capital structure. So in order to fulfill, so to say, over time also our financial leverage policy, we believe it's right to initiate a buyback program. So that is -- and it's a quite long time since we actually did that equity rates you're referring to.

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Unidentified Company Representative, [5]

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Okay. A couple of questions on Lendo. Given the performance of the last few quarters, are you more or less confident in the business case longer term and specifically regulatory risk in new markets?

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Trond Berger, Schibsted ASA - Executive VP & CFO [6]

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Well, I mean Lendo is -- I mean Sweden is a good example. That has been -- they have been long in that market, performing quite well. We believe that it is and should be a place for a transparent comparison model in all the markets that also, over time, will be something that will be -- continue to deliver in Norway although the regulations for time being are hampered by, of course, this new situation that we have explained.

Denmark, very promising results for time being. And then we are exploring other opportunities in Europe, but we do it stepwise. We do it gradually, see that we have some traction in Denmark and then we may also consider different markets depending on the development.

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Unidentified Analyst, [7]

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Can you say anything about the revenue development in Norway, specifically in Q2? How much was it down? And can you say anything about the volume development post the implementation of the personal debt register?

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Trond Berger, Schibsted ASA - Executive VP & CFO [8]

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I mean the debt register is newly implemented, so we don't see any effect of that. But of course, the consumer banks has prepared for this, so that has taken down the volume. I would say that we're not disclosing directly how much we are down in Norway. But it is, of course, a special situation, I would say, in Q1 and Q2 this year.

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Unidentified Analyst, [9]

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Okay, I can do a couple more here. A few questions around Aftonbladet. Could you please elaborate a little bit more about the market impact there from gaming? What's the nature of this business and why does it have such a strong impact on revenue? And also more specifically, can you say anything about the revenue mix? How much of the revenue is from advertising in -- from gambling advertising in Aftonbladet?

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Trond Berger, Schibsted ASA - Executive VP & CFO [10]

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I mean the situation in Sweden and this calls for Aftonbladet (inaudible) News Media is that there has been some change in regulations when it comes to gaming meaning that we need to have certain approval in order to deliver in this advertising market. I mean it's a large portion of our advertising revenues in Aftonbladet but we don't disclose exactly how much coming from gaming. So all we can say is that we are doing a lot of mitigating actions in Aftonbladet, also changing somewhat the advertising mix over time in order to improve the longer-term trend in Aftonbladet.

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

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And I think the fact that it's segment-specific explains why Aftonbladet is hard hit while the other entities in Sweden are actually improving since Q1.

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Unidentified Analyst, [12]

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Good. There are a few questions on Blocket. You highlighted a good growth in professional cars and jobs and display advertising. Can you elaborate a bit on what's dragging since the total growth is 2%? And specifically on private cars, can you say anything about that? And also on the margin, can you say a little bit more about the margin decline there, reasons for that and going forward?

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Trond Berger, Schibsted ASA - Executive VP & CFO [13]

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Well, as I explained, the margin decline is due to the fact that we have invested somewhat more in project and tech and hired somewhat more people in that area. That is something for the future, so that's the right thing to do in order to broaden, so to say, the value chain. And right to say that we have healthy growth in the verticals, but the private car is slightly down, so that's the reason for the total of 2%. And also we have some slight Easter effect in Blocket as well in Q2.

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Unidentified Analyst, [14]

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I think there's one more question on Lendo. Can you say anything about Poland and Austria, the launches there?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [15]

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Well, it’s early days and we are still in the process of, let's say, tweaking the concepts and getting everything in order, so we haven't put on the marketing blast there yet. So it's really too early to say because we're still in that tweaking phase.

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Unidentified Analyst, [16]

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Yes. And one more came in regarding M&A opportunities and in-market consolidation in the Nordic Marketplaces. Can you comment on that, especially on the Hemnet?

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Trond Berger, Schibsted ASA - Executive VP & CFO [17]

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Well, normally, we don't comment specifically on different targets, potential targets. I mean, we have an issue with the competition authorities on Hemnet. We thought that was okay according to the best advice we got in Sweden. The situation now is that they're owned by a private equity player, so what they will do in the future is really up to them. So we have to see if we, at a later stage, could be in a position or not, that's something that we can't -- I mean, it's too early to say.

But one thing I would like to say about the market in Sweden is that we believe, over time, that it also could be some opportunities in the real estate regardless of Hemnet.

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Unidentified Analyst, [18]

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Final question for now here is regarding the management of Nordic Marketplaces. Can you give any update on the succession plan there?

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [19]

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Not right now.

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Trond Berger, Schibsted ASA - Executive VP & CFO [20]

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Okay. I think we're done. Yes.

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [21]

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Yes. Good. Okay. Happy summer, everybody.