U.S. Markets closed

Edited Transcript of SCHA.OL earnings conference call or presentation 25-Oct-19 7:00am GMT

Q3 2019 Schibsted ASA Earnings Presentation

Oslo Oct 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Schibsted ASA earnings conference call or presentation Friday, October 25, 2019 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kristin Skogen Lund

Schibsted ASA - CEO & Country Manager for Norway

* Ragnar Kårhus

Schibsted ASA - Executive VP & CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Hello, and welcome to our Q3 results. We will go through them and we will have a Q&A in the end. And as always, you can send in your written questions through the webcast viewer. And I will then go through our operations. And then our new CFO, Ragnar Kårhus, he will take you through the financials. And then we also have present our new Executive Vice President for the Nordic Marketplaces here today, Christian Printzell Halvorsen, so he -- there's also a possibility to connect with him after the presentation.

And with that, I am happy to show that our management team then is complete. We are very happy to have Christian back on the team. He was CEO for Finn for many years, then he was the Chief Product Officer for all of Schibsted, and then he's been out of the company for a couple of years, being the CEO of Cxense and now he's back. And I think you can hardly find any person more qualified to take the growth of our Nordic Marketplaces further. So a warm welcome to you, Christian.

And then let's dive into the results. If we look at the group as a whole, we deliver steady growth for Q3 with the top line of 6%. We managed to reach another quarter with an EBITDA above NOK 1 billion. Adevinta presented their results yesterday with a 15% revenue growth measured in euros driven by strong developments in all their key markets, especially strong margin improvements in France and from the Global Markets division. In the remaining part, now I will focus on the Schibsted ex Adevinta. And as you see from the chart here, that part of our business grew by 1% on the top line.

We do deliver well along our key focus areas. We see a 9% growth from our Nordic Marketplaces operations in this quarter. Digital subscriptions in the News Media business grew with an impressive 30%. And then within our next portfolio, we see that Lendo is back on the growth track despite the challenging marketing -- market situation in Norway. But we also see now for the first quarter that our revenues are being helped by a very positive development in our new market, Denmark. Beyond financial services, the Growth portfolio of companies grew an 11%, and that is very much helped by the strong development in our distribution business, where we have an overall growth of 18%. Then these strong growth figures are hampered by an increased fall in digital advertising revenues from our News Media business this quarter. And that means that the total digital revenue grew a total of 4%, which is in line with the previous quarter. But I'll come back to all of these topics now shortly. When it comes to the advertising, we have communicated for a while already that we have a challenging market situation in Sweden due to the new regulatory tightening of the gaming industry, which has hit Aftonbladet hard and resulted in a 25% decline in digital advertising revenues there compared to last year.

In Norway, we are also experiencing a more competitive advertising market with increased price pressure. And this resulted in a decline, particularly for VG, which saw a 10% decline in digital advertising this quarter. But I have to remind you also that the second half of last year was extremely strong and we saw then for VG digital advertising growth of between 17% and 18%, so we are measuring against quite tough results from last year. Given that advertising revenues are so important to both Aftonbladet and VG, we are of course focused on taking action to mitigate this negative trend. We are working hard on new product development to ensure our premium positions. We have put a new organizational structure in place, we're now running Norway and Sweden jointly in the advertising team. And we are also working to broadening our customer base, there is especially good potential in the small and medium-sized businesses segment.

And then we are pleased to see that when it comes to digital brand, advertising revenue is actually growing very strongly in Finn at the same time. They saw a growth of 15% this quarter on digital advertising and that's mainly driven by both new formats but also good sales work. When it comes to our financial situation, we are in a strong position. We will continue to stay disciplined in terms of capital allocation. We have, during the third quarter, executed the earlier communicated buyback program. We've been buying about 1% of our shares, and we will continue this program now after this release of results. And we will, throughout the fourth quarter, aim to reach our 2% target.

Let me then go into the business areas, and we will start with the Marketplaces. A strong quarter, we saw a 9% total revenue growth. You see strong growth in Norway with 11%. And very happy to see that Sweden is picking up on their growth, ending now at 7%. And then, as I mentioned for Norway, digital advertising doing better in the Marketplaces than in the media, a total of 6% increase here.

If we then deep dive into Finn, we see that the mentioned 11% revenue growth in -- well, the 11% total stems from 11% in classifieds and 15% in advertising. And then there are some other smaller parts that grow less to make the total 11%. We see lower growth rates now in real estate, that's due to a softening real estate market overall with lower volumes. But we saw that both the strong revenue growth overall from then, especially jobs and cars, and also some reduced marketing cost made it a very strong quarter, also seen from an EBITDA point of view, with a margin above 50%.

And then as you know, Finn is very close to the market when it comes to the overall trends in jobs. And the third quarter was good as we can see in the numbers, but there is some degree of uncertainty regarding the fourth quarter because we saw a slight weakening trend in job volumes towards the end of the third quarter and the beginning of the fourth quarter. And then we do not know yet whether this is an indication of the start of a market slowdown or whether this is something that's temporarily, but we will monitor this very closely, obviously.

Okay, I will then move to Blocket. In Blocket, the main growth driver is the professional car segment. It was dampened somewhat by a weaker development in the private to private side of that market. We have a positive trend in generalist, and we also have a more positive trend for display advertising, ending at a 1% decline, but that's better than the more severe declines we have seen previously. And it's also quite good given the general state of the Swedish advertising market.

Then margins are down, which is expected. That is a result of the investments we are making now in new growth initiatives, both in personnel and in product and tech development. We are still developing the travel and the education verticals. And then we have integrated Qasa into Blocket. It's early days, but it's gotten off to a very good start, and we see good traction there.

And then before I move on, I would like to just mention our third marketplace market, Finland, where we have Tori. They are performing well both in terms of top line and margin development. However, the figures are still rather small in the bigger picture.

Okay, then we move to News Media. And if we look at the overall figures, the main message here is that we see a strong growth in the digital subscription revenue. We saw a total growth of 30%, which I think is impressive. We have communicated that the focus is on increasing value and product experience for every subscriber, and I think we see that is paying off. And this growth is ARPU-driven for all brands except for VG. I'll come back to that.

Then, as I said, we have a significant drop in digital advertising revenue, and that is the dominant reason for then seeing overall top line decline of 5%. The ad decline is also the main driver for the margin decrease, but it is curbed by a very tight cost control. And I would say, particularly within Aftonbladet, the cost control has been rather impressive. Going forward, we will follow up the cost development in News Media closely in order to address the negative margin development from the revenue decline that we are currently facing on the advertising side.

Moving into VG then. VG also has strong growth from their digital subscription revenues, but it's driven by increased volumes, not the ARPU, and that is because -- it has to do with the mix of the sale of subscriptions where we this quarter, have seen a lot of new sales of long-term subscriptions, which do not deliver that much ARPU in the beginning.

As I've said now several times, we see a weak advertising development, dropping 10%. And I remind you again that we are comparing with very strong figures from the second half of '18. But it's also fair to say that we're facing increased competition in the ad market. There is a strong price pressure, and we will of course thoroughly address this, both on the product side, on the sales side and on the cost side in the times to come.

When it comes to Aftonbladet then, I've said a lot about what's driving the top line development, but I think it's fair to point out that despite this quite severe fall in revenue, they are delivering fairly stable margins, and that is due to both strong growth in digital subscription revenues, but also this very tight cost control that they have managed to keep in place.

Let me also point out that the ARPU effect there of 42% includes the VAT effect of the changed VAT regulations in Sweden. And if you exclude that, the ARPU growth would be 22%, which is still a very strong result. When it comes to subscription papers, we see strong results overall. Strong growth in the subscription, which is the main driver both for the 1% net revenue growth and the stable margin development. And the growth here comes both from ARPU increases and higher volumes. When it comes to digital advertising here, the subscription papers are performing better than what we see in VG and Aftonbladet, and their total digital advertising development came out to minus 1% for the quarter. And then when it comes to our media product, it is very important for us to constantly develop them through quality journalism and product innovation. And we have a range of editorial initiatives underway. I'll give you a quick example of some of them.

In Aftonbladet, they have now launched local news sites. Here, we see an example for Malmö, and these sites are getting very good traction, showing very good traffic results. Then almost all of our main editorials have daily news podcasts. Forklart is currently the largest podcast. It has 1.3 million streams in September, which is really a strong figure.

And then the other one here is some examples of our election coverage. We had election -- local elections here in Norway in September, a big event in the media world. And just to give you an example, for example, VG, which really shows their incredible position as a main news destination. They launched Valgomat, or like an election machine or whatever I should call it. And 1.2 million Norwegians actually tested their political preferences on that feature, and that's 1/5 of our population. I think that's a very impressive result. And as you see, all our titles had a lot of innovative journalism and product features around covering our elections.

I'll move on to Next. We start with financial services and with Lendo. Lendo Sweden continued to grow double-digit in Q3, which is really good. And then we see now that the revenue level in Norway is on a more stable level month by month, although given that we are measuring against strong results last year, there is a decline year-on-year. But the development has flattened out, and I think we have seen the bottom of the effect from the regulations coming into effect previously this year.

Their EBITDA in the established operation is somewhat under pressure due to the continued -- the revenue situation in Norway. And then we have also had some higher marketing spend in Sweden.

It's really good news that we start to see good traction from our launch in Denmark, and we now really can see that the revenues ticking in from Denmark is impacting our overall top line and that's good news. Of course, it does cost to expand internationally and that geographic expansion will affect our EBITDA with NOK 27 million this quarter. And as previously communicated, we do estimate that the total investment for the full year will be close to NOK 100 million.

We have initiated a reorganization of Lendo to provide for a more efficient structure and to enhance our ability to manage the international expansion. So as part of that, we are setting up a new Lendo hub here in Oslo, and that will be in effect from the first quarter next year.

And then look at -- let's look at some other parts of Next. We see that we have continued very strong development in our distribution business. We have a revenue increase of 18% for the total distribution. But if we look at only our new distribution concepts, the ones mentioned here, helthjem, megtildeg, et cetera, that is actually growing by more than 100% on a year-to-year basis. And on a current rolling 12-month basis, we do now have revenues north of NOK 220 million. So it's becoming quite substantial.

We are also happy to announce that we now have good results again from Let's deal. And then we have MittAnbud, which continues to deliver very steady and healthy growth. The disappointment this quarter is that we see a slowdown in Prisjakt. They have a challenging market in their key categories -- category, which is electronics, but we will follow this development very carefully. And we hope to be able to turn that around. Otherwise, the EBITDA margin is rather stable but somewhat impacted by some of the new investments we're doing in distribution and some also increased cost in Prisjakt.

Then I will round it off by telling you about an exciting new launch that we did in September. It's a new service called Svosj, and we launched it in the Norwegian market. And it's a new concept where you have a subscription-based delivery service, you pay a small fee per month and then you have unlimited free delivery if you buy from the partners that are connected to the Svosj concept. And you will have your goods at your doorstep before breakfast. It's a very efficient delivery service and you get it even on the weekends. And I'm very happy to say that despite early days, our service is gaining good traction, and we're really excited about the potential within our distribution business.

So with that, I will hand it over to Ragnar, who will take you through the financials. Thank you.

--------------------------------------------------------------------------------

Ragnar Kårhus, Schibsted ASA - Executive VP & CFO [2]

--------------------------------------------------------------------------------

Thank you, Kristin. I will start with a sort of very quick summary of sort of all the key figures within each of the segments.

As you can see, sort of from the overall picture, we have very good growth figures within Nordic Marketplaces, within financial services, primarily driven by Lendo, and then also within what we call the Growth portfolio. And as Kristin mentioned, here is the activities within our distribution business that is the main driver behind the growth figures.

News Media, minus 4% growth this quarter then due to the digital advertising development in News Media and VG and Aftonbladet in particular.

Margins, stable sort of for Marketplaces, pretty stable. The margins here are influenced by IFRS 16 for the third quarter this year. It means approximately 1 -- 2% for News Media and 1% for each of the other verticals. So that's sort of for a comparable -- on a comparable basis.

Yes. And coming back to sort of the overall picture here. Looking at how this translate into sort of the EBITDA. Nordic Marketplaces showing a strong development also on the EBITDA, growing NOK 29 million. It's Finn that is sort of the primary source to the net increase in EBITDA. Whereby, Blocket has a negative EBITDA this quarter of around NOK 50 million sort of -- and due to the investments into the new growth initiatives in Sweden, primarily within education, travel and then also on house rentals through Qasa.

The effect from the sort of slowdown in the advertising market in Aftonbladet and VG is the primary -- is the prime source of the minus NOK 36 million in EBITDA in News Media.

And as Kristin mentioned, we come from a very, very strong quarter in VG last year. And the difference here is of NOK 36 million, out of that is around NOK 34 million is within coming from VG.

Financial services, in total minus NOK 27 million -- NOK 39 million. The growth investments into Denmark, Poland and Austria accounts for NOK 27 million. And then it's the sort of slowdown of the sort of the top line decline in Norway due to the tight regulation in Norway. That's the main reason behind the rest.

Within Growth, that's -- the reduction here is mainly driven by reduced top line and increased marketing in Lendo.

So that sort of brings our EBITDA this quarter to NOK 457 million, exclusive of the IFRS effects. The IFRS is around NOK 85 million in positive this quarter.

A quick walk-through of the income statement. We, of course, consolidate Adevinta, but we do focus here on the income statement ex Adevinta. A few special items to mention. The effect of the IFRS is the main one. As I mentioned, it has a positive effect on operating expenses of NOK 85 million, balanced out then by increased depreciations and finance costs.

On the other expenses, we have booked costs related to closure to small businesses within News Media, and its restructuring costs following the Adevinta spin-off that takes up the rest.

There is no changes to the underlying tax rate. So we report a tax rate of 32% in sort of in the accounting statements, whereby the underlying tax rate, it is around 24%. If you look at the consolidated statements including Adevinta, the underlying tax rate is around 30%.

Then operating cash flow. It's slightly up this quarter compared to third quarter last year. This somewhat weaker EBITDA is balanced off -- up -- balanced by reduced working capital.

So -- and then CapEx is slightly down, securing a good overall cash flow conversion this quarter.

We are committed to stay disciplined in terms of capital allocation, but we will, as part of our strategy, deploy capital into selected value creating M&A and other growth opportunities, primarily close to other core business. And that can take different forms. We can organically build and grow new businesses. And Svosj, which we launched recently, is an example of that. But also the other investments into Qasa, which is the sort of the house rentals segment in Sweden is an example of that kind of investments. We do venture activities. And this quarter, we have invested into 3 companies: Capcito, InzpireMe and Habity.

We do selective M&A, and we have bought Jobbsafari in Sweden recently, but the upcoming sale of Fædrelandsvennen to Polaris is also an example of us doing divestments and we see that is the right thing to do.

If opportunities arise, we are looking for international expansion opportunities both through M&A, but also through organic investments. And what we are doing in Lendo, in Denmark, Poland and Austria is an example of such organic investments.

And then our focus on having a healthy balance sheet and depending on timing of the investments on what I had just described, we are prepared also to do capital adjustments and the 2% share buyback that we are in the midst of is an example of that.

I will end this presentation by confirming that our financial targets and policies stand firm. These will probably -- and you should probably be well known too, and they are clearly linked to our growth strategy.

For the Nordic Marketplaces, our target is a revenue growth rate of between 8% and 12% in the medium and long term.

For News Media, our target is to maintain a stable EBITDA margin for the segment, and that is still valid. And also that is why we'll sort of follow up closely on the cost development and other EBITDA improving initiatives in News Media going forward. And then we'll also look into or work with reducing the costs at our headquarter.

I have commented on capital allocation, including M&A, and there is nothing new to our dividend policy. We intend to pay out stable and increasing or decreasing dividend over time.

And our leverage policy ratio is in the range of 1 to 3 and sort of where we will be at a certain point in time is depending on sort of the timing of attractive investments that becomes available.

So that concludes my presentation. So I invite Kristin back on the stage, so we can answer some questions that you might have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Unidentified Analyst, [1]

--------------------------------------------------------------------------------

Some questions. First, Prisjakt was slightly weaker than expected. Do you expect this to continue into next quarter as well? And also if you could give any more color on the expansion cost for Lendo international there going into next year?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. Well, I think I have to be blunt and say Prisjakt was a disappointment to us. There is -- we see some issues there in -- segment-wise, as I mentioned in the electronics. And -- but we -- I think we also need to work with their ability to pick up on leads, KPI, et cetera. So we have a strong focus on it. I hope we will be able to see them back to growth soon. But it's a bit hard to say exactly how long that's going to take. But they are under strict scrutiny for that.

And then the expansion cost. It's fair -- we see very good traction now in Denmark. So just from that, I think it's really already been paying off to do the investments that we have made. We see that it's going to take longer in Austria and Poland. So of course, we are constantly adjusting how much we pour into those markets before we see that we are able to gain traction quickly enough. But we are also exploring other opportunities in Europe. So we will guide later when we have those plans in place, when we can be a bit more concrete about exactly what this is going to require in the next year.

--------------------------------------------------------------------------------

Unidentified Analyst, [3]

--------------------------------------------------------------------------------

Yes. And secondly for me. For Blocket, there was a difference in reported and organic growth for Blocket because some revenues were shifting to News Media and the termination of license fee. Can you give some more color here? And if this will broadly have the same impact on forward quarters as well?

And secondly, the spending was slightly higher than expected though it's positive that Blocket shows sequential improvement in revenues. What can we think about for spending in Q4?

--------------------------------------------------------------------------------

Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [4]

--------------------------------------------------------------------------------

All right. So yes, there has been some technicalities of some volumes that have shifted and it's going to be -- that is until the end of the year. You can see the effect, right? So yes -- so you'll see also that for Q4. And then as of next year, there will be apples and apples. And that's why we report the figures as they are, but we also want to show the underlying organic growth since we know that there is a strong focus on our ability to take Blocket back to growth. So that explains it. And I think it does some 1% to 2% on the growth figures, right, something like that is the magnitude of it.

When it comes to the spending, yes, it's true that they have increased their spending. We think that's been the right priority. We will aim to bring Blocket back to its previous EBITDA levels. But right now, it is more important for them to get a solid foothold on the growth. So I will not actually say that we will be -- that you might see that already in Q4, but we hope that during next year, you will see improved margins in Blocket.

--------------------------------------------------------------------------------

Unidentified Analyst, [5]

--------------------------------------------------------------------------------

Okay. And then last one finally from me. Looking into M&A, can you give any more color on which segments you are looking at into classifieds, newspaper, growth assets? And if it will be possible to look into Hemnet again after the pushback from competition authorities the last time you tried? Or...

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

There are many attractive opportunities, and we are working quite hard along several scenarios. Marketplaces in Sweden is an obvious opportunity for us. We are working there, looking at several verticals. Finland is another exciting market where it will be natural for us to extend our presence, so that's another thing we're looking into. And then we are currently running a portfolio project in our media division. And we have -- you have seen a divestment. You might see other add-ons. I mean we are willing to look at our total media portfolio as well, and we will like to pursue also opportunities there. Some assets are extremely undervalued these days. I won't say that we will go into it, but we are taking a look and finding out how to move that portfolio going forward.

Anybody else? Do we have anything from the stream?

--------------------------------------------------------------------------------

Unidentified Company Representative, [7]

--------------------------------------------------------------------------------

Absolutely. We have several questions from the video stream. A few questions on Finn regarding the margin development there, relatively low marketing spend in Q3. Is this something we can extrapolate going forward? That's the one question on Finn.

And the other one is more on the macro situation on real estate and jobs, whether you can elaborate a little bit on what you're seeing in the market there and what to expect going forward?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

All right. Okay. Well, it's true that marketing cost has been taken somewhat down. That's mainly due to the fact that we stopped investing in our Finn shopping initiative. But it's very important to realize that for a company like Finn with such a strong market position, it is also incredibly important to have the right funnel for growth. So we do invest in also long-term growth initiatives. We're looking at adjacent opportunities, but we are also looking at -- into new concepts that we can fit into the Finn brand. So I think we will be diligent and we want to keep acceptable margins in Finn going forward, of course, but we will not stop our investment strategy in that brand.

And then when it comes to the macros, I think I said what I can say about the jobs really in my presentation. We don't know. I just wanted to give the signal that we have seen some uncertainties around the job volumes. And as we know from experience that sometimes it's a sign of something, but it doesn't necessarily have to be. So I just wanted to be transparent about that.

When it comes to real estate, that's just an overall -- there's been an overall drop in volumes. It's not severe, but it just means that real estate has not been the main driver of the growth this quarter. But I wouldn't put too much emphasis on it either.

--------------------------------------------------------------------------------

Unidentified Company Representative, [9]

--------------------------------------------------------------------------------

Okay. A few questions on the advertising market and especially on VG. Can you say anything about the outlook going forward to Q4 for the Norwegian ad revenue development?

--------------------------------------------------------------------------------

Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [10]

--------------------------------------------------------------------------------

These things are hard to predict. As you know, they go up and down from month to month sometimes. But I think what we are seeing is it's quite a competitive market, but we also see that there has been a strong price pressure. We have had that in Sweden for a while, and now we see it more and more coming to Norway. I think it's unfortunate because I think if we want to be able to finance good quality journalism, we should not beat each other to death lowering prices on advertising. But we have tried to keep our prices up, and I think that's hurting now. We have lost out partly due to that. So we will constantly calibrate how we manage our way through that very competitive situation in the market.

--------------------------------------------------------------------------------

Unidentified Company Representative, [11]

--------------------------------------------------------------------------------

Okay. We have one question on Svosj, the distribution subscription initiative. Can you say anything about the revenue model here and the business model as such? What is the revenue contribution from the partners? And whatever you can say about that.

--------------------------------------------------------------------------------

Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [12]

--------------------------------------------------------------------------------

Yes. So the model goes that you pay -- the consumer pay a monthly subscription fee to Svosj. And then the partner will -- the partner company will pay for delivery through the helthjem network, but they will get a discounted delivery to helthjem. And to make up for the discount, some of the proceeds from the Svosj subscriptions will also go to helthjem. But we have a double effect in a sense that we get the remaining subscription revenues in Svosj, but we also get the increased revenue and volumes in helthjem. So this is a very good model and it's a way to structure it. So that we -- it's a win, win, win because also, of course, our partners will get increased volumes from the consumer preference that stems from this free subscription arrangement.

--------------------------------------------------------------------------------

Unidentified Company Representative, [13]

--------------------------------------------------------------------------------

All right. And then I think final one for now here is on Prisjakt. Are you able to shed some more light on the drivers for the softness there?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I think I've said quite a lot about Prisjakt. There's -- I don't know if there's that much more to say about it. We will follow it closely going forward.

That was it? Okay. Anybody else? No? That's it. Then, thank you very much for listening. Thank you.