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Edited Transcript of SCHA.OL earnings conference call or presentation 16-Jul-19 12:00pm GMT

Half Year 2019 Schibsted ASA Earnings Call (Q&A)

Oslo Jul 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Schibsted ASA earnings conference call or presentation Tuesday, July 16, 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

* Trond Berger

Schibsted ASA - Executive VP & CFO

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Conference Call Participants

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* Andrew Geoffrey Ross

Barclays Bank PLC, Research Division - Research Analyst

* Ole Martin Westgaard

DNB Markets, Research Division - 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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Good day, and welcome to the Schibsted Quarter 2 2019 Q&A Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jo Christian Steigedal. Please go ahead, sir.

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

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Good afternoon. My name is Jo Christian Steigedal, I'm the Head of IR in Schibsted. And warm welcome from Oslo to this Q&A session in connection with the presentation of the second quarterly report for Schibsted in 2019. And thanks to all of you for joining us.

Together with me here in Oslo are our CEO Kristin Skogen Lund, CFO Mr. Trond Berger and my colleague on IR, Espen Risholm.

So let me briefly remind you that we held a webcast presentation in Oslo this morning and recording is available on our website. Adevinta reported its Q2 results yesterday, and the 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, Jo Christian. So this morning, we released a set of results which were record strong, in fact, slightly more than NOK 1 billion of EBITDA for the second quarter. When focusing on Schibsted, excluding Adevinta, we also see good development with an EBITDA of NOK 557 million.

The most important growth driver for us is our Nordic Marketplaces business. And in the second quarter, this business continued to deliver strong results. The revenue growth was 6%. But remember, that this was cut by the Easter effect. And if you look at the verticals in isolation, that number was up 11%.

Finn.no continued to grow fast in the second quarter, driven by good development in the verticals. And it's also great to see that Blocket in Sweden accelerates and confirms its path to growth. Still not more than 2%, but they are definitely on the right track.

This growth in the quarter came from both professional cars, jobs and display advertising. And I am optimistic when it comes to the prospects of continued good development over time for Nordic Marketplaces. We see now that the pipeline for new products and innovation is rich, both in Finn and increasingly in Blocket. And the 2 companies are gradually working closer together on the product developments. Right now, they're in the process of improving their auto customer journey in order to make the process to buy a car more frictionless and consumer friendly. An example is C2C payment solutions.

Digital subscriptions continues to be the key growth revenue driver for News Media, and the revenue growth from these products were 22% in Q2. When it comes to digital advertising, the picture was mixed. Aftonbladet ran into significant challenges when the Swedish gaming industry reduced its marketing spend significantly this quarter due to changes in regulation.

In Norway, the digital advertising development was positive if we compare to the same quarter last year. And all in all, News Media produced a slight revenue decline but improved EBITDA in the quarter, and we think that's a strong performance.

Within financial services, the growth almost came to a halt in Q2. Lendo Sweden continued to grow well, but the reason for the slowdown is the performance of Lendo Norway, and the negative effect of the newly imposed regulations turned out to be stronger than we have anticipated.

We are reducing our cost in Norway, but at the same time, we see this as an opportunity to strengthen our market position. And we're also working on how we can expand our financial services, both in terms of geography, in terms of taking a bigger part of the customers' journey and, finally, to broaden the scope of services into new customer segments, such as the business segment.

So we still see vast opportunities, and we're happy that the newly launched operation in Denmark is looking good so far. We believe Norway will start to improve again when the market regains its balance. But right now, it is unclear when this will happen, and we do realize that it can take some time.

In the rest of the Next business area, we see good development, especially within Prisjakt and our new Distribution business. Also, I would like to mention that we have managed to close several interesting venture investments during this quarter.

And finally, Schibsted, excluding Adevinta, is now debt free. At the same time, we have communicated to the market that we see the benefit of carrying some debt, and we have indicated a target range for net interest-bearing debt over EBITDA for -- of 1 to 3x. And let me underscore that we do see opportunities for value-creating M&A in the Nordics and other growth opportunities, for example, in online classifieds. But at the same time, the Board yesterday decided to activate buyback program of up to 2% of the company's shares. We intend to initiate the buyback during this quarter 3, and that means that we will start adjusting our balance sheet in the direction of the target that we have provided to the market.

So to quickly summarize, Nordic Marketplaces well on track, high pace of innovation and good growth in the verticals. Blocket confirms its growth path. News Media, good development in digital subscriptions and improved profit margins. And in Schibsted Growth, we see large potential. Lendo doing well in Sweden but a weak market in Norway. And we are continuing our investments into new markets.

And now with that, I would like to hand the word over to operator, and we will be happy to hear your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question.

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

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It's Silvia Cuneo from Deutsche Bank. My first question is on Sweden. The reported overall revenue growth of 2% in local currency. Given that jobs and cars verticals both grew by 6%, it's clear that real estate is growing more slowly if not declining. Can you please discuss the latest development in the real estate market? It may be Blocket saving some increased competition from Hemnet. Or is the market overall soft for housing?

Then second question, still on Sweden. Just a clarification. Was there an Easter effect similar to Norway? And how much was the impact on growth?

And then third question on the buyback. Can you please give more color on your decision about timing and size and also say some thoughts around the private market for online classifieds? I guess the question is you started a buyback because maybe there is high competition for buying assets or valuations are not attractive.

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Trond Berger, Schibsted ASA - Executive VP & CFO [3]

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Well, it's Trond here. Just on the first question, I think you're referring to the Blocket development, and it's right to say that job and car continue well and that Blocket do not have sizable real estate, so it is private cars that is coming somewhat down. So I think that we are now doing a lot of mitigating action. So we do believe that Blocket is on the right track and also going further in the value chain on the car segment, so a lot of opportunities there.

When it comes then to Sweden on Easter effect, well, it's a minor effect on Easter. We haven't quantified. But of course, there are maybe 1% or 2% on Blocket's effect, which you could adjust for.

Going then to the buyback. Well, I mean, we have said that we will initiate the buyback now, and we have said up to 2%, and clearly it's, of course first of all, to adjust the capital structure. And so we will report to the market on a daily basis when we have conducted the buybacks, and it will be both in the A and Bs. I think we will have the flexibility, not stating what -- if it's A or Bs, so that, that we have to report back to the market. And there are a lot of opportunities in, in the OLC markets. Of course, a lot of things going on, but this buyback is, of course, first of all, to adjust the capital structure in Schibsted asset structure.

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Silvia Cuneo, Deutsche Bank AG, Research Division - Research Analyst [4]

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Maybe just a follow-up on the first question, and thank you for mentioning about the private cars. Who is the main competitor in that segment because I think Wayke is mostly for professional dealers, right?

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Trond Berger, Schibsted ASA - Executive VP & CFO [5]

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Yes. Well, there is actually, I would say, limited competition in the car segment in Sweden. I would say that Blocket is keeping its market share, so it's some little slowdown in general in the market for private cars in Sweden but nothing to do with our position as such.

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Operator [6]

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We'll now move on to our next question.

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Unidentified Analyst, [7]

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[Harry Carson] from (inaudible) Capital. My first question is on M&A in the Nordics that you talked about. Would you be able to say if it's more about strengthening existing positions or if it's likely going into adjacencies of new businesses here? And my second question would be just as a follow-up on the private car market for Blocket Sweden. When do you think you may return to growth there?

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

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Okay. When it comes to the M&A in the Nordics, I mean, we love to do bolt-on in-market relation. That's, of course, always most value enhancing. But on the other hand, it could also be adjacent type of business. So I mean one thing that we have disclosed earlier is likely cars acquisition. That was what we call an adjacent business, meaning that we broaden so to say the product space in the classifieds. It could also be new, I think, that we are doing already some venture investments to test and monitor the market when it comes to certain segments, but it's more modest in the total Schibsted. So it's first of all existing and adjacent, but I wouldn't out rule some new investments. The private car market is -- I mean it's -- we are doing now a lot of incentives, like Kristin mentioned, both for payment for making a smooth transaction, financing. I mean there are a lot of activity going on to broaden, so to say, and deepening the value chain. So that should lead to growth coming back in the segment. But to be precise when that will happen -- I mean, hopefully, we can see that over the next couple of quarters, but that's really up to what's going on in the volume also in the market.

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Operator [9]

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We'll now move on to our next question.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [10]

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You've got Andrew here from Barclays. I've gotten 4 questions, if that's okay. Firstly on Blocket. Perhaps could you give us a sense as to how Blocket trended for you Q2 between April, May and June? And I guess I'm thinking about June when you're back on Google Exchange and you decided to cycle against the impact of GDPR. I would be interested to know if it was going much better in June.

Second question on the margin at Blockets. Can you give us a sense as to how much of reduction is due to timing of marketing and how much is due to more investment and, I guess therefore, how we should think about the margin going into the second half and 2020?

Third question is back to the buyback. You've kind of phrased that as being motivated by capital structure, I guess, as opposed to value of the underlying Schibsted's run (inaudible) winter. Can you just give us a bit more of a sense as to if that is the case or if there is an element where this is driven by value, and I guess at what level you'd think about doing additional buybacks if this won't work during Q3?

And then final question just on the venture you guys have talked about. I know you've got Hypoteket, and you've got Bynk, but is there anything else that you've invested in that is getting you really excited of any sites beyond that? Or is it really those 2?

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Trond Berger, Schibsted ASA - Executive VP & CFO [11]

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Well, I mean to comment directly on what happens on a monthly basis like in Blocket, I think we are cautious about. But we have seen some improvement during the quarter. So that's, of course, good. When it comes to the Blocket margin, I would say that some older margins that now somewhat below 50 is due to that we have invested somewhat more in product and tech. So I think we, from time to time, would like to grow models well. So that is -- yes, also, again, we are not really guiding too much on the margin. Of course, if you see some pickup in revenue, that should also improve the margin.

When -- then about the buyback, we certainly look at the capital structure. That's because, as you know, that's still equal treatment of all the shareholders. It's also, of course, something that we have to look into when it comes to the valuation and discount and put it a lot of picture, but that's something that we're not willing to comment upon from that perspective.

When it comes then to the venture, I mean, we have had 2 very successful investments, like Bynk and Hypoteket. I mean...

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

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And if you take the 3 companies that we closed in Q2, it's quite representative. One is within eHealth, basically online booked doctor services. One is called PodMe. It's typically an aggregator for quality podcast. And the other one is called Insurello, which is an insurance aggregator basically. And so it's typically things across the board. But if you ask for a specific area, I would say that eHealth is something that we're looking into. We bought into a portfolio of eHealth companies called Add Health Media. And it's a way to learn, and it's a small stake for the time being, but it could become an interesting sector.

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Operator [13]

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(Operator Instructions) We'll move on to our next question.

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [14]

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This is Ole Martin Westgaard from DNB Markets. I have a question on the negative impact of the gaming industry on Aftonbladet advertising revenues. I just wonder if you can elaborate a bit on why we didn't see any impact of the changed regulation in Q1? And what is causing this? And how -- if you have lost share of advertising revenues to other channels as a consequence of the regulations? And finally, how should we think about the speed at which you're able to diversify your revenue stream to offset this negative impact?

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

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Right. Well, I think it's fair to say that what's happened is that the regulation, they have -- the effects have manifested now. Of course, we have seen this coming, and you could say that the regulation is so that it particularly targets, let's say, the heavy users of betting, which are the more profitable ones. And at the same time, I think, it's fair to say you've had an -- maybe an overinvestment and overestablishment in the betting market in Sweden, and also the players who have been active have invested a lot to take position. So you have sort of a cumulative effect of several factors hitting at once here. So there is quite a strong contraction in the market as such. Thus, that's the main effect. But there is a secondary effect that part of this regulation has also opened up for betting to be allowed in other channels. So it's fair to say that some volume might have gone over to more, let's say, social media-based channels, but I'm not able to quantify that in any way.

I think that Aftonbladet, with its incredible digital footprint, is very well positioned to restructure the advertising portfolio. And you could maybe say that, that would have been a necessary step to take anyway. It is better to have a more diversified portfolio. So we're quite comfortable that Aftonbladet will be able to do that. We already see good uptake in things like within food and travel and other sectors, so we are quite confident on their behalf.

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Operator [16]

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It appears we have no further questions queued over the phone at this time. I would like to turn the call back to our hosts for any additional or closing remarks.

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Jo Christian Steigedal, Schibsted ASA - VP & Head of IR [17]

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Yes. So we give the audience 10 more seconds to sign up to make sure that they are -- that you have asked all your questions.

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Operator [18]

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Certainly, sir. It does appear we have one further question signaling here. We'll now take our next question.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [19]

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You've got Andrew, again, from Barclays. Just on Blocket. You talked about C2C piece on autos. Talk a little bit about the trends you're seeing on the C2C piece in general. That's I guess I'm thinking whether you -- well, how your thoughts are evolving on price and pace of listings on C2C and how the competitive dynamics are evolving there?

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

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Well, I mean, first of all there is no change in the competitive landscape in Blocket. And I mean when it comes to pricing, we still believe that we have a fair and adjustable justifying price or level in the C2C for auto and Blocket. So -- but what we see as an opportunity for going forward is, we need to go much deeper in the value chain in a car transaction. And that's our main focus for time being. And then, of course, we'll be able to take up more on pricing in C2C and B2C in the auto market in Sweden as in Norway. So that's our main priority, I would say, on the product side.

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Operator [21]

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(Operator Instructions) We'll now move on to our next question.

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Unidentified Analyst, [22]

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Just another question from [Harry Carson] of (inaudible), if I may then. On the Blocket margin, any reason why it couldn't return to prior levels as you grow into the new level of investments?

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Trond Berger, Schibsted ASA - Executive VP & CFO [23]

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I mean we -- that's something that we're hesitant to be too precise on the Blocket margin. It has been in the area of 50, 50-plus for many quarters. But -- I mean we have done some more product investments now. Of course, if we doubt can see some result of what we are doing in the -- on the product side in increased revenue, I mean it's easier to come back to the levels that we had before. On the other hand, it's fair to say that Schibsted is, both for Finn and for Blocket, are broadening, so to say, the product space. And also, I think it's right to go into some areas with some lower margin that the pure vertical in the south. So it -- so of course, it could come back. I mean I think that we have a strategy that is a little bit more focused on growth and not just milking too much the vertical in the south.

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Kristin Skogen Lund, Schibsted ASA - CEO & Country Manager for Norway [24]

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You could say that the launch of travel in Blocket is an example of the last point from Trond.

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Operator [25]

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Mr. Steigedal, there are no further questions queuing over the phone at this time.

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Jo Christian Steigedal, Schibsted ASA - VP & Head of IR [26]

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Okay. Then I think we are -- we'd just like to say thanks a lot for participating at this call and wish you all a nice afternoon and a warm and nice summer and talk to you later. If you are -- if you need any more assistance, please reach out to us on e-mail or phone meanwhile. Okay. Thanks.

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Operator [27]

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