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Edited Transcript of SCHA.OL earnings conference call or presentation 13-Feb-20 1:00pm GMT

Q4 2019 Schibsted ASA Earnings Call

Oslo Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Schibsted ASA earnings conference call or presentation Thursday, February 13, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jann-Boje Meinecke

Schibsted ASA - VP & Head of IR

* Kristin Skogen Lund

Schibsted ASA - CEO

* Ragnar Kårhus

Schibsted ASA - CFO

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Conference Call Participants

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* Andrew Geoffrey Ross

Barclays Bank PLC, Research Division - Research Analyst

* Catherine T O'Neill

Citigroup Inc, Research Division - Director, VP and Analyst

* Lisa Yang

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Ole Martin Westgaard

DNB Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Schibsted ASA Q4 2019 and Q&A Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jann-Boje Meinecke, Head of IR. Please go ahead, sir.

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Jann-Boje Meinecke, Schibsted ASA - VP & Head of IR [2]

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Good afternoon. My name is Jann-Boje Meinecke, and I'm the Head of IR of Schibsted. A warm welcome to all of you here from Oslo in connection with the presentation from our Q4 results, and many thanks to all of you for joining us here. Together with me here, in Oslo, in the room is our CEO, Kristin Skogen Lund; and our CFO, Ragnar Kårhus. This morning, we held a webcast presentation of the Q4 results in Oslo, and many of you may have seen it. If not, please go to our website and find the replay.

Adevinta reported its Q4 results yesterday and their recording of the presentation is available at adevinta.com.

But now I would like to hand over the word to Kristin for a short introduction before we open the Q&A.

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Kristin Skogen Lund, Schibsted ASA - CEO [3]

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Thank you very much, Jann-Boje, and hello, everybody. This morning, we reported Q4 results with good growth development within key strategic focus areas. Excluding Adevinta, revenue grew 1%, which is in line with the previous quarter while EBITDA came in 3% lower and 21% lower if you exclude the IFRS 16 effect.

Our Nordic marketplaces had a solid revenue growth at a somewhat lower pace and EBITDA increased in spite of investments in Sweden to ensure further growth and due to some catch-up investments also. Finn increased revenue driven by its verticals and a good development in display advertising despite rather flat volumes for real estate and lower volumes for jobs compared to last year. This volume development has continued in the start of 2020. Blocket continued its growth momentum by a successful revamp of the professional Car segment.

Digital subscription revenues continued to grow well in News Media, and our Norwegian operations continued to show stable margins. However, the overall EBITDA for News Media came in significantly lower compared to Q4 last year, driven by a significant drop in advertising revenues, particularly in Sweden. As in previous quarters, this is primarily caused by the regulatory tightening of the gaming industry affecting Aftonbladet.

To turn around the negative margin development and secure long-term healthy profits for our News Media operations, we have decided upon and started implementing improvement initiatives across our brands and functions in News Media.

Financial services delivered revenue growth of 4% compared to last year driven by continued double-digit growth for Lendo, Sweden. Whereas the development in Norway is still influenced by the tighter regulation for consumer loan banks and it's stable quarter-over-quarter for the time being.

Looking at the international expansion, we are overall happy with the development, particularly for Denmark, and we plan for a soft launch in Spain during 2020.

Finally, let me say a few words about our financial situation. As previously communicated, we do see interesting opportunities to deploy capital into M&A and other growth opportunities. At the same time, we will look into addressing any overcapitalization through dividends or share buybacks over time.

Looking at the cash dividend for 2019, the Board has proposed an ordinary dividend of NOK 2 per share by Schibsted, which is in line with our dividend policy. We will also continue our previously communicated share buyback program in order to reach the 2% target for buyback. Execution on this will depend on the market conditions going forward.

So quickly to summarize, Nordic marketplaces, solid growth despite somewhat lower job volumes in Norway. News Media, good development for its subscription business, while advertising remains challenging and to improve margins, we have started to implement improvement initiatives.

And then finally, Lendo in Sweden continues to show good growth and a soft launch in Spain is planned for later this year.

So with that, I'd like to hand the word over to you, operator, and you will, I suppose, organize the Q&A session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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It's Lisa Yang from Goldman. A few questions, please. In Sweden, EBITDA was down NOK 10 million despite revenue up 8%. Just wondering how you're thinking about the level of investment for 2020, especially the -- whether the catch-up investments will be in Q4 or that should also continue in 2020, that will be helpful.

Secondly, I'm just wondering why the revenue for Lendo investment phase went down in Q4 versus Q3, given you're in a ramp-up phase, is that just due to seasonality, and how should we think about the run rate of revenue 2020?

Related to Lendo, do you still expect the Lendo investment phase to reach breakeven by 2021, 2022, I think you made a comment related to that for Denmark. So does that still apply?

And the last question is on -- is in terms of the M&A and cash returns that you talked about. At the Q3 results, you said you would -- something would happen in a 6- to 12-month time frame. Just wondering if that time frame still -- is still valid. So that means in the next 6 months, we should hear something on [annual] cash returns?

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Kristin Skogen Lund, Schibsted ASA - CEO [3]

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Okay. So concerning the EBITDA in Blocket, it's true that it is lower. And it is due to what I have said that we have some catch-up investment due to technical debt, and we have increased our number of FTEs, both in product and tech and sales. Right now, the most important thing is to let Blocket focus on that growth momentum, which they are currently enjoying and that takes precedence over other considerations for the time being. And beyond that, I don't think we want to guide on how this is going to look going further.

When it comes to Lendo international Q4 versus Q3, yes, there is a slight drop. It has to do with some seasonality effects in Denmark where the majority of that revenue is coming from. There is nothing -- I mean I wouldn't put any emphasis to that. It's a seasonality effect. And then I think you asked about the investment phase and breakeven. I believe we have guided that we believe it will take a bit longer than it did back with Norway and Finland, and that we're looking at a 3- to 4-year horizon, and I think that remains the same. And then I forgot what you asked as your last question, sorry.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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Yes. Just about the time frame of when you expect larger scale M&A and larger scale cash returns to take place because at the Q3 results in last October, you talked about 6 to 12 months. I'm just wondering if that's still the case.

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Kristin Skogen Lund, Schibsted ASA - CEO [5]

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Yes, right. Yes, we are hoping. And look, we are really active, and we are investigating and being very active in the field. But as you know, some of these things take time, and you don't know -- you can't always either stress or decide on the timing of things. But we are just being very active about it, and we hope that we will make some progress.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [6]

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Can I ask another question related to your investments in distribution? Just wondering if you can talk about the revenue benefit from the investments and when should that new benefit materialize?

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Kristin Skogen Lund, Schibsted ASA - CEO [7]

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Yes. So we have announced that we will make investments of NOK 50 million this year. And I think it's reasonable to look at maybe a payback typically in the range of a couple of years before you will see that materialize. And we believe it's very important now to put more momentum into those operations as they are progressing really well. There is strong growth in the market, we're gaining share. And then we also have the new Svosj concept, which potentially has a very strong network effect if we manage to make it work. We're signing on constantly new partners, and it's the right time to boost investments in that concept now.

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Operator [8]

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We will now take our next question. (Operator Instructions)

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [9]

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This is Ole Martin Westgaard from DNB. I have a couple of questions. Starting with your headquarter cost, it was quite high in Q4. I didn't quite catch on this morning's conference call, whether you expected the Q4 level to be representative going forward or whether it was the full year 2019 level? And also, a follow-up on that. I understand that you aim to allocate it to the various segments. Can you give any rough indication on how this split will be? That was my first question.

And then the second part is coming back to Blocket. I understand that you don't want to provide any margin guidance, but is it possible in Q4 to make a comment on how much the increased employees and product and tech spend had an impact on the margin?

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Ragnar Kårhus, Schibsted ASA - CFO [10]

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I can start by commenting on the headquarter costs. The 2 reasons for why the cost in the fourth quarter was much higher than in previous quarter. The first was that we saw a lower capitalization rate within product and tech this quarter compared to previous quarters. The flip coin on that you will see in our CapEx investments, which then also was -- were somewhat lower. In addition to the lower capitalization rate, we also invest in, let's say, new data and tech capabilities at group level to better support our businesses and to utilize our pretty broad data platform. And that is our investment that I think will -- so we get good return on in the time to come. So that is the 2 main reasons for the increased costs.

With respect to the change in financial reporting, the total costs within headquarter and what we call other central functions, these costs are -- include services that are delivered to the business segments. And these cost -- this cost has not been allocated fully to the segments. To create better transparency on what is driving these costs, we will allocate them based on usage to operating segments. That said, it's also important that we're using it not only sort of to create transparency, but that the -- it's combined internally with processes to improve more stricter prioritizations and also improved cost control.

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [11]

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Okay. Can I just follow up on that? On the 2019 level, is that representative for cost in 2020? Or is it the Q4 level that is representative for cost going forward?

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Ragnar Kårhus, Schibsted ASA - CFO [12]

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I think we will continuously work to -- also to reduce costs at headquarters and at sort of the headquarter and other central functions, but you will see that these coming quarters, this will be more or less representative as a run rate.

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Kristin Skogen Lund, Schibsted ASA - CEO [13]

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And then on your Blocket, I don't think we want to go into that level of detail and specifics if that's okay.

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

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Okay. But is it possible -- then going back to the first question. On the CapEx, since there was some higher or lower capitalization. Can you give any CapEx guidance for 2020?

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Ragnar Kårhus, Schibsted ASA - CFO [15]

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I think we expect CapEx more or less on the same level as in 2019, plus/minus depending a little bit on the rate -- the size of how much is capitalized.

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Operator [16]

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(Operator Instructions) We will now take our next question. (Operator Instructions)

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Catherine T O'Neill, Citigroup Inc, Research Division - Director, VP and Analyst [17]

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It's Catherine from Citi. I just had one question really around the digital advertising revenue. In the release, you talk about moving away from or eliminating programmatic. I just wondered what proportion of your digital ad revenue and News Media is programmatic currently. And the pressure you expect in 2020, is that still predominantly in Sweden? Or is that across the board? Could you maybe just expand on what the factors are that's driving this beyond the gaming regulatory change?

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Kristin Skogen Lund, Schibsted ASA - CEO [18]

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Right. Right. I don't think we have said that we will go away from programmatic. But I mean it's -- I think it's a good idea to become a bit less dependent upon it. But on the other hand, you could say that our programmatic revenues are actually increasing in Sweden since we -- when we introduced GDPR in '18, we didn't put any inventory on Google, and we reversed that midyear last year. So actually, programmatic advertising is picking up in Sweden for the time being because of that change.

In Sweden, you could say we have 3 effects hitting at once. One is that overall market is down, depending on who you ask some 15% to 20%. So I mean there is a general strong contraction of the overall market in Sweden.

Then second, you have these Google effect, let's call it, so the fact that we did not put any inventory on Google and were punished for that, which is now reversed, but it takes time to build back up.

And then finally, the specific hit from the gaming industry. So all these 3 things hit at once. Going forward, we will obviously, now when we get to the second quarter and beyond, meet less strong numbers for -- from last year. I mean that will make the relatives look better, but it won't bring any more cash in by itself. I think most experts predict a still rather soft development for advertising in Sweden, but I find it hard to predict beyond that.

When it comes to Norway, the picture is better. Actually, across all our brands in Norway, we grew 3% in advertising in Q4. And if you take out Finn from that, it's more or less flat. So Norway looks better. But also here, we have experienced a lot of volatility. So it's just simply very difficult to predict how it will develop.

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Catherine T O'Neill, Citigroup Inc, Research Division - Director, VP and Analyst [19]

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So you're not seeing any specific changes relating to Google's clamping down more on third-party cookies and the whole idea of safe site tags?

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Kristin Skogen Lund, Schibsted ASA - CEO [20]

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Yes. Well, I mean that development, I mean the, let's say, the depth of the cookie development is something, of course, we follow carefully, but we are aware of that development and adjusting accordingly.

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Operator [21]

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We will now take our next question. (Operator Instructions)

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [22]

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It's Andrew here from Barclays. I've just got one left, bit of a boring one, I'm afraid. I think you mentioned on Aftonbladet about being an accounting change, which should impact the revenues, and I hadn't fully understood that. So could you just go over that again in terms of exactly what changed and whether it impacted also EBITDA?

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Kristin Skogen Lund, Schibsted ASA - CEO [23]

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Right. Okay. So the change was that we used to record subscriptions per month, and now we are doing it per day. So a more, let's say, dynamic accounting of it. And for Q4, that gave a negative one-off effect this year. So the underlying growth of subscription revenue is 27%. So it's quite a lot stronger than what appears in the number. But that -- it's a one-off effect just happening now because of that change of accounting or revenue recognition is more precise to say.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [24]

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But is that something that flows through into the next 3 quarters of 2020 as well or is it all now done?

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Kristin Skogen Lund, Schibsted ASA - CEO [25]

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It's a one-off, NOK 8 million, and that will just -- so it's a one-off. So it will continue from now on and the effect is just once.

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Andrew Geoffrey Ross, Barclays Bank PLC, Research Division - Research Analyst [26]

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Okay. NOK 8 million one-off, okay.

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Operator [27]

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(Operator Instructions) There appears to be no further questions in the queue. I would like to turn the conference back to the host for any additional or closing remarks.

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Jann-Boje Meinecke, Schibsted ASA - VP & Head of IR [28]

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So thank you very much for participating in this call today, and I wish you all a very good day, and thank you for joining.

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Kristin Skogen Lund, Schibsted ASA - CEO [29]

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Thank you.

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Operator [30]

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