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Edited Transcript of TAMN.S earnings conference call or presentation 27-Aug-19 9:00am GMT

Half Year 2019 Tamedia AG Earnings Call

Zürich Sep 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Tamedia AG earnings conference call or presentation Tuesday, August 27, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christoph Tonini

Tamedia AG - CEO & Member of the Management Board

* Sandro Macciacchini

Tamedia AG - Head of the Finances, HR & IR Division and Member of the Management Board

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the half year 2019 results analyst conference call. I'm Sandra, the Chorus Call operator. (Operator Instructions) The conference is being recorded. (Operator Instructions) The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Christoph Tonini, CEO; Mr. Sandro Macciacchini, CFO; and Mr. Patrick Matthey, Head of Communications. Please go ahead, gentlemen.

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Christoph Tonini, Tamedia AG - CEO & Member of the Management Board [2]

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Yes. Good morning, everybody. We are pleased that you take time to have a look with us into the half year results 2019 of Tamedia. I would go through some of the charts, which are on our right side, and then Sandro Macciacchini will give you some more details about financial figures.

Let's start with Page #5, the overview. As you have seen, we have been recording revenue growth of 10% and an EBITDA growth of 7%, only driven by acquisition of Goldbach and Zattoo on the revenue side, but we have had a decline on the EBIT level and this mainly also driven by this acquisition because, as you can see, both the EBIT figure, we had a higher, clearly higher depreciation and amortization of these company mergers. And then on the net income, we had a onetime, positive onetime effect of the sale from our Localsearch participation, which we have booked gains so that the net income increased by 34%, but this obviously is not reflecting the organic or the operational, I'd say, development, sorry. You see that the EBIT margin and also the adjusted EBIT margin came down compared to previous year, from 15.2% to now 13.6%, and this is clearly below our midterm expectations we had ourselves.

If we have a look on Page #6, it gives already a different picture on the revenue development. You have on the left the organic revenue growth, which is not a growth but a decline of total 4%, driven by Paid Media but also Free Media, which came down due to the development of the print advertising marketplaces, respectively, 5%. But on the other hand, we have then on the consolidated revenue, we have -- you see the impact of the first 6 months consolidation of Goldbach and Free Media and Commercialisation growth of 51% and also Marketplaces and Venture growth 10% because of the acquisition of Zattoo, which was included since 1st of April for 3 months. This all resulting in consolidated growth of 10%.

Page 7 shows our pro forma figures for digital part of our business. On the revenue side, we have 10% more, from -- nearly 50% of our revenue is from digital business. Even more important, if we have a look on EBITDA and adjusted EBIT, here we are at 76%, respectively, at 81%, another growth which clearly shows we are in a good way of the transformation of our group towards a digital media company.

Also the next chart, Page #8, shows that our core activity engine in the journalistic activity is growing towards digital business. Here, it's mainly 20 Minutes, which has had a successful first year, digital driving that part of the EBITDA. And also, the part of the adjusted EBIT increased to 38%, respectively, even 43%.

Page 9 shows the overview, which we clearly can say that the development of Paid Media and also the development of Marketplaces is not satisfying, but had some good reasons, whereas we are pleased now with the development of the Free Media and Commercialisation, where we had an increase in all levels, but also an increase in the margin, which is important.

If we go now to Page 11, have a closer look to the Paid Media. One can see that the decline in the revenue led together with investments, which were down to an even higher decrease on EBITDA and adjusted EBIT. We have now a margin EBITDA of only 64.4% and adjusted EBIT of only 2.5%. Clearly, this is not what we have as expectation to this business in the mid- and long-term view, but we have to accept that now, for the next 2 to 3 years, we will have -- we will see continuous investment into transformation of this segment and this activity into a real digital business.

The trend on print advertising, you can see on Page #12, here is mainly the superregional dailies, which were hit the most, with a decline of 15%. And unfortunately again, that's the segment we are the most recognized with our big retail titles like Tages-Anzeiger, Berner Zeitung or 24 Heures in the Romandy. So that was clearly something which we have felt in terms of then also development on the income side.

More satisfying is the following chart, Page 13, which shows the development of the digital subscription. We have now nearly 80,000 digital subscribers. That's the growth towards December last year of 13%. And it's even a growth of 37% if we look on a 12-month view. That's satisfying, but it's still below our own expectations. We said that we have an internal goal to grow the next year's digital subscription by 50% year-on-year. So shows also that the trend is correct, but we need even to increase speed of this growth, and that's why we have stated that we will continue to invest up to CHF 30 million into this digital transformation.

We now jump to the segment of Free Media and Commercialisation, Page 17. Here, it's obviously not an organic development, but an increase due to this integration of Goldbach. We see revenue going up by 51% and also on EBITDA and EBIT over 100%. But important, as last year, 20 Minutes was a bit of disappointment. We can state that the first 6 months development of 20 Minutes was very pleasant. Although also 20 Minutes lost in the advertising, in the print advertising market more than 10%, the team was able to compensate fully on the net income level the decline in print by strong growth in the digital advertising revenue. That's very satisfying.

We have also launched a new social brand, Venty, for 20 Minutes, to have a better access to a very young public. And we announced the acquisition of the youth radio station, Planet 105, which we hope to close next month. And then we will rename this radio into 20 Minutes Radio to even further increase the strength of the media brand, 20 Minutes, in Switzerland.

Margin is now on the EBITDA level of 23% and on the adjusted EBITDA of 20%, which is around these expectations what we have for the segment.

You see on Page 18 that the daily usage of 20 Minutes is still growing, although we see a slight decline in the print readership, but this is compensated -- overcompensated by the daily online usage. And most probably next year, for the first time then since the existence of 20 Minutes, we will have more daily online users than print readers. That's quite an important March that we will see.

Now coming to -- jumping to the next Page #22. We have Marketplaces and Ventures, where we have the impact of the 2 acquisition, an increase in revenue of 10% with this acquisition, but this is definitely a disappointment in the first 6 months, a clear decline in the -- on the level of EBITDA and EBIT by 21%, respectively, 26%. Why do we see this decline? It's, on one hand, it's a clear investment case, which we have launched for all the platforms. We want to preempt possible disruptions on either the vertical side, which is mainly driven by the launch of Facebook Marketplaces, which we see as a clear threat for our activities like tutti, but then also on the mid- and long-term run for the verticals, but also the increased competition by Indeed in the job market, but also now the outlook that Google Jobs will be launched. And we see also higher competition on the [ricardo.ch field]. And then again, last but not the least, we launched together with AXA Insurance a new car platform, CAR FOR YOU, where the launching costs are reported by 100% even though it has a 50-50 joint venture. So all this led to a decline on the results, which obviously is not satisfying, but we think it's needed that we can maintain the great positions in the classified marketplaces also in the mid- and long-term run.

Page 24, you see that, that resulted in a decline of the classifieds itself, which recorded an EBITDA, adjusted EBITDA -- EBIT of CHF 42 million. And on the service and ventures on the right side, you see that we even have reported a loss. This is driven by the heavy investment into Doodle and Zattoo, where we have high growth in terms of turnover, growing by over 30%. So we continue to invest in these activities, but also the sale of Localsearch. So for the first time, we don't have the contribution of our stake, our participation in Localsearch in this segment.

If we then go to the outlook, it's -- the main goal is now to get the organization ready to start 1st of January with the new structure, the new structure we have announced in June this year. We want to establish 4 largely independent businesses: Paid Media; Free Media; Advertising Marketing; and Marketplaces. And these 4 units, they will also have their own dedicated boards, their own management teams and also have much more autonomy and greater responsibility, all this with the goal that we want to drive growth in the segment. And for this, we are even ready to go into partnerships to maybe change some of the shareholding structures in some of the segments. The new structure will be headed by Pietro Supino as of 1st of July, and by Sandro Macciacchini and Samuel Hügli, our CFO and Head of IT and Ventures.

So with this, I hand over to our CFO, Sandro Macciacchini, which gives you some insight on the financial figures.

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Sandro Macciacchini, Tamedia AG - Head of the Finances, HR & IR Division and Member of the Management Board [3]

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Thank you very much. Good morning, everybody, I would like to start with Slide 37 and with some explanations why we focus more on the KPI, EBIT, before effects of business combination than in the past.

Firstly, with the new standard IFRS 16 leases, we have to report our leasing costs in principal amortization. Therefore, the EBITDA in the first half year of 2019 would have been CHF 6 million lower without this effect. On a full year basis, the effect amounts to around CHF 12 million.

Therefore, we think that with the new standard, the EBIT, including this amortization, reflects the operational performance better than the EBITDA. Furthermore, we think it is crucial to distinguish between the amortization and depreciation results from capital expenditures on the one hand and amortization results on business combinations on the other because the amortization resulting from business combinations do not reflect the needed investments for the ongoing business, but folded the investment in the acquisition itself.

Chart 37 gives you an overview of these effects in the reporting period. The operational depreciation and amortization stood at group level at CHF 30 million. Here included are the aforementioned depreciation and amortization of the right-of-use assets capitalized on the IFRS 16 in the amount of CHF 6 million, which mainly explains the rise from the previous period. This leads to an EBIT before acquisition effects of around CHF 71 million on group level, compared to CHF 73 million in the previous period, whereas the EBIT after these effects was substantially lower with CHF 41 million due to the amortization results and business combination mainly from Goldbach and Basler Zeitung.

On the same chart, you also see the full-time equivalent in each segment. Previously these [assets] at group services were allocated to the Paid Media segment. From this year on, we split them between segments based on operating revenues to give you a more accurate view of the number of assets per segment. Besides that, further adjustments has been made in the segment reporting, as also explained in the half year and annual report. In particular, a commission is now applied also to company commercialization arrangement for offsetting advertising revenues, whereas a simple cost allocation was performed in the past. For the purposes of restatement based on the whole of 2018, the commission reflects the costs with some discrepancies possible during the course of the year.

Together with the new structure of the group from 2020 on, we also foresee further adjustments in the segment reporting for the first time in the half year reporting of 2020. In particular, the aforementioned commission principal will not be purely cost based anymore and will therefore not necessarily equal the costs on a full year basis.

The next chart shows the normalized net income. In the reporting period, [we neutralized the] gain of CHF 19 million due to the sale of our stake in search local. Furthermore, we excluded the reduction of our deferred tax liabilities in the amount of CHF 1.7 million due to the new tax legislation of [comparable Basel] stock.

Some more words regarding taxes. The anticipated average tax rate remains practically unchanged at 21.1%. In contrast, the effective tax rate fell sharply from 24.2% in the first half of 2018 to 9.4% in the reporting period. One reason for this is the impact of investment without deductions and other nontaxable income, in particular the already mentioned financial gain of CHF 19 million. Another reason are tax effects on deferred tax due to a change in the tax rate, as it was the case in Basel with its new tax legislation I have mentioned.

For the full 2019, we expect again effective tax rate below the anticipated rate. But it is rather difficult to give you a clear guidance on that due to the many variables that impact this figure. Among others, we expect those reduction due to book depreciation and amortization on previous acquisitions made in the publishing as it was the case in the previous years.

Let's move on to the cash flow statement on the next slide. As you can see on the left side, cash flow from operating activities before interest and tax declined by CHF 44 million. This is strongly influenced by a change in the net working capital. Net working capital was, at the end of the first half year, [CHF 18 million] higher than at the beginning of the year, whereas in the previous year, this effect contributed positively to the cash flow in the amount of CHF 5 million. Furthermore, the dividends from associated companies in the amount -- declined from -- sorry, declined from CHF 22 million to CHF 2 million mainly due to the sale of our stake in search local. This sale contributed to a positive cash flow from investing activities of 20 -- of CHF 225 million. Due to the repayment of our loan, cash flow from financing activities was clearly negative with CHF 220 million. Here, included are also the dividend paid to Tamedia shareholders, of course, but also to noncontrolling interest, which has risen by around CHF 20 million due to the acquisition of Goldbach. At the end of the reporting period, cash and cash equivalent stood at CHF 216 million.

Let's move on to the balance sheet, shown on the next slide. As you can see, the equity ratio stood at 73%. The rise in expense is the pay back of the debt we draw for the acquisition of Goldbach Group. At the end of reporting period, the net amount of financial debt was positive with around CHF 180 million.

To conclude, let's look at the development of capital expenditure. As you can see, CapEx was again relatively low at 2.1% of revenues for the full year. And also in the future, we foresee a comparable average of around 2% of operating revenues consisting mainly of further investments in effective brands and in IT. Therefore, that CapEx will also be due to considerably lower than the operational amortization and depreciation. As mentioned at the beginning, this amortization depreciation on a full year basis will be around CHF 40 million, excluding the amortization from business combination.

That's all from my side. Thank you for your attention.

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Christoph Tonini, Tamedia AG - CEO & Member of the Management Board [4]

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Thank you very much, and now we are ready to take your questions.

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Operator [5]

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(Operator Instructions) Gentlemen, so far, we have no questions.

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Christoph Tonini, Tamedia AG - CEO & Member of the Management Board [6]

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Okay. Then we thank you very much for your attention. And if any questions come later on, we are definitely ready to take your questions also hand on hand. Thanks a lot and wish you a good day. Thank you.

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Sandro Macciacchini, Tamedia AG - Head of the Finances, HR & IR Division and Member of the Management Board [7]

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Bye.

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Operator [8]

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Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.