Alma Media Oyj (ALMA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen here at Alma House premises as well as you following us online. My name is Elina Kukkonen and I'm responsible of the communications and brand at Alma. Welcome to the interim report session of the last quarter and the 2019 full year of Alma. The agenda this morning is that our CEO, Mr. Telanne, will begin with the business performance of Alma's segments and followed by Mr. Juha Nuutinen, our CFO, with the financial position. We will also recap the divestment of Alma regional business and printing operations announced earlier this week. And Mr. Telanne will give the key figures and also highlight the Alma after the divestment later on. And as always, please, we have time for questions, the questions-and-answer session after the presentations, and all online questions are also more than welcome. So once again, welcome. And I think we're ready to start. So Mr. Telanne, please, the stage is yours.

Thank you, Elina. Welcome very much on my behalf as well to the fourth quarter and full year result presentation. I'll start with the key figures, overall view of the business that we had during the last part of the year and for the whole year. And of course, the big thing is the divestment that we announced this week. We will go take a deeper dive to that, if you want. Juha Nuutinen will concentrate on the figures also for the continuing businesses. As you noticed, we have in the figures -- or in the report, we have both discontinued and continuing businesses figures. We had a very short time period to prepare for the figures, but we succeeded to do that. We had the fifth consecutive year of profitable growth. We are in an all-time high level in profitability of the company. But the last quarter was difficult because of a underlying market developing unfavorably, especially in the advertising market in Finland, but also the European, Central European, market is slowing down because of German economy subduing. But to start with the full year result 2019. Revenue went down mainly by the divestments that we have made but also because of a poor performance of Finnish advertising market, especially the print market. You have probably read the red figures that we had in Finnish advertising market during the fourth quarter, and that has, of course, a remarkable effect on our profitability and revenues as well. The purple pillar here on the left side of this slide is for the divested or the discontinued regional media business, the revenues 2018, EUR 100 million, and last year, EUR 92 million. As you can see, it's a decreasing business that we are giving away from the company. And on the right side, the equivalent profitability of those businesses 2018, EUR 10 million of EBIT. And last year is EUR 12 million of EBIT. That will go away from our figures from -- not now on but after the closing of the deal. So you can see that the effectiveness of the company has increased and continued. Despite the decrease, the decline of revenues of more than 3%, profitability went up by 7.5%. And that comes from several sources, a good cost control, of course. And then the transformation from print to digital is one of the key reasons, of course. But as mentioned, the fourth quarter was difficult for everybody, for every media company, of course, a very difficult market conditions. Once again, the markets was the one who performed on profitability better than anybody else, but then the others suffered very much from the poor advertising market. Fourth quarter profitability, 5% down, and the revenues 3% down, but for the full year, only the talent was the one who didn't achieve last -- or 2018 figures. All the other segments improved, especially the Alma Markets, as you can see, from EUR 3.6 million revenue growth, EUR 3.2 million EBIT, which tells you something about the good cost control of the business. Alma Talent decline came from divestments, as well as consumer, and then the print advertising decline. EUR 57.3 million 2018 EBIT, and EUR 61.6 million 2019. Main reason for a good performance is, of course, the growth of digital businesses -- of digital profitable businesses, especially marketplaces but other media -- digital media businesses as well. 51.6% share of revenues of digital business, EUR 177 million. Then a quick look at the underlying market and operating environment in Finland and abroad. This was the very big disappointment after a very good fourth quarter 2018. The grocery store business went well below the expectations. You have probably read the numbers or heard the news from Finnish grocery business, stores development. And the Black Friday campaign didn't went -- go as expected, and the advertising sales fell much faster than we thought and anybody expected. And the end result was that the print business, the print advertising was 13% on negative territory; and then because of that, 5% of the -- or a little bit more than 5%, the overall total advertising sales. Not even the online advertising grew on -- in December. So that was the other half of the revenue decline that we had because of the poor performance of Finnish advertising and especially the print advertising. And the same happened in Sweden actually. We are pretty much in a same situation. This is the ad sales by sectors, the biggest advertising sectors, which are the important ones for us as well. As you can see, they are only car industry, car dealers on a positive side on the last quarter, slightly positive but not very much. Otherwise, it's quite a disappointing development. Recruitment advertising, 20% down. That was one of the key reasons for our Finnish carrier -- digital carrier poor performance also in the third quarter and also had its severe effect also to talent advertising. Tele sector, 1/3 down from previous year. Not a good situation in Finland. And then the underlying market development in Eastern European countries, where we have the marketplaces, the carrier marketplaces, they are slowing down, as expected. And the forecast for this year, a little bit more than 2%, between 2% and 3%, more or less, which is quite an okays base for a good business, but it is expected not to see that kind of growth figures that we had a couple of years ago with a remarkably bigger growth of those businesses. In Finland and Sweden, we are around 1% GDP growth, which is quite low. And then we have these kind of new issues like the coronavirus. Nobody knows what's going to happen. Now it seems that this has its effects on different kind of businesses, especially on the international businesses, export businesses, but you really don't know what to expect. Situation is unclear. And we will see later what happens, but our forecast is that doesn't affect so much our domestic advertising or subscription business, as we expected here. All right. Then a quick dive into the business segments. We start first the Alma Markets. From my point of view, this was a quite good development and good performance, especially on profitability level. We had a good cost control. The listing market is cooling down because of the Central European economies cooling down. We had a very good performance in Finnish car and housing business. We have this kind of new value-added services, tendering services and those we have talked about before. Expenses, nicely down, and the operating profit 5% up to EUR 8.6 million. The fourth quarter, 35% of EBIT on a stable, high profitability level, which is okay. Then Alma Talent had difficulties with that sales. The cyclical segments like recruitment, book business, training business, those are where the first cuts come when the visibility disappears for the companies. And then also the direct marketing sales went down in this business. The Finnish media, the business-to-business media, went quite well, though. The happy thing here is that the digital content sales grew again very, very good, 28.4% growth in digital subscription sales, which mitigated the decrease of the print subscription sales. And that is a very good achievement for the group and all the staff. Expenses, down as forecasted. We have done different kind of adjustments here. But then because of a poor performance in the ad sales, revenues -- or operating profit went down more than 13%, on a decent profitability level, though. And then lastly, the consumer, where the biggest changes will happen during this year, of course, because the regional media divestment. Revenue is slightly down because of the print advertising. Print advertising declined around 15% here in the fourth quarter, 15% down, which is a huge dump. It was actually 13.2% also in talent segment, which is quite a lot. But the digital subscription sales went nicely up, very strong as well we had in talent group, 24.4% there. And this is the -- or strategic point of view, it's very important to have these growing for further purposes. Expenses, down as expected. As you might remember, we had this kind of cost effectiveness measures done in this segment in the beginning of the year and last year. And the profitability came up -- went down by 10% but for the full year came up nicely. And now the outsourcing of the distribution is in place from the beginning of the year. And that will increase the profitability of the regional media business. All right. That was the overview of our fourth quarter and the full year 2019. Now Juha Nuutinen, our CFO, will concentrate more on the financial position and the balance sheet issues and the details below the numbers that I showed you. Then we come back to the strategic issues, like the divestment of the regional business, later. And prepare for posing some questions for us as well. Thank you.

Thank you, and good morning. This financial review is pretty much the agenda is the same that what we have had previously. But the main focus today is the split between the continuing operations and discontinued operations. So that's the new reporting, what we have done during this -- the last 2 weeks. So that's the main topics perhaps. But first, the long-term financial targets. We did not meet the digital growth rate. We had only 4% growth this year. And the main reasons -- there are 2 main reasons behind that. There's -- one is the slower growth in our recruitment business that has been previously much -- the growth has been much bigger. The other reason is the digital advertising, which has been also the growth has been much more lower than previously. So those 2 explains pretty much this low digital growth rate. But return on investment and dividend payout ratio, there we are above our target levels. This return on investment, 19%, there are 2%, 3% decrease from the last year's figure, but it's pretty much explained by the leasing standard change, which increased the assets by EUR 50 million. So the profit side is pretty much the same or even better than last year. And then the revenue side. On the left side, you can see the cross-revenue for the whole Alma Media including the discontinued operations. You can see that there, our revenue has been decreased for 2 years now. And the biggest reason is the divested units. The Lapin Kansa, the northern newspaper, sale is the biggest reason there, but we have also divested other businesses as well. The organic growth is minus 1.3%, if we take into account only the continuing businesses. But then on the right side, we have revenue, split it between these continued operations and discontinued operations. Last Tuesday, we reported to you that the regional media revenue was EUR 99 million, and now you can see that it's EUR 92 million. And the difference, the EUR 7 million difference, comes from the internal -- group internal revenue. So that's the reason. And the major part of that EUR 7 million comes from the print operations. So the regional media or Alma Manu sales to Alma Media other units is EUR 7 million from the last year. So this comes from the leasing standards that discontinued operations should be presented without this internal revenue. But the continuing operations revenue is EUR 250 million. And it's easy to remember if -- when you see that the Alma Markets is EUR 100 million. Alma Talent is EUR 102 million and this Alma Consumer without these regional businesses is EUR 48 million. So EUR 100 million, EUR 150 million. So it's pretty easy to remember. And then the operating profit side. So like Kai said, this is the fifth year when we are able to increase our profit. However, the last quarter was EUR 1 million drop there but still pretty good history in our case. On the right side, we have again the split between these continuing and discontinued operations. And again, you saw on Tuesday that we reported EUR 10 million EBIT concerning regional media. And now you can see EUR 12 million there. The variance, the EUR 2 million, comes from the fixed costs for -- concerning the support functions. And this is an estimate. We have estimated that, after this transaction, we have EUR 2 million certain support functions costs which will remain in our group after the transaction. So that's why we have increased discontinuing operations cost with EUR 2 million. This EUR 2 million, we estimate that it takes 1 or 2 year to adapt the cost level and decrease the cost level back to this normal situation. So in the long run, there will not be any EUR 2 million loss, if you can say so. So that's why we are talking about these continuing operations, EUR 49 million last year. And that's the comparative level when -- for example, if you look at our guidance. So our guidance is based this EUR 49 million. Then the earnings per share and the dividend issue. This is a good graph because we have quite substantial 5 years now. And the purple color is telling you the cash flow. And again, this year was -- last year was excellent from the cash point of view. This EUR 0.87, however, includes around EUR 0.10, the effect of the leasing standard. So the comparable figure is EUR 0.77 without this leasing standard effect. But still, it's a remarkable good cash flow. Earnings per share figure is the same EUR 0.51 like 2018. However, this 2018 includes capital gain from the northern newspaper Lapin Kansa. It's EUR 4.5 million. So we were able to increase our organic operating profit. So -- and match the figure in 2018. And we -- the Board is suggesting to general meeting that our dividend would be EUR 0.40 this spring. And it's a increase of 14%. There were slightly nothing -- the adjusted items were pretty close to 0 this -- in this quarter. So these are pretty much clean figures from the extraordinary items. Yes, like I said earlier, our cash flow is pretty strong. EUR 17 million cash flow in this last quarter is a strong base. Of course, there is EUR 1.8 million decrease from the figure 2018. And that's come from -- pretty much from the weaker result, but still this EUR 17 million is a strong cash flow. Like you can see, there were quite minor CapEx figures in the last quarter, but also the 2019 year included much lower CapEx than what we have had during the 2, 3 years back. And there were no acquisitions either in the last quarter. Cash flow from the investment activities is plus EUR 6 million, and that comes from the delivery outsourcing. So we get advanced payment at the end of last year from Posti concerning this delivery arrangement. And that explains this positive cash flow in investments. So together with the strong cash flow, operative cash flow, but also this payment from the delivery outsourcing, our net debt was decreased quite remarkably. So we have EUR 24 million net debt at the end of last year. So it -- next year, of course, because of this transaction but also from the operating point of view, we'll have no debt at the end of next year. Equity ratio is over 50% now. So we are in a solid base. And like I mentioned before, that we have investment room over EUR 200 million. And after this transaction, this regional media sales, we will have close to EUR 300 million, the investment room. So that's the basics. And if you have any questions, we -- perhaps we could take the questions after Kai's strategy part. So Kai [indiscernible] if you can continue with the strategies and...

Thank you, Juha. All right. Any questions of these transactions? Or do I repeat the main parts? The enterprise value EUR 115 million and so on, EUR 58 million capital gain from this, EUR 73 million cash of these operations, 365 full-time employees moving from here to Sanoma Media Finland. There's, of course, the allowance of Finnish competition authorities needed. We have filed -- or they have filed. Sanoma has filed the transaction already. And we'll expect then the results, hopefully, by the mid-summer, might be earlier, but at last then we are ready with this. So the regional media sales and the print facilities will be moving. Juha showed you the key figures. I don't repeat these. This is what, how it looked like seeing outside in. But then the rationale of this divestment: Some of you have asked me many times, what do you do with the declining regional media business? And this is the answer then. We have made our homework. We have always this kind of ongoing strategy thinking going on, and we came to the conclusion that, after having done this distribution outsourcing and seeing that this is now in the best possible financial position and a profitable, healthy business, it's good to get rid of this and give it to somebody's hands who is capable of developing the business or possibly capable of developing the business. And we found a responsible buyer from Sanoma. And they were active actually in this transaction and approached us. And then we decided to do this. From our point, we think that we got a good price of this. And by doing this, we will be much more focused company of digital media business and services. So we will concentrate from now on, on national news media in its diverse forms like print media, digital media, mobile media and different kind of services, which means in talent segment we are concentrating more and more on business-to-business digital services as well. But the core, of course, is the daily business or the weekly business-to-business media in that segment. And on the other hand, on consumer business, the businesses and services around Iltalehti and Iltalehti online especially are those that we are keen on developing. We have already different kind of consumer digital services like dating services or price comparison services or whatever. So we will continue on developing that kind of business. And then thirdly, of course, the marketplaces in Finland and abroad are those that we are ready to invest in more and more. We have good experiences on those and different kind of strategic plans in those arenas. Right now -- or after the divestment, our position is still very strong. That doesn't -- the divestment doesn't actually harm us very much. Like from this slide, you can see that the reach of the company stays on a healthy level; only a slight decrease on reach of Finns, 3%. It doesn't mean a lot for us. Of course, in Pirkanmaa and Satakunta, the reach drops a little bit more but not very much. We have more than 100 brands and a good setup for future good business. But from a shareholders' point of view, this more focused business mix accelerates the returns in different ways. Of course, the share of digital revenue jumps from 50% to 70%. And the share of international revenues jumps with 10% from 26% to 36%, and the profitability increases from 18% to 20%. And then the biggest thing, of course, is the resources that we get through this divestment for further investments in digital. As you might remember, we had around EUR 200 million in balance sheet or resources to invest. Now we have roughly EUR 100 million more, which gives us plenty of room to accelerate and develop the businesses. And then how this looks like. Like Juha said to you, EUR 250 million revenues, EUR 50 million of EBIT, 1,500 employees and 100 brands in 11 countries. That's the continuing business of our media after the divestment, yes. So this shifts the balance of the company quite a lot. We lower our risk remarkably on decreasing print business with this. You might remember or no. I don't know if we have talked about this, but the share of digital advertising of the company of the regional media business was only 5%. And the share of digital visitors of regional media of Alma Media was only 6%. So this -- from these figures, you can understand that the share of digital future or the revenues of -- or the profitability of the company of the regional business was quite low. So we are speeding up the transformation that we have done 15 years right now with this maneuver. So this is the rationale, quite clear for many of you and us. We did some minor acquisitions or moves also in the fourth quarter. As you know, we are moving with marketplaces in the Balkan area. So we became the owner of the Kolektiv Ltd, which is the recruitment service in Bosnia and Herzegovina, small one still. And then the Affärsvärlden that was sold to Swedish Börsplus that will be effect -- in effect in March this year. And then, of course, the big thing was the outsourcing process of the morning delivery to Posti in Pirkanmaa and Satakunta area. That was completed and started in the beginning of this year. Those were the other transactions that we did. And then the outlook for 2020. As Juha have told you before, we are careful, quite cautious with the outlook. For the continuing operations, we are saying that we will be on last year's level. We have some extra costs, of course, because of the carve-out and the transfer of the business. We have some extra costs on corporate level, as Juha told you, EUR 2 million, EUR 3 million. That takes time to get rid of, of course. And therefore, we are not expecting the profitability -- for now the profitability to increase from last year's level. So this is the outlook for this year. All right. That was it. Any questions for me or Juha? Sami?

Sami Sarkamies, Nordea Markets. I will have a question on the outlook. You said that it's cautious, but if we put it into context, in 2019 for the continued operations, you did have a slight EBIT growth despite a negative top line, but then if we look at the Q4 developments, you had a contraction in top line. And EBIT actually was down year-on-year for continued operations. So what are you assuming will happen during 2020? And what could be the risk factors in your guidance?

Sure. We are expecting a good-ish development. So we are not afraid of declining in the businesses, but then we have some extra costs because this is a heavy transferring year and transformational year because of the divestment of the media. It takes its costs, of course. We don't not -- we don't see yet any big problems with the -- like the -- with the coronavirus or those effects. So the business has started quite okay-ish. But then if we compare the fourth quarter last year to the fourth quarter in 18, the '18 fourth quarter was extremely good. It was surprisingly great. It was surprise for everybody, for us. So now the last year's fourth quarter was a continuing -- continuum of 2017, more or less. So we came back to a standard development, more or less. So the idea is that the continuing operations will develop as expected, but the market is a little bit soft. It is still. So you don't know actually what's going to happen. Or do you, Sami, have a better view of the market development than we? We are happy to hear if you have better understanding.

Yes, I will have by tomorrow morning.

Okay.

Yes. Then a couple of follow-up questions [indiscernible] M&A, any idea when you could be able to find something to acquire? Obviously, the outlook is not as exciting as it has been in the previous years. So...

Usually, do -- you do the best deals when the markets go down, as we have experienced. So we are -- I think we are in a perfect position for the years coming. But then, of course, we have -- we will -- we do active searching all the time. And we're investigating different kind of possibilities all the time. So my expectation is that we can spend the resources that we have sooner than later, hopefully. And -- but it's difficult to say when and what, but the growth is in our sight. Of course, we are not going to stay on this level with this kind of balance sheet. And some might understand that we -- our Board doesn't suggest to the Annual General Meeting to deliver more than the 40% like the normal growing dividend, not a equity repayment or anything else, which means that the Board has its idea of growing the company, of course, more than delivering the or repatriating the equity to its shareholders at this time.

When we think about the Finnish market and available opportunities here. The Sanoma announcement came out of the blue, but now we have had a couple of days to think about it. Would it make sense to consider acquiring Oikotie properties from Sanoma?

We haven't had time to think about that, but that is something that you have to take a closer look if needed. We have similar businesses by ourselves. And well, we'll come back to that later.

Now Petri.

Still on the M&A -- Petri Aho from Inderes. How do you say that -- could you be able to buy the minority holding out from the markets, for example? That's quite a significant part there and then, in my view, would create value, but is that possible? Can you comment on that? [ Can ] you buy out the minority...