Alma Media Oyj (ALMA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to join this interim report session of second quarter and first half of Alma Media. My name is Elina Kukkonen, and I'm responsible of the brand and communications here at Alma. We will begin the presentation shortly. First, our CEO will highlight the overall business performance of Alma's second quarter and the 3 business segments, and he will also pay attention on the effects of COVID-19 pandemic on Alma's business as well as the measures taken to mitigate the decline so far. Mr. Telanne will be followed by our CFO, Juha Nuutinen, and he will go through the financials and the balance sheet of Alma Media. And then after that, Kai will round up the second quarter and a few words about the operating environment, as well as the strategy of Alma. And as usual, you are more than welcome to present any questions. We'll take questions first from the premises from Alma-talo, from Alma House, and then the conf call questions -- typed online questions. So don't hesitate to ask, we are happy to answer all your questions today. So once again, welcome. We're all set. And please, Mr. Kai Telanne, the CEO of Alma Media.

Thank you, Elina. Good morning, everybody. Good to see you here safe and healthy during these peculiar times. We had quite a strange second quarter, as noticed. Perhaps they are good and bad. As we expected, the revenues went down significantly, 18%, EUR 12 million. But happily due to a very extensive cost savings initiatives in all business units and businesses, our profitability went down only EUR 2 million. As announced before, we did deploy a quite extensive cost savings procedure. Straight after the COVID-19 emerged all over the place, we started to plan a 3-step approach. And the first step was to take care of the security, healthy and safety of the employees, and of course, we concentrated more or less on the business continuity. That was the first step. And at that time, we planned also different kinds of scenarios for the year and for the new next normal maybe. We did move the whole company to remote work in a few days that went quite well, and since then, we have been working more or less remotely in every country and we are starting to come back to the offices step-by-step after the summer holidays. That is the current plan. We have proceeded according to the plan, more or less, with the cost savings procedures. But the execution has been even better than expected, and that's the clear key reason for a good result for the second quarter. Mainly, those cost savings are coming from different kind of marketing expenses, personnel costs like temporary layoffs, external purchases and different kind of postponements of noncritical development projects, of course, that we need to do. Unfortunately, the uncertainty continues. We are -- have seen some signs of recovery in every market. But still, the environment is difficult and unstable, more or less, and the visibility remains very weak. But the good thing is that we succeeded to divest some businesses, and because of a good cash flow and development of continuing businesses in previous months and years, our balance sheet is very solid. So we are in a very good position to rebound from this crisis by the end of the year or during next years. On the right side of this slide, you can see how the revenue changed during this COVID-19. This is the pure COVID change and effect on different markets and businesses. And on the right side, the cost judgments that we made in different businesses in the total amount of EUR 8.4 million of cost savings during the second quarter. As mentioned, there was a clear decline in revenue in all businesses, but quite a good development of profitability still because of the cost savings. And we ended up with the operating profit to EUR 9.8 million, which is EUR 2 million less than previous year, which was the all-time high year, by the way. Digital business continued to -- or its share continued to grow as expected, but quite a heavy decline also in digi business came mainly from Finland and from recruiting services abroad. Now I'm going to go more to the development of different business segments, try to take a short deep dive in different businesses. And after that, CFO, Juha Nuutinen will continue with the financials and the balance sheet issues. Alma Markets, as you all know, is the biggest contributor of our profitability and growth. It's been in that position for years. Now there was a significant decline in revenues of 24%, that was pretty much as expected. But the profitability went down only by 28% because of a good cost savings procedures. The profitability -- or the adjusted operating margin stayed at a very healthy 36.3% level. Recruitment share is very important here. 2/3 of the revenues of that segment coming from recruitment services from 10 countries, housing around 1/5 and then cars around 10%. Housing and cars business have been more resilient to the revenue decline, cars almost at last year's level; and houses, 13% minus. Talent quite resilient on profitability side, 12.4% operating margin. It was at last year's level, quite a good performance there. Revenues went heavily down due to the advertising sales in Finland, but also because of the education and events businesses were more or less shut down because of the lockdowns of the society. But because of a diversified sales mix and business mix, the other businesses performed quite well during the second quarter, like books, digital premises, especially in Sweden, and direct marketing. Quite a remarkable achievement there during the second quarter. Very nice growth on digital subscription sales, 46%, which means that the good growth of digital subscriptions have continued from last year's level still going nicely up, which is the reason for being able to keep the content revenues on Alma Talent segment at last year's level. Adjusted operating profit, EUR 2.8 million, went 15% down, but operating margin at healthy last year's level. And then finally, Alma Consumer, which suffered mostly in our company of the very big advertising market in Finland. In that segment, advertising fell 32%; the print advertising, more than 50%; content sales due to the decline in Iltalehti single-copy sales, 13%. Luckily, the decline has slowed down a little bit after the beginning of the quarter, but still, it's going down. The smallest digital services like Etua.fi performed well. We have some new -- what happened? That is seen here. That went down, but no problem. So the Consumer -- Consumer profitability went heavily down to 5.5% operating margin. Revenues down from EUR 12.3 million to EUR 9.8 million. So there, we have the biggest concern and that's related to the Finnish -- more or less to the Finnish advertising market or the local -- or global advertising market as well. So these were the highlights of different segments and the brief outlook -- or the summary of corporate second quarter. Now I give the stage to Juha Nuutinen, who will present you the financial position of the company. And after that, I will continue, as Elina told you, with some strategy issues and the outlook of the full year.

Yes. Thank you, and good morning also on my behalf. In my presentation, I'll focus on balance sheet issues and as well as cash flow comments. Of course, the biggest event in the second quarter was the sale of our regional media and printing business and it affected heavily on our financial position. And like you can see, our net cash is EUR 57 million at the moment and including that we paid also dividends with EUR 37 million in May, so that change was pretty strong one. We have at the moment liabilities, EUR 40 million, and which is totally coming from the leasing liabilities. Our equity ratio is 71%, so it tells you that we have pretty strong balance sheet at the moment. However, this cash flow was not a strong one in this quarter and there are several reasons behind that. We had EUR 3 million -- a little more than EUR 3 million of operating cash flow and it's decreased quite a lot compared to the last year's second quarter. One of the biggest reason is the discontinued operations because regional media had April and May is pretty strong month from the regional media point of view and June and because they are now missing from May and June, so that affected quite a lot. But also, of course, our weaker result is affecting also to our cash flow. And in addition to -- in our recruitment business, their customer invoicing levels are much lower level at the moment than previous years, that's also affecting. So there are several reasons, but we are not so worried about it because this is -- we know that there will be a recovery and then the cash flow will be stronger in coming quarters. Of course, this regional business sale was affecting heavily in our investment cash flow and there was a strong positive effect in that side. We had not so many CapEx investments in the second quarter. So EUR 1.3 million is the level from the 6-month CapEx at the moment. Of course, we are expecting that our results will be weaker in the second half this year. So that this will have also effect to our cash flow, but not so much than it was in this quarter. Quite -- questions has been asking to us that do we have any credit losses or what we are. Can we see that the credit loss risks are increasing somehow, but we can answer that there is no any major changes in our overdue receivables. So we don't see any big increase in our credit loss risks at the moment. And also, we don't see any major evidence for impairment risk as well. So our balance sheet is strong also from that point of view. This is the graph which we haven't shown you previously. But explanation for this is that we have said in interim report that our recruitment business revenue decreased by 29% and -- but the invoicing decreased 44%. And this comes pretty much the way how we are doing business in the recruitment business. This case comes from LMC, which is our Czech operation, and it's 50% of our recruitment business. So that's the reason why we take this as a case example here. When we sell to customers, we are selling packages from 1-month to 12-month packages. And there are quite a lot difference between our revenue recognition compared to our invoicing levels. And like you can see, in Czech operation, we had mostly in our invoicing comes in January and February then you can see a quite sharp increase in those months. And we are doing the revenue recognition based on time-based revenue recognition, and that's why our revenue has been decreased much less in the second quarter than the invoicing like you see that in March, April and May, the invoicing levels has been really low. And that's why one of the reasons why we have estimated that our second half this year will be also -- from revenue point of view, will be also lower than the last year. Even if the market could recover somehow, even if their invoicing levels would be higher in the third quarter or fourth quarter, we will see revenue decrease as well in the second half because the lower invoicing levels in the second quarter will affect to our revenue also in the second part of the year. So that's good to understand that revenue -- how the revenue recognition model works in our case. Then the earnings per share, this is quite interesting graph also because, of course, the capital gain of EUR 59 million from the regional media sales affected heavily to our earnings per share. So the total earnings per share was EUR 0.76. And earnings per share from continuing operations was EUR 0.04. There are 1 adjusted items in the second quarter in continuing operations and that was our sale of Swedish media business and that affected negatively EUR 2.9 million in our profit and loss. But still, that's -- and totally, if you calculate the first half, we have 90 -- 97 million -- EUR 0.97 earnings per share. We haven't changed our long-term financial targets. Of course, this corona epidemic will affect heavily to our digital business growth and that's why we have to see over the coronavirus case that our long-term financial targets are still valid after the corona crisis. Return on investments is 66%, and of course, the capital gain is affecting here. We haven't divided our return on investments into continuing or discontinuing operations. So that's -- that was the part of our balance sheet and cash flow, and Kai will continue about the operating environment.

Thank you, Juha. Our business will live more or less hand-in-hand with the underlying economies, as we have noticed from previous years, and that's why we want to show you the current forecast of the underlying economies of the countries where we are doing business. Of course, the Finnish one on the left side, the current estimate from European Commission is minus 6.3%. And it's pretty much over the line for other countries as well, 6% to 10% minus this year. But then the question is how will we recover from this? Will this be the next new normal? Are we going to have this kind of V-like shaped recovery as somebody expects? Or do we have that kind of L-shaped recovery or slower recovery that we used to have in Finland after previous crisis like 1990s or 2000 or 2008? So the Finnish economy has been the worst one to recover for this kind of crisis, and the Eastern European countries have been more or less picking up faster than we. But you never know. There are different situations, of course, because of this crisis, like Croatia, which is heavily dependent on tourism, traveling. If the lockdowns are going to continue concerning traveling, for example, it takes time for Croatia to recover. But on the other hand, like it's -- we have seen in Czech Republic or Sweden, the recovery has been faster and it's been already seen there. But nevertheless, this is the environment that we have to expect. Everybody is waiting for slowish -- I could say, slowish recovery compared to this year. And with these figures, it means that by the end of next year, we won't be at -- on GDP level. We won't be at the level of 2019. So we will get back several years with the GDP levels. So the point here is that we are preparing different kind of scenarios for our businesses and for the company. So we are preparing a scenario for a quick recovery, for a slow recovery and something in between. And there are different initiatives in different scenarios, of course. And mostly, the difference between these scenarios will tell about the speed of the development of our digital businesses or the investment levels of different businesses more than ever of those. At the moment, we don't see any reason for changing the strategy of ours at the moment. Finnish ad market has been really bad. This is quite a similar situation in every European country all over the world actually. But as we have seen during May and especially June, the decline has slowed down. I wouldn't call this a recovery with a minus of 30%, not yet. That's not recovery in our minds, but the decline has slowed down. And of course, hand-in-hand with the openings of the societies and the businesses, the ad market will pick up. We know that there's a huge demand for -- a need for advertising in different businesses. But of course, if there is not the needed demand of their businesses, the ad market won't go up. We haven't seen any big changes in market shares in Finland. This is the big picture. This is from online advertising, which is the core of our strategy. Our market share has been stable during this crisis, and we don't expect very rapid changes in that. We have seen the other segments or sectors, advertising sectors, contracting heavily during the crisis. Of course, those sectors who suffered most due to the lockdowns like tourism and entertainment, different kind of events, they went out from the advertising market almost totally and then retail and tele, which didn't suffer that much or some of them like food retail even grew, take some money out or off from their ad budgets. Totally, second quarter, almost 40% minus pretty much as we expected to happen when the crisis began. Recruitment is, of course, important for us, not only for Finnish market, but overall, quite a similar development in all European markets. And the revenues of ours went down according to these markets as well. All right? As Juha told you, we finalized the divestment of our regional news media business to Sanoma at the end of April. Got all the money and the cash. And then the other, divestment of print businesses happened in Sweden where we discontinued and divested our Ny Teknik and Lag & Avtal, Arbetarskydd and Personal & ledarskap, Teknikhistoria and all those print businesses to different parties, mainly to the New Technology Media Group. As you remember, earlier this year, we already divested Affärsvärlden to Börsplus AB, which means that, by now, we have only digital businesses in Sweden, which is the Objektvision, a commercial real estate business, which is growing nicely in very, very profitable way. That's good. Dagens Media we sold in 2018 to Bonnier Business Media. As Juha explained to you, the expectations for the recruitment revenue development is affecting also to our outlook. In addition to the uncertainty of the operating environment and the poor visibility, we expect that due to the revenue recognition and the invoicing of recruitment business, we expect that the full year revenue will decline. And due to that, also, the adjusting operating profit will decline. That shouldn't be any surprise for everybody. Even though the market is slowly picking up, the speed is too slow for our businesses' revenues or profitability to reach last year's level. Despite the COVID crisis, we don't see any reason for changing the strategy, which means we are continuing to invest in growing our marketplaces businesses, all over the Europe, mainly in Central, Eastern Europe and Finland. We are continuing to leverage the professional media and services business, especially in Finland, maybe also in other Nordic countries. And thirdly, we are developing different kind of digital consumer services around Iltalehti consumer media. That is the broad-level focus of our digital strategy. We have some -- very important fundaments for driving growth and value. Of course, the solid financial base, the balance sheet is one of the key elements. As Juha told you, we have quite a good situation, 71% equity ratio and room for EUR 200 million, EUR 250 million of new investments. But then on business level, the key driver is the very good and wide audience that we have on daily basis on financial media and consumer media as well in Finland, and of course, for those specific verticals in different countries. And the idea is to monetize this audience as good as possible and to drive the audience towards higher ARPU businesses like different kind of digital paid services. And of course, one of the key element doing this is the good data that we are getting and the good data capabilities that we have in the company at the moment and the good capability of leverage those skills inside the company. Of course, there will emerge new needs for data exploitation all the time, but we have a good stance for doing that. So the key target is to maintain the leading position in those marketplaces or -- in those marketplaces or vertical businesses that we are in, which means houses and premises, cars, recruitment, especially, and the same on business-to-business side. We are still, after this COVID crisis, we are waiting for double-digit growth of digital content and service revenues as well. And by doing that, we will keep our very good position in all the markets that we have at the moment. So that's, in a nutshell, more or less, the current situation after the second quarter. And now we are more than happy to answer any question that you might have here in Alma House or online. So please post your questions. Juha and I, we are ready to answer your questions.

This is Pia Rosqvist from Carnegie. With regards to your cost savings achieved in the second quarter, what is the outlook for the remainder of the year? Are you expecting to keep those cost savings in the second half as well?

Yes, that's a very good question. That depends very much on the market development. So as I told you, we have different scenarios and different initiatives according to those scenarios. And if there will be an increasing demand of our services and advertising, we might lose some cost or invest in marketing or that kind of measures. So we will carefully follow the market development and decide step-by-step what to do with the costs. And this is, of course, related to the revenue expectations, more or less. But having said that, it means that if we are going to see like the second phase of the pandemia coming in the autumn, we have room for cost savings and we have also room for increased cost savings if needed. I sincerely hope that we don't need to do that or do that kind of things, but you never know in these situations.

Okay. Thank you. Then with regards to your strategy and presence in Sweden now when you exited the print media, what is your plans -- what are your plans going forward?

Well, at the moment, we are concentrating on the business real estate digital business. We are investigating all the Scandinavian markets also as well as the Eastern European markets in those areas that we have the best knowledge like different kind of verticals. That is the current setup for this.

Okay. And then if I continue with the M&A pipeline now during the coronavirus, were -- any changes there? Any changes to pricing or valuations?

Well, not exactly. So we have continued different kind of discussions around the Europe. It looks like that the -- at least not yet happened any big changes in valuations. So the valuations on those, like the marketplaces, are quite high. That's good and bad. It's good for our current businesses, of course, but for new investments, it's, of course, difficult.

Okay. And today, Sanoma announced their divestment of Oikotie for almost 20x EBIT -- EBITDA. With regards to your assets in Finland in online classifieds, can you assess any preliminary or any early effects on the competitive dynamics now when Schibsted is taking over Oikotie.

Not really. Really Schibsted has been in the market for years with little success, and Sanoma has been quite a good competitor as well with all their assets. So we don't -- in short term, we don't expect any big changes. We will welcome Schibsted to the business. I expect them having also quite a bumpy road during these times because of the crisis. Other questions? No questions. From online, do we have any?

Thank you for the questions here on the premises at Alma House. And operator, now we are ready to take questions online.

[Operator Instructions] And so we have a question from Pete Kujala from SEB.

It's Pete-Veikko Kujala from SEB. You addressed most of the stuff that I had in mind already, but still asking about the cost cuts. So did I understand correctly that, at this time, you have maintained all kind of the same cost level that you had in Q2.

Not really. So it depends very much. If the market continues to pick up, there's no sense to keep the cost level as low as we have had during the second quarter. But if the market doesn't recover, we need to keep a low-cost level. So we have different kind of scenarios for different kind of revenue development. So it's not fair to expect that if the revenue growth will be faster or the decline, so to say, slower than expected, we won't keep the -- all the cost level as low as we have had in the second quarter. So -- but we try -- anyway, we try -- with these initiatives, we try to defend the profitability as well as possible.

All right. And then regarding the invoicing in Alma markets or in LMC, do I kind of read the chart correctly that in the beginning of the year, you basically do these kind of longer-term invoicing deals over, for example, a 12-month period and then during the year it's more short term?