Alma Media Oyj (ALMA) Earnings Call Transcript & Summary

Third quarter interim report. My name is Elina Kukkonen and I'm responsible of the communications and brand of Alma. We'll begin the presentation shortly and our CEO, Mr. Kai Telanne will first present the overall outcome of the third quarter and the performance of the business segments. And Kai will be followed by our CFO, Mr. Juha Nuutinen, of the financials of Alma Media today. Kai will also return then to highlight our strategy shortly and about the outlook. Today, as we are fully online, we still have mainly our management board -- our management here present at Alma premises, so feel free to ask any questions from us and also our Director of Alma Markets, Vesa-Pekka Kirsi will be attending online. So likewise, he's willing and able to answer all your questions. So hopefully, you can hear us loud and clear and everything goes smoothly. So once again, welcome, and please, Mr. Kai Telanne. I think you can begin here.

Thank you, Elina. Good morning for everybody on my behalf as well. As Elina told you, I will start with the highlights of our third quarter and then Juha continues with the financials. And if you have time, I think we have time, then I continue with the few strategy issues to close the presentation. As many of you might have noticed already, as we disclosed, quite a strong report in the morning. It was a little bit surprise for us as well. The epidemic impacted actually a little bit less to our businesses than we expected and the slowing down of the epidemic and the lifting of the restrictions of the local authorities on different kind of businesses led to a gradual economic recovery. And which was, of course, reflected to our businesses as well and to slow the decline of our revenues. In this on unnormal situation, I think that the profitability level of our 24.5% for this review period was quite good. It was actually attributable to the cost reductions of a little bit more than EUR 3 million. And of course, the recovery of sales of advertising, recruitment services, and in particular, strong growth of digital subscriptions, especially in Talent segment, around 30%. 7% -- 7.4% decline in revenues, much less than in second quarter, led to a profitability level of last year's third quarter, EUR 13.2 million of EBIT, which is 24.5%. Due to this and due to the divestments that we have made during the year, our financial position is extremely good. As you know, liquidity and funding at a good level, net cash position of EUR 65.9 million which is, of course, a good basis for strategy development and future investments. I'm really happy that all the segments performed better than expected. The gradual recovery is happening all over the place in Finland and actually in every Alma countries. Despite the virus, the invoicing also in recruitment business is increasing at the moment. We have still seen the decline in revenue, but around half of the speed of the second quarter, which is, of course, very, very good and important for us. We have been able to mitigate the decline of revenues by different kind of activities. The company is quite agile in defending its profits, which is seen nicely in third quarter. One of the key KPIs of our digital transformation is, of course, the development of digital business and services. The share of the digital business of group revenues is at the moment, more than 70%. According to the plan, we still had some -- a little minus on third quarter, but much less than we had on second quarter. I'll take a short dive into the segment development. And after that, Juha will go deeply and more deeply into the financials and the balance sheet issues. I'll start from the Alma Markets, which is the biggest contributor of the profitability of the company. As mentioned before, the sharp decline which was actually accepted also in the second quarter, slowed down remarkably. And also the good development and growth of comparison and rental housing services mitigated the fall of profits. Revenue went down 10.5%. In Central Europe, the operating environment stabilized during the third quarter, while the authorities, released the limitations for businesses. Unfortunately, at the moment, the situation seem to be changing. We'll be coming back to that maybe later. But anyway, during the third quarter, the situation seemed to be normalizing. And that's, of course, good for us. The industries, which are the biggest customers of ours like car industry, German car industry and those, they are in fully working mode, which is, of course, a good development for us and guarantees that the expected revenue level can be achieved. Our adjusted operating profit fell around 15% to EUR 9 million, which is a healthy level of 40.7%. So we have -- we've been quite good in defending the profitability of marketplaces and markets businesses. It's good to remark that despite the good development of invoicing during the third quarter, which has been continuing still, doesn't affect or fully will be seen during the year because of a -- I could just say that clearly enough. The delayed revenue recognition of recruitment services and sales, that means that it burdens the poor development during the second quarter of this year will be seen and it burdens the recruitment revenue for the full year of 2020 and the first half of '21 as well. So you will see that the decline will continue despite the good invoicing development of the recruitment services by the end of the year. Unfortunately, the latest information from Central Eastern Europe is a bit negative in terms of COVID situation like we heard in the morning, in Czech Republic, for example, 12,000 new cases per day, which means that the authorities have to close many businesses like restaurants, bars, schools, events, different kind of venues and so on. But what we have heard and learned is that the heavy industries will continue in normal working mode which is, of course, very important for us because those are the biggest customers of ours in recruitment services. So we are quite confident that the good development of ours will continue but still the future is a little bit blurry as we see. It's difficult to see what will really happen in the future. So we are quite careful with that. Recruitment services are around 70% of the revenues of that segment and housing around 1/5. As you notice from the right down corner of this slide, the decline in recruitment services which was ranging from 16% to 60% in different services in different countries during the second quarter, declined between 13% to 36% during the third quarter. Actually, the decline of revenues of recruitment business decreased overall 16% related to 29% last year. So it's about -- the decline has around halved during the third quarter of this year compared to the same period of last year. So that's good to have in mind that this is more or less the speed of the recovery at the moment. Very happy development of talent continued. Talent group, which is the business-to-business sector and segment of ours have continued to transform the business by getting away from poorly performing businesses with limited digital growth potential. That's the -- more or less the key of the strategy of Alma Talent. Revenue declined 7.4%, excluding divested Swedish Media businesses, around last year's level or even increased in revenues. The demand, of course, of the high-quality media has continued during the virus, and that's why -- that's one of the key reasons, of course, for a good performance in content sales. But then the good job done by the teams in our subscription sales teams is the other part of the good development of content sales growth of 46%, that's very important. Now 50% of talent revenues and businesses from digital sources and increasing. One of the key KPIs of this transformation. Service sector inside this segment is growing nicely. Direct marketing, B2B marketplace is growing on a high profit level. Advertising also on -- nearly on last year's level, excluding the locked down event business, of course. Very nice profit improvement of 42.6% to more than EUR 4 million during the third quarter, almost 20% EBIT which is very good, especially in relation to the underlying market development and the competition. Finland, comprises 89% of revenues of the segment after the divestments of Sweden that will be even more. And then the last part, the last segment, Alma Consumer, a very good recovery of advertising, very strict cost savings method where the key elements to soften the decline in profitability. The markets here are still declining. We had a rebound in advertising also in digital programmatic sales normalizing more or less, in our case. Retail advertising picked up compared to the second quarter and of course, the very important sector of automotive cars rebounding on year-on-year level. Unfortunately, single copies sales of Iltalehti still decreasing heavily, almost 21%, of course, mainly due to the restriction of traveling business, but also because of the transformation from print to digital audiences and consumption. The visitor base on a high level, which is, of course, good base for future advertising sales in Iltalehti and other services, page views, plus 15% compared to last year's level and adjusted operating profit fell 17.5%. Quite a healthy 11% profitability level in consumer group, which is quite okay-ish from my point of view, especially compared to the underlying market development. All right. That was the brief dive into the segment development and performance of third quarter. And now, Juha will continue with the financials. And after that, I will come back with some strategic issues. Thank you.

Thank you, Kai, and good morning. I will continue with the financial position and financial issues. Like Kai mentioned earlier, we had pretty strong third quarter result. And of course, naturally, this reflects also to our financial position. So the first slide here describes you the net debt and equity ratio, which is pretty strong because of the sale capital and capital gain of our regional media in spring. So at the moment, at the end of September, our net cash is EUR 66 million. And our equity ratio is over 70%. So we are in a strong situation. Our interest-bearing liabilities amounted to EUR 40 million is fully leasing liabilities, and this change in our net debt level pretty much reflected the result what we had in the third quarter. There was no any extraordinary cases or big investments. Also, our cash flow was pretty stable. It's -- we had stronger cash flow than last year in this month, even if that the cash flow includes the discontinuing business last year, so EUR 10 million was a good result. And there was also -- our net working capital levels are fluctuating quite a lot. So that was -- we had a lower working capital level at the end of September. So that was a part of this good cash flow, but it was on the opposite side in the second quarter. So there are some fluctuations in a quarter base. We didn't have much investments from cash point of view in this quarter. So that's why this EUR 10 million is pretty much the same what we have excess in our net cash. Quite many times, we are asked about this credit risks or impairment risks, what we have. And we can say that this -- even if there is this COVID epidemic going on, we do not have any major credit loss risks at the moment, and we don't have any big risks either in our goodwill or long-term asset side. So no evidence of many major risks at the moment. About the investment side, the CapEx level is EUR 3 million now, in the first 9 months, and it pretty much comes from the software renewal in our Baltic job ports. And also, we have done some capital investments in our Alma Markets Finnish unit. And it also includes couple of new rental agreements in our Talent segment. Acquisitions are -- what we have here is EUR 6 million comes from the -- in the beginning of the year when we made 2 acquisitions. First was the acquisition in Bosnia and Herzegovina in our collective business and the other one was in -- concerning muuttomaailma.com in Finland. This slide was also in the previous case in summer when we showed you how this revenue recognition works. This is an example from Czech, our Czech unit, LMC and now you can see how this invoicing has us going on during the last 3 months and the blue line here is telling you the revenue trend, which is pretty much more stable than the invoicing. And then you can see that there has been decline, but not so much than in the invoicing. And we took the biggest hit in March and April invoicing. And now the latest 3, 4 months as we have seen increasing in the invoicing levels. And we are -- if we could continue with this, we would reach the last year level after a couple of months. But now when -- but Kai also mentioned, we heard yesterday, yesterday in Czech News that there was new restrictions in the society and quite heavy actually. And there are lots of COVID cases in Czech. And now there is a big question mark at the moment, how this is going on. And we -- actually, we don't know how big effect these restrictions have in Czech Republic at the moment. So of course, if this invoicing will continue positively with that -- would affect to our revenue also positively, but there might also be a case that the invoicing will also decrease now because of these new restrictions. So the new restrictions in Czech, they are valid for 2 weeks now, and we can see after 2, 3 weeks, how this continues. But here, you can see what -- how it has been working so far. And so we can discuss about the recovery in the third quarter, but it's a question mark, the next quarter. Then earnings per share figure, like you noticed that our result was pretty much at the same level than last year. So the earnings per share figure is also $0.12. Of course, we are missing the $0.02 what comes from the discontinued operations last year, but still this $0.12 is in line with the results. And then you can see the capital gain in the second quarter quite easily that comes from the sale of regional media business. We have not touched or changed our long-term financial targets. These are pretty much the same. We have to look these targets after this crisis. We have not yet made any changes there. But like you can see, and like I told, our digital business growth is negative this year. And in our return on investment side, there is a capital gain from regional media business. That's why the 45% is so high figure. So no news about this item. So that was the financial part, and then Kai will continue about the operating environment and this -- our outlook. So if you can continue, I can discus also, but perhaps you would like to say something about our strategy. Thank you.

Thank you, Juha. A few words about the current situation, the operating environment that we are facing. Sorry, wrong way. We have here the latest estimates of economic forecasts, unfortunately, these are from the summer. And the slide tells us the ball park of the underlying economies more or less. And as we can see from here, we are between 6% to 11% minus in every country. Of course, the worst situation is at the moment in Croatia, which is highly dependent on the tourism, of course. And of course, there, the recruitment service business is falling down still, but less than we expected, to be honest. And then the biggest market, Czech Republic, the estimate from the summer, minus 7.8%. We don't have the new estimates still, they will be coming. But it's fair to estimate that with the second wave the situation will be worse during the last quarter than the third quarter, so we'll see. But it seems that still the estimate for picking up next year will be there. And if it looks like this, as we expect, also for future development, we are confident that our businesses will be growing next year. So we have made a few different plans for different scenarios. And according to these scenarios, we are able to grow also the next year and keep a good profitability level. Hopefully, the situation won't get much worse than it seems to go right now. In Finland, as told before, the ad market has leveled off or the decline has leveled off remarkably since the second quarter. The April was the worst month of 50% decline in newspaper advertising and more than 40% decline in advertising total. Now we are leveling off. And as we've seen from our figures, the digital advertising is almost at last year's level, more or less, that's good news for us, of course. Some words about the strategy. And of course, the outlook, which is important for you. Our transformational strategy is quite simple. We have 3 main issues. The first one is, of course, to transform our own businesses to new ones, to transform the traditional print publishing business to modern digital combination of print and digital. And of course, the same applies to marketplaces, to traditional digital verticals that we have. We are transforming them to modern multidigital services, including new horizontal add-on services. In cars, in houses and premises in recruitment and in all HR sector, you will see new initiatives going on in the near future. The second is, of course, to grow in digital. That's important because many of the traditional digital businesses are maturing. And if you really want to grow you need to find and invest in new businesses and new things. And that's what we are going to do. We are doing that in marketplaces. We are doing that in talent segment and also in consumer segment. That's one of the key elements of the strategy, and that's why we have collected a good financial position to enable the growth and investments to these things in the future. And then finally, the third one, the third part of the transformational strategy is to continue with the internationalization of the company. We are international in 2 businesses or 3 businesses, actually. Of course, the carrier business is the spearhead of our internationalization. We have in Talent segment we have in Sweden, Objektvision, which is the real estate business for commercial purposes. And then we have also there the direct sales company -- part of the company doing business in both the countries. So we will continue this. This has been a good part of the growth of the company and a good part of the transformation, of course, of the company and encourages us to continue with that journey, of course. So we have investigated or investigated all the time different kind of possibilities to continue with the growth of our international business. We have made some actions and initiatives inside the strategy during third quarter and more will follow. One of these examples is this education platform, Seduo, which is created by our Czech LMC teams. It's scalable digital service content tailored to match the local cultures training service. We have launched it in Finland. We will continue the expansion of that business into Czech -- sorry, in Slovakia in the future and try to find the way to continue the launching of that business in other countries as well. We have gone to a new business, to a staffing -- digital staffing business by a company named Treamer. We have invested a small sum of money into that business. We are able to continue with the investments. If we really can see that, that's the way to do if that shows us to be a profitable and growing business as we expect. And then finally, final example of strategy execution is Alma Talent. Continuation of transformation of its businesses from print to digital and to discontinue unprofitable or poorly profitable businesses with limited digital growth potential to digital profitable businesses. We have started a personal negotiations regarding few print titles like Metallitekniikka, Tekniikan Historia and Markkinointi&Mainonta, which haven't grown or should be very profitable ones. We will do this negotiation and the negotiations during the last quarter. So these are only a few examples of the execution of the strategy that we have. One very important element of our common initiatives inside the company of the current businesses is Alma Account. After getting rid off or the discontinuation of third-party cookies that we will face, it's really important to have your own data and to get your own data enough, you need to have registered customers. And in order to get all out of the company, we need to have Alma account. By having that, we will have a large and rich user data in order to create better targeted content in order to sell subscriptions, in order to sell targeted advertising and so on, in order to develop new gross unit or gross segment businesses in the future. We have noticed that with the good data, we can get much stronger user customer retention and better relevance for the services and content as we had before this. And of course, finally, if you have a good data, if you have state-of-the-art services and content that will end up to a high ARPU, which is, of course, the target. We are moving more or less towards transactional services and transactional fees from traditional display advertising or businesses like that. But then, of course, the unified digital customer experience of Alma network is the target for all of this. So this will be the key for every business. We have about -- or even more than 100 sites, if I remember right, which means, of course, a very large customer base. And if we have the Alma Account properly used and in place, this will end up all the good things that is mentioned here. Okay. Then finally, for the forecast and the outlook for 2020. Despite the good development in third quarter, we are careful. The uncertainty is more or less evolving and increasing at the moment because of the second wave of the virus is increasing at the moment. And the visibility unfortunately, stays poor, blurry. And we estimate that despite a good result in third quarter, our revenue and adjusted operating profit will be clearly behind at last year's level. And here are the numbers of last year, if you want to have those in mind, estimating our performance. So that was it. If you have any questions, I'm more than happy to answer. Yes. Okay. Thank you.

So we take first the questions from the con call line. So I ask operator, we are ready.

[Operator Instructions] So the first question is from Mr. Sami Sarkamies from Nordea.

I have a couple of questions. Firstly, I'd like to understand if the recovery has continued in the early part of Q4. You did discuss about various reservations. But if you look at kind of the facts and data you have at your hand, has the recovery continued so far?

Yes, it seems that the first month of fourth quarter started as the last quarter ended. But it's really difficult to estimate how the current situation develops. I have to be honest, it seemed to be under control at the moment as we have had the information early in the morning from Central Europe, like from LMC. The message is that despite the possible lockdowns of different businesses that the authorities will do there, the main customers, like the car industries and those will continue with their normal work and the factories will be open, which is, of course, important for us. And of course, we are now selling next year, more or less there or invoicing that is done there, doesn't affect actually the figures of this year. But so far, so good. Situation seem to be under control and the beginning of the quarter started well, but that's not the guarantee of, like you say, investors say, the good results of today are not a guarantee of future profits, more or less. But we are quite okay and confident at the moment.

Okay. And then I'll actually continue on the recruitment businesses, you're [ flagging ] that you're expecting the recruitment revenues to remain depressed until the first half next year. Just to clarify, are you expecting negative sales growth throughout the first half of this year -- of next year in recruitment? Or is this more related to tough comparables you will be faced with in Q1 next year?

Because of the revenue recognition, as Juha showed you, and we have discussed that already earlier because of the delay of revenues and because of the deep dive in second quarter, the full year revenue level will be negative despite the good development of invoicing during the third and maybe the fourth quarter. So that won't change the situation. And that means that because of the second quarter poor development, the first quarter and the second quarter of next year will be difficult on revenue side, of course, despite the good development of the invoicing side.

Right.

Okay. And then moving on to cost savings, temporary savings amounted to EUR 3 million in the third quarter. Are you planning similar measures in the fourth quarter?

Yes, we are continuing around the similar measures, but it depends very much on the underlying situation development, of course. If it gets worse, we have some room for new initiatives, of course, as I have told you before. Right now, we have released some funds for marketing purposes to guarantee next year's sales and development, of course. As you noticed, during the second quarter, our cost savings were around EUR 10 million, EUR 9 million to EUR 10 million. Now we are on a level of EUR 3 million, which means that we don't have any temporary layers or we have some, but those are those -- for those businesses, which are totally locked down. But on a broad level, we don't have this kind of layoffs or salary reductions or that kind of measures or initiatives in place at the moment. So we start to normalize the situation, more or less and if the invoicing continues to grow, there seem to be no need to intensify these kind of measures or take them back rather than normalize the situation. So no plans to do more cost initiatives, unless the situation in the market changes.

Okay. And then finally, I'd like to check how your M&A pipeline is looking at the moment and whether you believe you will be able to close something meaningful before the year-end?

Hopefully, hopefully, the pipeline looks good. We have good targets on the table, of course. Hopefully, we can finalize. But there's no need to hurry up. We have a good situation, of course. And the main thing is to have the situation under control and, of course, continue with the negotiations with different things. Don't worry, we will spend the money cleverly that we have, and you will hear about this later, I guarantee. Do we have other questions? We have one.

We have the next question from Pete-Veikko Kujala from SEB.

This is Pete-Veikko Kujala from SEB. I have one more question, kind of continuing from where Sami Sarkamies left off on the capital allocation strategy. Well, you have mentioned that you have some targets in the pipeline on the M&A front, but if these types of purchases -- if you don't pull of any meaningful size purchases, do you have a capability to actually allocate the balance sheet organically into investments? Or do you -- is it basically that this type of -- this amount of money has to be used in M&A and not organically?

Yes. Our strategy, this transformational strategy includes both organic growth and inorganic growth. Of course, the organic growth doesn't need these big sums of money that we have in the balance sheet at the moment. So we are -- in any case, we are continuing with the organic growth and the adjacent business growth, product development, service development and so on as normal. There's no need to stop or and then on the other hand, there's not much room to intensify that kind of development if there's not the needed market or the demand in the market. So we have to follow closely the demand of the market and then continue and develop the services according to the demand. And that means that most of the resources and the balance sheet is reserved for inorganic growth activities in all segments that we have and we'll do that. And that means that we have plans for markets. We have plans for talent, and we have plans also for consumer business. In every segment, we have plans and negotiations going on.

Thank you. So there is no any further questions from the attendees at this point. [Operator Instructions] At this moment, I don't see any further questions. So speaker, please go ahead.

Okay. Thank you. No questions from online. Okay. In that case, I will thank you very much. And as you can see from this slide, upcoming events in the calendar, the fourth quarter bulletin 17 February, Interim Report 21 April and so on. But I encourage you to contact us and to post the questions that might not be answered in this session. Don't hesitate to do that. And once more, I thank you very much all for your attention. Stay safe and healthy. Thank you.