Alma Media Oyj (ALMA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this interim report session of Alma Media's Third Quarter 2021. I'm Elina Kukkonen. I'm responsible of the communications and brand here at Alma. We will begin the presentation shortly. And as usual, our CEO, Mr. Kai Telanne will go first. He will present the overall results of the third quarter and also the development by segments. After Kai's presentation, that part of the presentation, our CFO, Mr. Juha Nuutinen, will come on stage, and he will go through the financial position of Alma Media today. And then Mr. Telanne returns about the operating environment and our strategy going forward. We welcome all the questions. We will take the questions first from -- here from the premises of Alma Media in Helsinki and then from the conf call line and then from the online chat. Don't hesitate to ask. We are happy to answer all your questions. I think we are set, ready to begin. So welcome on my behalf and then welcome Mr. Telanne. The stage is yours. Thank you.

Thank you, Elina, and good morning to everybody. Welcome on my behalf as well. As Elina told you, I will start with the main achievements of the third quarter and then Juha Nuutinen, our CFO, will continue with the financials closely. I will also give you a short presentation of the segment performance during my presentation. We had a fantastic third quarter. There are many reasons behind this. Of course, this kind of pent-up demand in many sectors after the COVID-19, but there are many, many other things as well behind the good performance of all business segments. We had a nice organic growth of 14.4%. And in addition to that, of course, the Nettix integration and the acquisition included in the figures. And due to these 2, we had a nice 26% revenue growth and a very good 35% profitability growth. At the moment, we are at a record high level, which means above 2019 record level. Because of these transactions that we have made successfully during the last years, our financial position is, of course, a little bit different. Juha Nuutinen will clarify that a little bit. But that's not a problem for us. Even we have more than EUR 200 million of net debt, we don't have any problems to digest that. We have a very good cash flow with this kind of profitability development and the leverage will decrease quite fast during next coming years. The gearing is now 132% and equity ratio 33%. And as mentioned, Juha will take a deep dive into these questions later. The main part of the good development came from digital businesses. Of course, now almost 80% of Alma's revenue is coming from digital sources, different kind of digital sources, advertising, digital subscriptions, different kind of services, classified and so on. And as you can see from this slide, I'm really happy that the revenue growth and the profitability growth came from all the business lines. Alma Career, of course, the biggest contributor as it has been many times, EUR 6.4 million growth in revenues and EUR 3.4 million growth in operating profit. But as well as Career, the other segments, performed extremely well. So the end result is more than satisfactory in my mind. We got a nice continuation of the digital growth. From the right side of the slide, you can see the graph, 39% growth of digital businesses. Of course, we had quite a modest comparable year last year. But we were able to continue the nice growth of 57% digital sales from the second quarter. So the good path has continued. Okay. Now then shortly, the performance of different business segments. I start from the Career, which is the biggest contributor to the good result. Revenue and profit are at all-time high level. And the base for this good development is, of course, the underlying market development. So there is a strong demand for labor at the moment after the COVID-19. There's this kind of pent-up demand. And this seems to continue. We have been able to increase our revenues at least at the speed of the market development, which means that we have been able to get -- at least the keep or even gain market share in every market. So revenue growth, 41% profitability, 63%, 63.8% up. And most of this came, of course, from the core job board business, which is the answer for the labor demand but also this kind of additional services like Seduo, which is the digital education platform and different kind of ATS services. So the underlying market recovery is good. Hopefully, it stays. Of course, we have now -- the COVID-19 situation is worsening a little bit. So far, we haven't seen any sign of slowing down of the Career markets, which means that we are expecting this could develop to continue also in the future. Expenses, of course, increasing hand-in-hand with the sales. We have this kind of sales-dependent expenses like salaries and marketing expenses. Also a little bit of this ICT expenses, which are more or less related to the product development. All in all, this segment is on a very healthy profitability level of more than 40%. And as you can see from the right side of the slide, there was a nice growth of every market. Of course, the Czech Republic is the biggest one, 33% growth there. But quite a nice growth in every market, which is, of course, a very good situation. It's balancing the portfolio and balancing the risks of different markets developing differently. So very good performance of all markets inside the Career segment. Secondly, Alma Talent, a very solid performance during the quarter. We had a nice quarter for advertising as well as digital subscription sales. And of course, the digital services where we are investing more and more, they are enhancing the profitability and the biggest investments like the DIAS, it's working like expected. Revenue growth, 8.4%, almost 60% of the business at the moment, digital businesses, operating profit nicely more than 20% up and so on. The service part of this business is developing faster than the other part of the business. As you can see from the right side, around half of Alma Talent segment's business is media businesses. And the other part is services, different kind of services, which is the growing part of the business and the part that we are investing in more and more. And they are, of course, the digital businesses. We have quite a good cost control in this segment as well, which means that from the revenue growth of 8%, we were able to gain quite a nice part to the lowest row, the operating margin. Very good, very good performance. Healthy profitability level of 22.5% for a media company should be very nicely comparable to the best peers in Europe. The Alma Consumer, very good organic growth due to a very nice development in digital advertising. And of course, the acquisition on those marketplaces that we have done are working perfectly. Revenue, almost 40% up. Operating profit more than 40% up. All sectors, every business contributed nicely to the growth and to the profitability. Of course, this -- the Nettix acquisition is big part of the revenue growth, but also the organic growth as mentioned here, 8.3% is a really, really important contributor to the good development. A strong demand for housing cars and mobility marketplaces has continued. My personal view is that might slow down when the markets are normalizing more or less. But it seems that the good demand is still there. Hopefully, we will see also the new car demand increasing, that has been quite on a low level. There is a problem with the components as the car dealers and the carmakers have informed us and others, but there's a strong demand for new cars as well. So the underlying market seem to be quite positive from -- for our businesses. But as you can see, the very good performance of digital advertising and -- sorry, digital advertising in Iltalehti and a nice growth of digital subscriptions in Iltalehti as well. If I remember right, we have around 20,000 paid subscriptions in Iltalehti Plus at the moment, which is quite a good achievement. And due to this, we were able to mitigate the decrease of the single copy sales in Iltalehti. Healthy development of profitability and a very healthy level of profitability in the segment, almost 30%. Half of the business in this segment, media businesses, like in Talent segment, the other businesses are mobility, classified services, housing services and comparison services, this kind of digital classified and other service businesses, which are developing favorably. So that was briefly the segment performance. All segments performed nicely, even better than expected, which is, of course, a good situation and starting for the next quarter. And now Juha Nuutinen will continue with the financial position. Floor is yours, Juha.

Yes. Thank you, and thank you, Kai, and good morning. Our financial position or more exactly, our balance sheet, has been quite stressed during this year because of the M&A acquisitions and in the beginning of this year and last year. In this third quarter, we didn't have any M&A actions, and that's why our balance sheet or deleveraging is starting now. What -- if you are looking at our debt side, the main part comes from the bridge facility loan, EUR 200 million, at the moment. And we are going to convert that loan into a long-term financing during this year, most probably in November. In September, we paid EUR 20 million loan back to concerning this bridge facility. Our gearing has also decreased, and it's 132% at the moment, and equity ratio is 33%. So if there are no M&A actions, our net debt will decrease with around EUR 15 million to EUR 20 million in 1 quarter. So we are deleveraging quite fast actually. And that's what comes -- why is that is because of our quite strong operating cash flow. And in this quarter, we had operating cash flow as EUR 18 million, which is one of the highest amounts at this part of the year or third quarter figure, and there was an EUR 8 million increase compared to last year. And cumulatively, we are in EUR 50 million position. And of course, where this comes from is thanks to our good profits and increased profits. And also in the third quarter, it comes from the quite good net working capital change also as well. But cumulatively, our net working capital change is pretty much the same than it was last year. Yes. Like I said, there were no acquisitions in this quarter and last year. In the first half year, there were Nettix acquisition, of course, the biggest and then Netello and Quantiq was slightly minor acquisitions. CapEx level is pretty much what we have had for years now, it's EUR 3 million in the 9 months, and we will be -- we will have CapEx around EUR 4 million for the whole year. So that's pretty much what we have said earlier also. And it's pretty much the same what we have had last year as well. This graph we have showed you since COVID started, and this tells you Alma Career invoicing and revenue recognition trend on a monthly basis. And this is interesting because our revenue recognition comes a little behind with the invoicing trend. And you can see that our invoicing has been at the highest level what we have had in this Alma Career business earlier and we are above 2019 figures. At the moment, if you are looking the 4, 5 months, latest month since April, May this year. So -- and this means also that we will have pretty good revenue recognition or revenue increase also in the fourth quarter and also in the first quarter next year. So the revenue comes a little behind with the invoicing and some -- it's balancing the invoicing as well, but it takes 3 to 6 months when -- from the first invoicing when we see the revenue growth, and that's -- this graph tells you pretty good the combination of those 2 items. Of course, on earnings per share also we see a nice growth there. We are at the EUR 0.18 at the moment in the third quarter. And of course, this comes from the profit increase, but there are also this redemption of our minority shares in Alma Career, Alma Media partners, which are affecting here as well. It was around 4 -- EUR 0.05 per year, how much it affects. But most of the increase, of course, comes from the profit increase. There were not so many adjusted items in this quarter, only 400,000, and this came from the Talosofta business divestment in July. We updated our long-term financial targets in September, and this is the new financial targets. And our revenue growth target is 5% per year. And like we said in September as well, this is -- this KPI is good to look on target concerned mostly next year. And this year, we will be clearly above that target. And at the moment, we are in a growth of 17%. Our adjusted operating margin is -- target is over 20%, and we are now 3% above that target, 23%. Net debt-to-EBITDA ratio, we set the target that it should be lower than 2.5%, and we are now 2.6%. And if we are calculating also the effect of acquired businesses from the whole 12-month period. And we are pretty close to target at the end of this year. So quite soon, actually. So in that sense, we are well positioned in -- compared to these targets. So that was the financial part. And yes, the deleveraging is now going in a good direction. So that's in a short -- and then we have operating, Kai will tell you more about the operating environment.

Thank you, Juha. Okay, then the question is, of course, that is this good development going to continue? And of course, 1 part of this answer is that we have to have a look at the underlying economies where the -- for example, the good demand for the labor comes and of course, for the advertising purposes, it is really important that the underlying markets are developing favorably. It seems that the -- according to the current estimates forecast of the European Commission. There's the big picture. These are the markets that we are in. If you start from the Finland, this kind of close to 3% GDP growth is okay for the advertising purposes and for the service development purposes and, of course, for the recruitment, especially the development around 4% to 5% that we have in Central Eastern Europe is very good basis for our purposes, a good ground for job or a recruitment portal development for different kind of job-related services that we are working with and for -- like for educational platforms or that kind of services. So the ground for good development is there, which is a good news. Of course, in short term, nobody knows what the COVID-19 development is going to continue. We have yesterday heard that there's 1 month lockdown in Latvia. Latvia is not a very big country for us. But anyway, if that development spreads in other Baltic countries or Central Eastern Europe then the difficulties may arise. But so far so good. We haven't seen any kind of signs for slowing down in our sales there, which is, of course, a good sign for the rest of the year. So that's it. And the Finnish advertising market is picking up also. We have had quite a good development in especially the online advertising, the digital advertising where we have at least achieved now the market-leading position, of which I'm very proud of. Our teams led by Tina Jervilette have done extremely good job. And this has been, of course, the target -- one of the targets that we have had, and that's important. Of course, we have invested many years for the best services around the advertising seen in Finland. This is the part of the Finnish players. I mean the market share of the Finnish players. There are, of course, 63%, if that's the right figure, is for the international players like the U.S. platform giants. So that's it, a solid performance and nice development of the ad market. Of course, there's this kind of pent-up demand, which is now bursting. And hopefully, that will continue so that the customers that we have are going to continue with their investments in advertising during the last part of the year and during the next year. Very good. So that was the -- these were the figures from -- or for the third quarter and then the strategy and outlook. There is no news. So we will continue with the current strategy. We will continue transforming the core businesses like the print business and other businesses as well. We will continue growing in digital, especially in digital services that we have, and we will have. And then, of course, we will continue to internationalize the business into new geographies or expanding the businesses in current geographies. So this is the core strategy that we are running. Here are a few examples of the third quarter actions that we have had inside the strategy. Of course, the biggest one -- the biggest move has been this Nettix integration, which is running smoothly. It's -- the first phase is there. Of course, the places are there. The work is still in progress, but the first phase is implemented successfully. And then, of course, from now on, it's more about deepening the cooperation, nurturing the company culture, development and so on. Other example is the Netello integration, which is also proceeding nicely, a good growth with a high profitability, very smooth cooperation with the new persons. Consolidation has been really, really good. We have done new initiatives with our partners like with interest joint effort like this virtual investor week that we had, it was a great success. We are very happy with this kind of cooperation with different parties, and we will continue with developing of this. So that's it. Mostly the third quarter has been a quarter for consolidation of the acquired businesses and setting up the new position and new way of working for the whole company. The outlook remains the same that has been for the 2021 which means that we are expecting the full year revenue and adjusted operating profit from continuing operations to increase significantly from the last year's level. So that's it. If you have any questions, I'm more than happy to answer those here in this room in Alma House or online.

We'll begin with questions from Alma. So please go ahead [indiscernible]

Starting with Career, thinking about cellular growth, can you give some color on where is it coming from geographically the growth? And then do you see better traction in different areas than others?

Yes. The biggest growth comes from -- so it's actually developing Czech Republic, the platform, and we have leveraged the business to Slovakia, where, at the moment, the biggest growth comes from Slovakia. We have studied the launch in Finland as well. And then we will continue to other countries step by step. So that is the way of going.

Then you mentioned wage inflation accelerating. Can you talk about this? So what's the magnitude? And is it different also geographically?

Yes, the biggest inflation comes from the countries where the unemployment rate is the lowest, which means like in Czech Republic and in specific, the metropolitan area, Prague, where the unemployment rate is more than around 3% at the moment, of course, there's the huge demand of the ICT employees. There, the inflation, like the pressure is high. So we are talking maybe at the moment, 5% to 10% wage inflation on average on that side. So there, this is a very good example. Of course, in every country, this ICT personnels wage inflation pressure is the highest. Otherwise, we don't see any big problems. It's more a business as usual. But the ICT sector is difficult because every company, they have the same demand, they have the same needs for digital development, and we are fighting for the same skills as they are. So that is something that we have to take into account and carefully monitor and follow the situation. We have many, many interesting and successful initiatives in order to mitigate the pressure like we have this kind of training programs -- successful training programs in Finland and we are going to continue that all over the place.

Lastly, a minor detailed question on the share of results of associated companies in Q3 seem to pop up from the usual level. Is there something extraordinary behind this?

Juha -- I didn't hear your question. So what was the -- extraordinary?

Yes, the share of result of associated comp.

All right. Yes, Juha, can answer that.

Mainly, it comes from the Bolt Group company, and that has been -- that company has had pretty good summer in its area and that comes from that area, and it has quite good revenue increase and also now the profit is also profit at the profitable side and it's affecting also in our role in associated companies. So it comes from the Bolt Group.

Thank you. And now operator, we will be ready for questions. Is there any questions? Operator, we are ready for questions, can you hear us?

Operators seem to be asleep. So...

Yes. Maybe we can take the online questions here in between while the operator gets on board or -- yes.

Okay. Do we have any...

Yes. Yes, we have some online questions. So...

We have 2 online questions from [indiscernible] an analyst from...

Elina, can you read them? So...

Yes. Maybe I should read them so it goes in the air. Okay [indiscernible] analyst from [indiscernible] is asking that the -- actually the same question about the Seduo. So I think that's already done. But the other 1 concerning Iltalehti and the subscriptions. So what is the medium-term potential of this business? Will Iltalehti shift fully behind payable over time?

Yes. Hopefully, yes. So the idea is, of course, to continue. We really don't know how this will continue. We are a little bit surprised, the success of the Iltalehti subscription so far. So Iltalehti Plus development has been faster than expected. So they are, of course -- while Iltalehti has 1-point, 2.8 million weekly users -- monthly users. And now we have around 20,000 digital subscriptions, paid digital subscriptions. So you can understand that there's a huge possibility, but it takes time. So we will continue developing the content, and it's all -- this kind of trial and error thing to find the ways to increase the circulation, of course. But so far, the development is good. We are in a very early phase of this development, but amazingly quickly in a position where we are able to mitigate the losses or the decrease of the print single copy sales, which is, of course, being a very difficult for the -- and the bad thing for the employed market and business. So we wait for a good development to continue and remains to be seen how big the market will eventually become, we don't know. Nobody knows.

Maybe not fully behind the [indiscernible]

No, no, not really behind the [indiscernible] No, no, maybe not because of course, we have to have the balance between the visitors and the paid subscriptions and to balance and control the advertising potential, of course. So for the advertising purposes, we need to have a wide audience in the digital online site. And then on the other hand, we want to have also the user payments from the base circulation. So that's it, balancing this. Like we have to do in other media businesses always like for Kauppalehti or Talouselämä or other businesses. So we are doing the same development here.

Okay. There is 1 more question that's coming from Sami Sarkamies about consumer. So the online classifieds have performed well. Are you seeing any calling down when looking at the activity level with housing and car markets?

Yes. In car markets, actually no. But in housing -- houses and premises, housing market, it seems to be cooling down a little bit because there has been a really, really deep increase in the volumes of the housing market during the COVID-19. And it seemed to be normalizing a little bit. It doesn't mean that our business would react similarly. But the overall view is that there will be some kind of normalizing of the price increases and the volumes in the housing market. That seems to be the case. In used cars, there's been a very good development. And usually, the sales of the used cars and the new cars are more or less balanced. And during the COVID times, there has been quite a low demand of new cars. And that seemed to be balancing a little bit. Now there is a new problem, of course, with the components. The lack of components in the housing -- car industry is, of course, affecting the new car sales. Hopefully, they will find the ways of shortening the delivery times for the new cars, and that's, of course, important for us also for the advertising purposes. But for the classified, it seemed to be working pretty well so far. So we haven't seen any remarkable or significant decrease in the volumes in our case, not so far.

Okay. Sami is continuing. He wonder what's our main concern at the moment. But before that, about the financial targets, this look overly conservative now even though they were issued in September. Any thoughts related to this.

Yes, the EBIT margin is conservative and cautious, and we have to look at that on next year's revenue growth, we have to estimate next year, but it's not this year target at all. So it's concerned next year. So that's why we come back to that revenue growth target more closely then.

Yes. I agree. I agree. Right now, we have this kind of pent-up demand bursting, and we have the Nettix integration, the acquisitions in the place. So it's difficult to estimate. So the next years and the long term, like the midterm in this case, I would say, the revenue growth target is more or less without any acquisitions. So it's more about organic growth target. And the profitability remains to be seen, might be a little bit conservative, and we might come back to that by the end of the year.

Okay. So Sami is also asking that what is your main concern at the moment?

It's the COVID-19 situation, which is worsening at the moment. We heard yesterday that in Latvia, they have introduced this kind of 1 month lockdown. Again, the situation is not much better in other Baltic countries. So we will see, remains to be seen how the situation develops. I'm not satisfied with the vaccination development at the moment, not even in Finland. So the health care system is more or less under a very stressed situation in every place. And that -- there is a huge need for speeding up the second vaccination and so on. So that is the biggest concern in short term. We don't have any other concerns in our case. Our businesses are running smoothly, and the personnel is in a very good mood and in a very good speed. So like the machine, so to say, in Alma, the machine is in a perfect condition at the moment, at the record high profitability level, and it seems to be working nicely. So that's it. And the COVID-19, of course, may have its effects on the demand in short term. In long term, maybe not, but in short term, that might be this kind of hiccups that might arise.

Okay. And then Pia Rosqvist-Heinsalmi is asking that -- about consumer that any comments on the operating leverage and its development in consumer?

Well, of course, Nettix integration is in the middle of -- first phase is now back to us. And then the next round is going to be -- happen and we will more integrate Nettix into consumer other and do more synergies with the other products. And that's why it will generate some operating leverage advantages. But let's say, it's a longer-term process than this first way. So...

Exactly. There's, of course, a big question of the cultural development of these different employee groups and different companies. We have totally different backgrounds, and it takes time before the machine works as it is expected. But leveraging the good things from either or other parts, it's -- there's nice possibility. So we have very good plans on the table and they have been -- the work has started already. So it's quite good. So we are very positive on the leverage of this.

Yes. And the same question from Pia about the main concerns for Q4, if any. So is there anything to add?

Not really. Nothing.

Yes. If we are looking the last year fourth quarter, then the advertising market was higher -- at a higher level. So we are facing much more difficult..

Comparable.

Yes. That's 1 thing. So the growth will not continue with this kind of growth ratios, but still we are positive, but we have to understand that, that was a pretty good advertising quarter last year.

Sales were at the high level and especially on the Career side, where the invoicing rate is on a high level. So that will end up to a good revenues as well for the last quarter and for the beginning of the year next year.

Yes. And that was about Sami's question about Career. Are you still experiencing a situation in which invoicing grows sequentially week after week or has the growth flattened out given achieved invoicing, it seems that Q4 sales will grow sequentially from Q3. Will that also be the case in first quarter relative to the fourth quarter?

So far, we haven't seen any flattening. So the invoicing rate has been continuing like expected. But then we don't know how the COVID-19 is going to happen, is there this kind of lockdowns. And if the countries are ending up to a lockdown, that will definitely have its effect on our businesses as well. But so far, the invoicing rate is well above 2019 levels.

Okay. So at the moment, no more online questions. Should we make 1 more try on the conf call line? Okay. So operator, we would be ready for questions, if any, from the conf call line?

We have the first question. It's by Sami Sarkamies.

I think my questions have been answered already.

Thank you. Okay. So any question that has not been answered yet?

We have a second question by Pia Rosqvist.

Pia here. My questions were also answered.

Thank you. Thank you and sorry about the delay. No other questions?

For the moment, yes, there are no further questions.

Okay. Thank you, operator. Okay.

Okay. In that case, we are ready to finalize this presentation. I will thank you very much for your attention. And as you can see from here, we have the next interim report January-March on Friday, 22nd April. So we welcome you all to this fourth quarter presentation. Thank you. Have a nice week.