Alma Media Oyj (ALMA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this Interim Report Session of Alma Media's Fourth Quarter and the Full Year 2022. My name is Elina Kukkonen, and I'm responsible of the Alma Media Communications and Brand. We will begin with the presentation shortly. And as usual, first to go on stage is our CEO, Mr. Kai Telanne. He will present the overall result of the company and the result of the each business segment, Alma Career, Alma Consumer and Alma Talent. After Kai's presentation, our CFO, Mr. Juha Nuutinen, who will present the financial position of Alma Media today. And after Juha, Mr. Telanne returns on stage to present the strategy going forward and also about the outlook. We have reserved plenty of time for questions-and-answers. So we are very happy to answer all your questions, both from online and also from here from Alma premises. We first take the questions here from Alma premises, and then the online questions. So feel free to ask, we are happy to answer. I think with this short introduction, once again, welcome again to follow us and please, Mr. Telanne, the stage is yours.

Thank you, Elina. Good morning, everybody, and welcome to the interim and full year presentation on my behalf as well. We had a fantastic full year '22 record-breaking profitability level. All the segments performed better than expected, despite the slowing down fourth quarter, where we had the revenue in par with the comparable period and adjusted operating profit slightly below the comparison period, which was already at quite a good one on '21. So revenue went up 12% for the full year, third consecutive year, nice revenue growth. Adjusted operating profit grew more than 20% on -- or to EUR 73.4 million. As said, solid performance in all business segments. And as known, our Alma Career has been the leader in this journey during a couple of years already. It's the biggest segment of the group at the moment. As I said, the fourth quarter was a little bit slower. Revenues slightly above last year and profitability a little bit below. We had a very nice organic growth still. EBIT margin during the last quarter, 19.4% and for the full year, almost 24%. As you might remember, our long-term target for the profitability is 25%. Gearing went nicely down to 69.3%. So the balance sheet is quite healthy, equity ratio up to 45.8% as expected and planned. So this is the big picture of the last quarter, on par with the previous level almost in every segment. Digital business has been growing for quite a long time as expected and that continues. So the transformation is going on from print to digital, from digital to services and later on to advanced platforms. If you have a short look at the business segment and start from the Alma Career, which is leading the profitability development. The demand, despite the hard environment has continued on labor and then partly because of that and because of our good performance, the growth has continued there, on a healthy profitability level for the full year and for the fourth quarter as well. On the right side of the slide, you can see where the growth came from. As I said, the Czech Republic is the biggest part of the business, nice growth, around 20% as well as in Slovakia and Croatia. The slowdown has come from the north, like from Finland and Baltic countries, where the labor market is tight and the underlying economies are slowing down mostly. For the full year, the revenue growth of 33.6% all-time high growth and operating profit of EUR 42.5 million, growth of 42%, a remarkable achievement in tough markets. On top of the core business being the job listings, there's a high demand for added value services as well and that has continued, like advertising to career development and staffing. And that's a good sign for the force that we have made. We have shown this slide of invoicing and revenue for you many times before, just to show how those go hand-in-hand. And here, we can see that the revenue and the invoicing at the high level still in the fourth quarter. That's a good sign for the start of the year as well. The tight labor market has meant the visitor base to be quite tight. From here, you can see that we had less visitors because of low unemployment rate in Central Europe, but we had more users with job alerts and a number of job, paid job ads, which is, of course, the reason behind the good figures here of revenues and of course, the profitability as well. In order to keep the good development we have had to market a little bit more than we used to be before. So the cost side is a little bit on a higher level in order to guarantee the good visitor base and the customer base in the services also this year and in the future. Alma Consumer had a headwind in the Finnish market, especially on the advertising side. The Finnish advertising has been declining during the fourth quarter. The full year result is really good. We're really happy about that. Half of the business is media business. And of course, if the advertising market is declining, our business is declining because our market share is so high. 37% of the digital advertising is from Alma. And if the market is declining, so we will suffer that as well. For the full year, 10% growth in revenues and on a good profitability level. We have quite many product development projects here, new initiatives in order to be more and more competitive in the markets, especially on the marketplaces, on houses and premises, and cars. Later this year, you will see we have announced some of the new initiatives and more is to come. So there is an extra load of, of course, at the moment to product development, ICT and marketing as well. Iltalehti has been very successful in attracting readers as we know. Of course, the environment is favorable for news, and there's a very good reader base. And we can use the good traffic in Iltalehti all over the company. So we can deliver the readers to talent, services and to our marketplaces as well. So that's part of the synergy and actually vital part of the synergy in Finnish business in our case. IL Plus has been really successful in subscriptions. In Iltalehti Plus, we have more than 40,000 subscribers at the moment and growing. This iteration more than 82% at the moment, which is a sign of the good transformation and the market is moving or developing in favor of us in that sense as well. Of course, we have some extra costs on the print side because the print cost, the paper cost and delivery costs are rising. But on the other hand, the print part is declining in our case, and we're able to quite nicely to mitigate the increase in print-related costs with the good growth of digital businesses. And then last but not least, Alma Talent, very good performance in difficult markets. As said before, we are suffering from the lack of IPOs in the market, which is an important part of the advertising in [ Kauppalehti ], especially. And of course, the new car business being on a low side for the full year, we have been lagging in talent, especially on new car advertising quite a lot. But otherwise, a very good performance on circulation side. On service side, business-to-business services and recurring revenues on B2B data-related services growing nicely. One of the key parts of the strategy of talent group, as we know, is to grow on the B2B services. On the right side of the slide, you can see that the service part is really important from a revenue point of view, but also and especially on a profitability point of view. Half of the business of Talent Group is media-related businesses and the other part is services, different kind of services, including the direct marketing, which is quite stable business and on a healthy profitability level. I would say the 20.5% even during the fourth quarter of profit is decent and really happy of that profitability. Almost 60% at the moment from digital sources and growing. So that's a very brief outlook of the full year '22 and fourth quarter. Maybe Juha, our CFO, Juha Nuutinen, will continue with the financials like the balance sheet, and I will continue after him with the outlook and those. Please, Juha?

Thank you. Yes. About the financial position, first about the net debt issue. Like we have discussed earlier, we have -- we will decrease our net debt level with EUR 10 million to EUR 20 million per quarter. And now at the end of last year, we had EUR 143 million net debt level totally. And we were paying a term loan back with EUR 20 million. So we are in a good situation and our balance sheet are going stronger and stronger after each quarter. Our equity ratio is 46%, and we estimate that it will be over 50% at the end of this year. So this is going as expected and planned. Cash flow is -- we have strong cash flow. It's almost EUR 80 million. Operating cash flow is almost EUR 80 million for the last year. The cash flow was decreased at the end of the fourth quarter and slightly because of higher working capital and higher taxes. This was also planned and expected because our customer advance payments has been exceptionally high in the earlier quarters in '22. So it was expected that it will slightly going down in the last quarter, but it's still at a strong level. CapEx, we have also CapEx investments we have also quite high last year, EUR13 million totally. There is one leasing agreement [ in Czech ]. We made the new premises, and we made the new leasing agreement and the effect was EUR 3.5 million, and that was one explanation with the higher CapEx. But still, excluding this leasing liability, there is still a EUR 10 million CapEx level, and we have made a lot of investments in our marketplace units, especially in housing and car segments. So normally, we have this EUR 5 million, EUR 6 million yearly CapEx level, but this last year was slightly different for that aspect. We have made also one acquisition, business acquisition in December. We bought this business premises marketplace unit, Toimitilat.fi. [ It may ] comes into effect in the beginning of this year, January, but we made the prepayment or the payment for that acquisition already in December, and that was EUR 2.8 million. And the earlier acquisition, what we made in this '22 was the Netello [ shares area ] acquisition. Earnings per share figure is higher perhaps than expected because there are one-off items now in this '22 year and it was EUR 0.20 in last quarter and EUR 0.88 for the whole year. There's actually 3 exceptional item in last year figures. One is capital gain of bulk shares, EUR 6 million, then there are interest derivative hedging positive fair value change EUR 5 million, and then there was a change in contingent liabilities, EUR 4 million in this last quarter, and that came mainly from the DIAS acquisition. So these 3 items effect is around EUR 0.17. So without those -- without those items, the earnings per share was slightly over EUR 0.70. So it's good to understand why this earnings per share is higher than normal, normal it is. And in the last quarter without this change in contingent liabilities, our earnings per share was pretty much in line with the last -- with the first -- last quarter '21 figure. Return on equity was perhaps highest what we have had ever, almost 40%. That's, I think, all-time high figure what we have had. And also the return on investment was 19%. So these are really strong figures, I would say. Our dividend or our Board's suggestion for dividend is EUR 0.44. It's EUR 0.09 higher than last year. And it's approximately 50% from the earnings per share and our dividend policy is that we will pay 40% or higher from the earnings per share. So that's the logic there. Long-term financial targets, we have not changed them. Revenue growth target we have had is 5%. Of course, these 2 years has been exceptionally good here, and last year figure was 12%. But still the 5% in the long run is a good target level. Operating margin target, we have said 1.5 years ago was 20%, 25%. We were pretty close last year 22%, so -- 24%, sorry. And so it's slightly under our target level, but still really good operating margin level as a whole, 24%. The net debt-to-EBITDA ratio, we have said that we should keep the level under 2.5. And last year we had is the level was 1.6. So we're under that level, and it's in that aspect, we are in a good situation from that point of view. So overall, we don't have no necessary or need to change those long-term targets. They are pretty good KPI figures at the moment in our occasion. And then the operating environment and perhaps Kai would continue and say some words about the guidance.

Sure. Thank you. Yes. Then how to continue from this. These are the 4 main things that we follow carefully around the environment. Of course, there are many other things, of course, but the underlying economies, of course, affect to our businesses in every country. The growth seemed to decelerate in all operating countries at the moment. Digitalization continues to change the consumer behavior. That means that the expectations to our services are increasing, easy to use time saving safe digital experience is needed. And we are developing our businesses towards that is kind of towards this kind of advanced platforms, as we say. Regulatory environment is complex and digital legislation is increasing. So that's a burden for us, of course, and we need to be very, very careful with the regulation and the data privacy issues as well, but we are well in that. And of course, the Russian aggression seem to continue, unfortunately. So we have to live with that, and we can live with that. But the uncertainty is going to continue, unfortunately. As said before and disclosed, we don't have any direct issues or effects from the Ukrainian crisis because we don't have businesses in Ukraine or Russia. So the effects are indirect in our case. We have a fresh forecast for European Commission of the economies in our market areas, saying that the GDP growth in every country is going to slow down as we all know from the news. After the third quarter, the view was that the slowdown is not that big, like being around half of the previous growth. But now it seems that the -- all the markets are more or less close to 0 growth this year. And the idea, and the view seem to be that the first part of the year will be difficult and then after that, that will -- the situation will ease up. And that's our view as well. So the first part of the year is -- and might be difficult, but then things will get better. But as seen here, we are close to 0. And that's, of course, a bad sign for advertising businesses, because if companies are careful and there's not demand for these services, there will be less advertising. Luckily, we are not dependent on advertising in Eastern European countries where we are only in employment business, recruitment business. But in Finland, we are suffering from the difficult market of course. Luckily, we are on the least declining businesses like digital business, more or less. Inflation seem to be high, still. Maybe slowing down and hopefully slowing down. But this year will be difficult still. The current forecast is saying that we are between like 4% to 12% depending on the country. And that's, of course, too much. So the interest rates seem to be increasing and getting higher still with this kind of inflation rate a little bit. But the good thing is that the unemployment rates are not going to increase, which means that the labor markets will be quite tight in the Europe, especially on the skilled labor where we are in. And it seems that there's not a big change in unemployment in our markets. And that's a good basis for the career business of ours. And as seen, the invoicing, i.e., sales is increasing still in our case, and we expect that to continue. Maybe a little bit slowing down the growth, but it's still growing. That's good. In terms of the Finnish advertising market, this is the big picture, an unfortunate picture, the rest of the year has been a disappointment. The market is declining. Our market share on digital advertising has grown. We are -- our share is 37%. So we have performed very well on a declining market. That might take some time to change. I mean, not our market share, but the Finnish market. We have quite a good plan and high targets, but there's this kind of depression in the advertising market. So the advertisers are careful. They are waiting for the demand to increase and the time to increase the advertising investment as well. The newspaper advertising were in December, 15% down. In our case, that doesn't hurt us very much. But the digital advertising was also down in December, which is not a good sign, of course. I have 2 slides of 2 important markets, underlying markets of ours, meaning, houses and premises because we are the market leader in marketplaces. And then on the other hand, the cars. Start from the houses and premises, and this is the picture of last year's market. On the left side of the slide, you can see the housing market sales of used apartments and new apartments, saying that during the full year, used apartment sales 17.5% down and during December 50 -- almost 51% down. So not a very good development. And for the new apartments, even worse, almost 50% down for the full year and 67% down during the last month. We have performed in a declining market very good, very well. We were on par compared to the last year with the listings, meaning supply. So there is demand for the listings, of course, the companies, the agencies and the people, they want to sell their apartments. But there's a lack of demand. Maybe primarily because of the jump in interest rates. So people are scared about the interest rates. Of course, the inflation is one and then the energy crisis is the third one. That's the combination of these maybe. So the demand and the surges are down around 20% during the full year. So there's less movement and activities in the market. The local association [ KVKL, had disclosed ] that we are, at the moment, 11% below the 5-year average figures, which, of course, [ can't ] continue very long. So there will be a pent-up demand after the first part of the year. And if this continues the full year, there will be a huge demand of apartments, houses and premises and those in coming months. And then the same picture from the mobility services and mobility markets. New car sales down 17% for the full year, but easing up during the December -- during the rest of the year, minus 5%, around 10% for the used cars. In our services, the similar development on sold cars like around 10%, a little bit less during the last quarter. So the car business is going to develop. It has started to develop. There has been these kind of production bottlenecks for the new cars as we all know. It's constraining the industry, of course, and that will ease up as we have heard, the situation will get better. So that's the case. In our case, as we have disclosed both marketplaces for the houses and premises and the car marketplaces have grown on a good profitability level in our business. Okay. So what do we expect for the year? So we are going to continue with the strategy that is set up, it's stable. So we're going to continue transforming the businesses still 20% print business that will transform to digital. At the end of the day, fully digital. We're going to develop our current core marketplaces businesses towards advanced digital platforms. With a good cooperation inside the company using the visitor base of the group and to maximize the synergies. We will grow in digital with new revenue streams and continue with the internationalization of the business. So that's what we do. Our strategy is well aligned with the sustainable business. As said before, Alma personnel is fully committed to our ESG targets, which we actually performed really well. We achieved 90% of our ESG targets last year. So completely, almost completely achieved. And we have incentivized all the personnel to reach the targets. Environmental targets, social responsibility targets or good governance targets, that's really important for us. At the moment, we have a nice portfolio, well-balanced portfolio. As you can see from here, 3 segments, evenly distributed revenues, more or less around EUR 100 million or a little bit more of a good profitability level. So that's a very good starting point for continuing the journey that we have lead for quite a long time. Very strong market position in the areas where we have decided to be like recruitment, houses, vehicles, machinery, financial professional media, commercial premises, digital advertising and news media. So that has been the target and we are going to continue and keep the good position here. So to summarize the Q4. Good performance in turbulent environment. Unfortunately, the turbulence will continue. We have been able to increase the registered users, which will be really important for any media company and especially for us to grow in advertising to grow in services. We have reached new digital milestone and Alma Talent as well as in Iltalehti, with Iltalehti Plus, ending up to 80% of revenues from digital services. We have quite big new initiatives, investments and process engineering, I would say, in Career United that will end up to a very modern platform in recruitment and recruitment related services with high efficiency. And at the moment, that is going on, we started that last year, and now we are in good speed at that. And that will enter to more effectiveness meaning cost initiatives there. So we will be more effective than before. We have quite a high target there. And then, of course, we have a major investment in ICT, in consumer and talent as well, especially in Consumer segment at the moment on houses and premises and cars and related services. So there's a little bit extra burden on the cost at the moment. But we will enjoy the results later of this. And you will hear more news about the new initiatives during the year. Outlook refreshed. So we expect our full year revenue and adjusted operating profit remain at last year's record high level or decrease a little bit. That depends very much on the underlying economies to develop. We estimate that the first half of the year might be difficult because we have quite a high cost on career and consumer, especially. But then the rest of the year will be better. So the cost effectiveness initiatives will be in place and the profitability will be better. So the estimation of ours is that the good demand of the recruitment services will remain strong. So the labor markets are tight. There's a good demand still. The question mark is only Finland and Baltics, which actually doesn't have that big effect on our revenue as we know the share of those is decent. And then the operational efficiency measures that we have initiated and already started will improve the profitability on the latter half of the year. So that's the idea at the moment and the view at the moment. All right. So that was the message this time. Now we are more than happy to answer your questions whatever they might, might be.

Petri Gostowski from Inderes. Starting with career and the services growth there. If you talk about the overall growth in services in '22, is there some business that's growing more than others? Or is it balanced?

Like -- over the core business. Seduo is one and then the advertising, the recruitment related advertising is -- those are the biggest ones. Seduo is the learning business. So those are the ones that are growing. We have Vesa-Pekka Kirsi, the leader of the segment, if you want to continue or add on, you can do that.

Maybe just a little bit of a context, services are about 10% of overall carrier revenue, and it has remained 10% throughout the growth. Within the 10%, as Kai already pointed out, the education services are the biggest growth. But at the same time, we are growing elsewhere as well. But the growth of that group in itself is as steady as the growth of the whole business.

Yes. Then continuing on that, I mean, you talked about Seduo taking into new markets. Is there some special country that is showing good traction under Seduo or is it more broad?

At the moment, we are in 3 countries. In Czech Republic, the first country, Slovakia, the neighboring the second country, and we started with Poland in the beginning of '22. So Poland is our newest country, and we're growing there well as a start first year. Our biggest growth percentage-wise last year came from Slovakia. [ Eurovis ] from Czech, yes, we are biggest there still.

Yes. As said, the newest one is Poland. So it's on an investment phase, so to say. So we invest and market the service and also the revenues will come later. But Polish market is huge compared to the other markets that we are in. So we can expect that if we succeed there, that will be a nice business.

Then continuing with the revenue side. If we look at the growth of marketplaces, especially on mobility, I mean, you said car sales volumes are down in Nettiauto, despite that you're growing. Can you comment, is there some pricing impact in the '22 growth of the marketplace? Have you hiked prices? Or is this coming this year?

No, we do. As said, the volumes were on par with the previous year's level and the revenues have grown. So we have increased prices. And of course, with the inflation, our costs are increasing, and we need to do the price increases with the inflation, of course. So that's the big picture.

Then thinking about CapEx. Obviously, there were clearly reasons why '22 CapEx was higher, but thinking about '23, can we expect a normal EUR 6 million to EUR 7 million CapEx?

Yes, we will go back to that normal level, more or less. Yes [Technical Difficulty]

And then on the current year, you and your peers have said that you expect a slowing advertising market. And I guess this is based on the fact what you've seen probably in January and part of February. Can you give any some more -- any more comments on this. What's kind of -- what kind of decline are you seeing? Are we talking about like 5% in advertising or more or less --?

No, we don't know yet. We don't know yet. We don't have the figure. It's really difficult to estimate the market development because there are some big differences with the different medias like print business. So we don't have actually the touch of the print business at the moment, nor the TV business. We are not -- into digital businesses is our biggest part. But as we expect that the first part of the year will be difficult. So the customers are -- they want to see what happens with the demand. That's more that -- they want to advertise, but they haven't seen the change of the demand yet because of the shock of the warrant, the interest rates and the inflation and all those factors. So the market has to show some kind of development in the demand before the advertising start to go. We have a very good discussion with the customers, with the advertisers, a good relationship with them. So we understand the problem and the pain that there is in the market. But that will ease up at the end of the day. So there's willingness to come out with the advertising. So no doubt about that.

And then moving on to online questions, unless there are any, no. So we have only one just. So there's a plenty of opportunities out there in online community to ask questions. But [ Jukebarkinen ] wants to know about the labor strikes. And let me quote, about labor strikes now and in the past. Have you noticed faster transformation from sort of classic to digital services after strikes. Our interference is in delivering newspapers/magazines de facto good for you.

No, not really. If I understood correctly, like with the AKT in Finnish [Foreign Language], the strike doesn't affect on newspaper or magazine delivery. I think I'm right. At the...

There are some problems.

There are some problems.

[ Finnish post ].

Okay. There are some problems with the Finnish post that I heard. But according to our experience, those strikes haven't affected heavily on the transformation. I would say that not really. It's more about the long-term development of consumer habits to change what we have seen.

Right. Well, that's it. No more questions.

Thank you. In that case, I will thank you very much. If you don't have any other questions, we are, of course, available anytime if you have any questions. Here you can see the upcoming events that we have in the calendar, like the Annual General Meeting, the 4th of April, and then the first quarter interim report on Friday, 21 of April. So you are more than welcome to these events. Thank you very much. I hope you all have a nice rest of the week and a good start of the year. Thank you.