Baltic Classifieds Group PLC (BCG.L) Earnings Call Transcript & Summary

I'm pleased to announce that our third year as a public company was a great success. Our results are towards top end of the upgraded guidance provided at the tough time of our half year results. And we have met all our commitments, including financial, governance, capital allocation and ESG. Our revenue grew 19%, exceeding EUR 72 million. Our EBITDA grew even more, was 20%, reaching over EUR 55 million with an industry-leading margin of over 77%. Cash conversion was close to 100%, and we have significantly reduced our leverage on 1x to 0.5x EBITDA. We remain committed to our capital allocation policy. We repurchased 8 million of our own shares, and the Board has proposed a final dividend of EUR 0.021 per share to be paid after AGM. In our view, this has been arguably the best year in our company's history as the strength of our financial performance was supported by the resilience of our operational KPIs, which were at record highs as you will see in the following slides. We had a strong annual revenue growth across all 4 business lines. We initiated a pricing event for our private customers a year ago in May and then improved our pricing and packaging for our business customers in auto. The B2C segment has been of a particular note with significant growth in both number of customers and the yield expansion. We had 4% more customers in auto, 1% in real estate, plus 5% in jobs. The yield has improved significantly with 26% growth in autos, 22% growth in real estate and 7% growth in jobs. Overall, our core classified revenue was a major success with both B2C and C2C contributing 90% of the total revenue. Our lead over closest competitor, which we internally consider the most important KPI, remains strong across all major portals, ranging from 7 to over 36x depending on the portal. We were also pleased to receive a positive update in the relation to Estonian Competition Authority investigation in our real estate and auto platforms. Following the supervision procedures, the Estonian Competition Authority has closed its antitrust investigation in Estonia, stating that our prices were at neither excessive nor abusive. Additionally, we achieved a breakeven performance with our newest acquisition, GetaPro in Latvia after successfully launching a subscription model, leveraging our experience within the service vertical in Lithuania. BCG has achieved an impressive 70% reduction in CO2 emissions and exceeded our near-term targets in Scope 1 and Scope 2. This achievement was driven by a vast majority of electricity used from renewable sources. Furthermore, since the start of the year, we have started assessing Scope 3 emissions. BCG has maintained a balanced gender diversity ratio with an equal 50% female and male split. Moreover, BCG was ranked within the top 10 best performance within the FTSE250 with 50% of women in the leadership positions. We completed our annual employee engagement survey and over 95% of employees are proud to be part of the team. This dedication and commitment is what makes BCG as such a successful company and that directly leads to such a high average tenure of 8 years, which is remarkable in such a technology-driven company. Now I'll hand over to Lina to talk more about finance.

Thank you. Good morning. We're pleased to see the continued momentum in our core business. Over the past 3 years, since IPO, revenue quality has improved. Listing fees as a percentage of revenue have increased from 83% to 90%. B2C revenue from contracted clients now representing 50% of group revenue grew 22% and C2C individual listings representing almost 40% of group revenue grew 18%. Ancillary revenue mainly from financial intermediation accounted for 5% of total group revenue grew 13% and the noncore banner advertising revenue also accounted for 5% of group revenue remained broadly at last year level. All 4 business lines grew strongly with the excess coming from the 4 verticals, auto and real estate, which together make 63% of the group revenue, grew 24% and 20%, respectively. Jobs & Services business line grew 17%. Generalist competing against our own verticals, but at the same time, bringing a lot of synergies and providing us with diversification to cover the wider market, grew 8%. Overall, the revenue growth comes from growth in the number of listings and number of advertisers, yield improvement across both B2C and C2C and growing underlying markets, rising transaction values. Talking about yield improvement, we have continued with our usual schedule of pricing events. We started the fiscal year by introducing C2C pricing changes across most of our portals, impacting the entire financial year and in September and October 2023, we introduced B2C pricing and packaging changes for auto, real estate and jobs portals, reflecting improvements to our proposition. These changes contributed to the second half of the year in both the real estate and auto business lines and in jobs business line. This -- since majority of our contracts are 12 months in duration. The changes flow through over the course of 12 months. We continue to see strengthening network effects across all business units, and here is the performance of BCG business lines across financial quarters. Despite the various macro and geopolitical shocks experienced over the last few years, each of our business lines has remained resilient and continued growth trajectory. Our cost discipline continues driving operating leverage, people cost is the biggest part, 67% of our operating costs if excluding D&A, as presented here, is close to 16% of revenue. Programming, development, system administration are done in-house, and these costs are recognized within the salaries, and none of them were capitalized. People costs grew 18%, driven by a slightly bigger team, annual salary review that can be also building up PSP costs. The majority of the group's traffic is direct with a combination of direct and organic and paid search channels accounting for approximately 86% of total traffic. Paid search traffic is minimal. Therefore, total marketing expenses are less than 2% of group revenue. Our IT costs being third-party services accounts for 5% from revenue and grew in line with the market and other costs is everything else we need in the business, including costs associated with running a public listed company. Cost to EBITDA, as presented, grew 14%. As depreciation and amortization charges were in line with last year, our total operating costs, including D&A, grew by 6% this year. As a result of growing our top line revenue 19% and with continued disciplined cost management, our EBITDA grew 20%. And as mentioned, in terms of profitability, we're now close to 70% bigger than we were 3 years ago at IPO. There were no add-back store EBITDA. Our EBITDA margin has expanded by 1 percentage point to 77%, and we also continue to be highly cash generative. Our cash conversion maintained at 99%. Cash generated from operations grew 23% to EUR 59 million. Net cash inflow from operations after income tax and financing-related payments grew 20% to EUR 51.2 million. Looking at other alternative performance measures, the adjustments to IFRS numbers are limited. We are adjusting for noncash historic acquisitions related assets amortization and deferred tax. This year, we also adjusted for a one-off tax credit of EUR 1.8 million, and this credit relates to financial year 2021 and resulted from a new interpretation of the corporate income tax law by the tax authority in Lithuania, following it for pooling. The adjusted operating profit is tracking closely to our EBITDA and grew 21%. Adjusted net income grew 18% to EUR 45 million. And during the year, the company purchased and canceled 8 million ordinary shares, representing 1.6% of its issued share capital at the start of the year. Adjusted basic EPS grew 20% to EUR 0.092 per share. As mentioned already, during the year, we generated EUR 51.2 million net cash from operations. At the beginning of the year, the outstanding loan was EUR 70 million and the leverage ratio of 1x. During the year, we paid final 2023 dividend, interim 2024 dividend totaling EUR 13.3 million. We also used EUR 19.5 million in buying back company shares for cancellation. We reduced the debt by voluntarily repaying EUR 20 million, and we ended the year with EUR 50 million debt and 0.5x leverage. Our capital allocation priorities remain unchanged. Our plan is to deploy cash we generate within this year in the same year or shortly thereafter. We tend to turn 1/3 of adjusted net income each year by interim and final dividends with approximately 1/3 and 2/3, respectively. The interim dividend for the year '24 was declared to be EUR 0.01 per share and was paid in January. The proposed final dividend for 2024 is EUR 0.021 per share, bringing total dividends for 2024 to EUR 0.031 per share. The final dividend will be paid on 18th of October, the numbers on the registered on 13th September. We will continue considering value creating M&A opportunities. All options for financing remain open, including using own cash, increasing debt and even taking additional equity capital. However, using own cash is the most likely and would most likely not affect dividends but might reduce capacity for share buybacks. And we intend using a combination of share buybacks and debt repayment from the balance of cash. Thank you. Now handing over to Simonas.

Hello, everyone. In the next 4 slides, I will walk you through our main KPIs for each business unit. Structure of the slides remains the same as usual. Market context is provided on the top left. -- the C2C performance in the top right, B2C performance in the bottom right, and I will lead against the competition in the bottom left. So let's start from autos. Underlying market dynamics remains very similar as was 6 months ago. Car supply has normalized. Dealers no longer have difficulties importing cars from western markets. Sending time for cars has also returned to pre-COVID levels. The number of transactions increased by 6% and the average car price grew by 5%. This environment is beneficial for our business. The number of active C2C ads is 26% higher than last year. So we got more paid ad extensions, and we accumulated more content, so called the active ads. The growth in active ads was so significant, and the yield per active ad remained the same as last year despite implemented pricing actions. But if we look at the yield per listed ad, it grew double digits. In B2C segment, yield grew by 26%. The main reasons behind the growth. Firstly, dealers had more inventory and had to purchase more slots Secondly, our pricing and packaging event drove higher adoption of premium packages and an increase in the price per slot. And in the bottom left, you can see that our lead versus closest competitor in growing at 7x in Lithuania and 36x in Estonia. Next, the real estate, the market cooled down after a normal peak in 2021 and 2022. Market is active. Average price keeps growing. Our brokers are in the business, time to sell a property normalized, and we accumulated more content on our platforms and that is a tailwind for us. Both in C2C and B2C dynamics is very similar to autos. Due to the mentioned before, there was a significant 20% growth in active CTC ads. Again, like an autos yield, our active ads are at the same level as last year, while the yield per listed ad grew double digits. The number of B2C customers has remained stable, while average revenue per broker grown 22%, primarily due to annual pricing and packaging event. We have successfully introduced a prominent packages for the brokers. We've seen the maximum exposure and the highest number of leads. And we maintained strong lead both from Lithuania and Estonia. Our platforms are respectively 17 and 19x bigger than competitors. Let's take a look at jobs. Jobs market stays active. The unemployment rate remained at a very low level of 6.8%. The average wage continues to grow rapidly with 13% increase observed last year. The market continues to provide a favorable environment for our business. Companies are investing in recruitment and retention of employees. As you can see in the bottom right chart, our customer base expanded by 5% and the average revenue per customer increased by 7%. And our job board keeps a strong lead of 7x over the closest competitor. And I would like to briefly touch on Services segment. It represents a C2C part of our Jobs & Services unit. You can see in the chart on the top right. The segment is the smallest one, but it grows very rapidly. A number of active ads increased by 32% and we're continuously enhancing the demonetization. Last year, the yield grew by 11%. Generalist platforms kept growing as well. Our biggest Generalist scalability increased the number of listings by 5%. This growth was organic and spread across various categories. Consequently, the impact of implemented pricing changes was limited, resulting in a yield growth of 3%. And our lead our closest competitor in Lithuania has reached a record level of 23x and in Estonia it is 3x. And in the next couple of slides, okay, we are constantly rolling out changes to our platforms. On average, there are 30 production releases every day. And I will mention a couple of developments implemented during the last 6 months. Starting with August on the left-hand side of the slide, we introduced the rating system for the highest tier car dealers and Autoplius.lt system allows them to ask for the feedback from the car buyers. This way car dealers can build both trust and competitive advantage. Ratings motivates dealers to improve the experience they provide for the car buyers and car buyers can make better choices based on the dealers' ratings. In Estonia, we have introduced a new product for property rental market. It allows landlords and tenants to execute rental contracts through our platform, offering benefits for both parties. Landlords can make informed decisions as the platform conduct background check on potential tenants. Meanwhile, tenants received a balanced rental agreement, 24/7 emergency service, insurance for property damage and rental payment protection in case of inability to pay. We cooperate with the third parties to limit our liabilities and the scope of our [indiscernible]. And this approach offers clear advantage for our platform. By facilitating these rental agreements, we can generate recurring revenues throughout the rental period instead of receiving onetime payment. And this development is in the pilot stage, having been released very, very recently. Well, let's take a look at Jobs & Services. On GetaPro, we focused on improving content quality. We encourage service providers to add more information to their profiles, get more feedback from the customers, and this helps them to achieve higher listing positions. Also, we launched parcel self-service platform in Estonia, which aggregates most popular parcel delivery providers. This tool is not limited to our platform of users, that can be used to send any item sold through any marketplace or any other channels, and we get a commission on every parcel center. And now I would like to hand back to Justinas to finish the presentation.

Right. Thank you so much. The Baltic region has seen a period of unprecedented growth in the last 3 decades. This is largely attributed to high export growth, strong trading balance, vibrant employment market and tech-orientated economies. The region has also a strong credit profile and has seen a significant increase in overall purchasing power. This positive environment has created a great opportunity for our alliance and our company to take advantage of the growth and generate the greater profits. Despite the recent economic slowdown, the Baltic states are expected to be back on the growth path this year, and are considered to be among the most dynamic and vibrant economies in Europe. The year has started strongly. At the beginning of the new financial year, we implemented C2C pricing and packaging changes across all our business units and early signs are encouraging. We plan to implement the B2C pricing and packaging changes from September. The Board is guiding 15% revenue growth in 2025 with auto, real estate and jobs and services expected to grow marginally ahead of this number and generalist below the overall group average. The Board expects continued EBITDA margin expansion for 2025. The Board remains committed to the existing capital allocation policy which remains focused on allocating excess cash towards reducing gross debt and the share buyback program, particularly in the absence of M&A opportunities. Thank you for the attention. And now we are ready to take any questions.

Alastair Reid from Investec. A couple for me. Firstly, can you just sort of expand a little bit more on kind of markets you're looking -- might be looking at for M&A and sort of what leverage you might be willing to go to if you did point something a bit bigger to look at? And secondly, you obviously highlighted your -- the Estonian sort of new product or executing rental sort of contracts on your platform. Do you see more opportunities to do those types of things, whether it's in autos? And I guess, more broadly, do you see any potential areas where you might need to step up product investment over the medium term?

Right. So I'll answer the first question on M&A. Lina will help me with capital leverage -- our leverage thinking and Simonas with the product. On M&A, geography. We think more and look more at the companies rather than the countries. Obviously, we are not considering the countries which are at kind of -- we don't think that we are -- kind of good economies are a good part of the European family members, I don't know. Basically, we are looking mainly at Baltic, Scandinavian, more Western European regions. But for us, it's much more important to find the good companies, the companies which are dominant, which have [indiscernible] pricing power and monetization power. And in the marketplace business, there are very little synergies. We don't need to have -- to be the company's kind of bordering each other, countries bordering each other. So for us, it's much more important to find good companies, which we think that we can continue growing. Lina, would you help me with leverage?

In terms of the leverage. Normally, up to 3 would be where we would like to be in terms of borrowing for an M&A. But if we would need more, going above 3x is also -- will also be definitely considered with a clear plan how we deleverage in that time because we're highly cash generated. So that's probably an option for us.

And now there's a new rental product we launched in Estonia. It's a really new one and then we're kind of testing, if it works, most it sounds attractive for us to get the recurring revenues throughout the rental period. It's like a first iteration of the product. We still have some -- let's say, idea as how to convince the customers to use this product actually to sign the contracts through the platform. So it's in the process, and we'll see how it will perform, and then we'll make decisions we just keep it going or maybe we have to improve or maybe we have to discontinue because it's not very relative to the market. So we'll see how it will go. And answering your question about the extension to other markets, so let's say, cars, automotive is not that attractive because typically, it's a sale transaction, not a rental transaction. We do have some rental propositions already as we are partnering with basically the rental companies and we get some commission from the contract signed. But we see that it's very -- not very, as I say, relatively small market. It's not that easy to capture those revenues on our platform. And a lot of investments into the products. So constantly like, I would say, bit by bit, increasing the product cost. Part of it is the wage inflation because it's everything is done in-house. And the second part, we grow our team one by one, and it's like evolution, not revolution. And I think the next year also will be very similar to what we have now. We are focusing a bit more on the data products and stuff like that. So probably, we will grow the team a bit but it will be very marginal and you will not basically notice in the charts.

Maybe more I would add on the transactional model. So basically, this is our maybe first kind of duration of transactional model within the rentals. But thinking about more like a long term, there are in the world models appearing where the sales transactions are being monetized. For example, we are following a few where we monetize C2C listings, and they charge not a listing fee, but a transactional fee. For us, it looks attractive. And I think that in the coming future, there will be more and more areas where we can apply these models. We are also learning, this is new. But definitely a further growth opportunity, we see a huge growth in here.

[indiscernible] from Peel Hunt. I've just got 3, please. If you look at C2C, the volume growth has been quite significant. Do you know how -- what percentage of customers take your highest packages on C2C. I guess I'm just trying to understand as we go into next year, how much that number can grow by? And then the second question is just on autos. Autos, I think B2C, the number of advertisers grew about 4%. And how much of that is you converting C2C to B2C? And how much of that is kind of more dealers appearing in the market because I think your penetration rate is already quite high? And then just the last one just so I get it right because I think you've just answered it. For the rental contract proposition, so it's not a matter of the agents using our brokers paying a subscription for you to use our capabilities? Is it transactions every time they do rental contracts, you'll get paid. Is that right?

All right. So I can start with the penetration of our most expensive package. So basically, our goal is to drive as high penetration as possible. So we're using different techniques, making the most expensive longest package as attractive as possible. I think within the last few years, we achieved the penetration from the most or the most expensive packages from approximately 60% to 75% currently. It may depend on different portals. But if you need like an approximate number, so we did the improvement from 60% to 75% currently. The number which is -- we feel very happy about. This year, the tailwind of growth of number of active ads will be smaller compared to last year because last year, it was a combination of us pushing to choose the most expensive package, but also the transaction period lengthening. So now this year, the transaction period will be more or less will stay more or less the same as previously in the previous year. So likely that number of active ads will grow through us pushing given more to choose the more premium package, and it's likely that will again push another 5 percentage points further.

The share of dealers.

Yes. So we are at very, very dominant marketplaces. So we think that 99% of the dealers or brokers are using our platforms. And the majority of the growth, let's say, we have a low single-digit growth number of customers. So a majority of that is converting small dealers, which are using C2C content and having more longer-term relationship and kind of selling them at subscription fees. So I would say if you want to quantify 4%, slightly of that 3% is coming out of our conversion and 1% is like a natural market growth. Would you like to answer the third?

Yes. And actually, about those B2C and C2C conversion, we made -- we constantly actually make the like examining our database, let's say, of the C2C customers. And we see that there are still some businesses and not necessary brokers, but like a small developer. So as an example, they are building 1 or 2 houses, and they have only 1 ad and they just sell this house, but they do it for living basically to earn money. So we are considering, let's say, the ways how to monetize better those, we actually make a business not just selling their own properties.

Maybe I would just add, this is a very good point, Simonas, help me to raise. In fact, we are segmenting different customers and the different customers has different monetization models, and we are also becoming better to identify a real C2C customer, who is a B2C customer, who is a developer and then already approaching and applying our different products to -- offering different products to them. And this is -- we are more talking about the real estate and automotive where I'm telling that we are 99% penetrated. But talking about the jobs. So jobs market is so high that our penetration is -- are far lower. So in the jobs segment, there is much more of the game in terms of customers.

And by the way, interesting to say that we use AI for identifying those I think B2C customers. And I will finish the third question -- about this rental product. So basically, it's not limited nor to brokers or the private customers. Anyone can sign the -- and a landlord can sign the contract, and we charge the tenants a monthly fee basically for all those benefits he/she gets.