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

Hello, everyone, and welcome to the Baltic Classifieds Group 2025 Half Year Results Announcement. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Justinas Simkus, CEO, to begin. Justinas, please go ahead.

Good morning. The start of the financial year has been very successful and the leadership in the core platforms remained as strong as ever. The number of customers and inventory saw healthy growth in each of our core verticals. And both B2C ARPU and C2C yields have increased double digits. This has resulted in a strong financial performance with revenue growth over 17% and EBITDA up 18%. And, in fact, I'm very proud that our EBITDA for this half of the year is almost equal to our full-year EBITDA 3-year IPO, which is a remarkable achievement in just 3.5 years period. In addition, we have expanded our industry-leading EBITDA margin to 79% and maintained cash conversion close to 100%. We continue to implement our capital policy. In July, we participated in the last Apax placement and bought shares for over EUR 13 million. We paid down EUR 5 million debt in May and EUR 7 million in November, and the Board has proposed an interim dividend of EUR 0.012 per share to be paid in January. Our platforms are one of the most dominant platforms in the world. The total portfolio is listed 9x per month by each citizen in the region. All 3 vertical business lines have excelled, achieving a record number of advertisers and increased ARPU in B2C and yields in C2C. What is very important that our core revenue streams, B2C and C2C, have achieved remarkable growth with both segments reporting a 17% increase. In spring, we successfully implemented pricing and packaging changes for our C2C segment, which have resulted in double-digit yield growth across all business units. At the same time, the inventory levels remained at a record high. The changes to our B2C prices and packages in autumn last and this year at the same time led to increased ARPU in all business lines: automotive, 17%; real estate, 19% up; and 12% growth in Jobs. While the number of business customers were robust across all business lines. Our strategic pricing and packaging events launched in the first half of the year, setting us up with a great momentum for the second half of the year. Now I will hand over to Lina to talk about financials.

Hello, everyone. During the first half of the year, we observed sustained momentum in our core business, which remains well positioned for growth throughout the remainder of the year. Overall, group revenue grew by 17%. Listing fees, B2C and C2C, which represent our core revenue stream, accounts for 90% of total revenue. B2C contracted clients revenue contributing 50% of group revenue grew 17%, and C2C individual listing's revenue, representing 40% of group revenue, also grew by 17%. The non-core revenue streams performed well also. Ancillary revenue, primarily driven by financial intermediation and accounting for nearly 6% of total group revenue, grew by 22%. Display advertising revenue, contributing approximately 5% of group revenue, increased by 10%. Across the business lines, all 4 demonstrated good growth. The core verticals, auto and real estate, leading the way. Together, these 2 verticals account for 65% of the group's revenue and grew by 17% and 26%, respectively. The Jobs and Services business line grew by 17%. Within this line, Jobs represent the B2C segment and grew 14%. And Services, which is the majority of the business line C2C and accounts for 18% of the business line revenue, grew 28%. The smaller business line, generalist, grew 4%. Overall, revenue growth has been driven by a growing base of advertisers and ads as well as yield improvement across both B2C and C2C segments. Regarding yield improvements, as Justinas already touched, we have continued with a regular schedule of pricing events. At the start of the half year, we implemented C2C pricing changes across most of our platforms, which gave impact to the entire half year. And in September and October 2024, we introduced B2C pricing and packaging changes for Auto, Real Estate and Jobs platforms, reflecting enhancements to our value proposition. These changes will contribute more to the second half of the year. And in the Jobs business line, due to 12-month duration of most contracts, the impact of these changes will flow through gradually over the course of the year. We continue to observe strengthening network effects across all business units. Here is the performance of our business lines over the recent financial half year. And as shown, each business line remains on a consistent growth trajectory. Notably, group revenue for the H1 has doubled since our IPO compared to H1 2021. Our cost discipline continues to drive operating leverage, representing the largest portion of costs. People costs account for 15% of revenue. Programming, development and system administration, all handled internally, with -- these expenses reflected in salaries. People costs increased by 16%, mainly driven by the team expansion, 7% impact and annual salary reviews, which had on average a 9% increase. Marketing costs increased by 2%. The majority of the group's traffic is organic with direct and unpaid search channels accounting for more than 80% of total traffic. Base search traffic remains minimal, keeping the total marketing cost at slightly more than 1% of group revenue. As a portfolio of brands, we optimize marketing expenses by leveraging our own websites for advertising, minimizing reliance on external service providers. And this approach is particularly effective due to our ownership of Skelbiu, ranked as the sixth most visited site in Lithuania and featuring strong vertical categories. Skelbiu drives high-quality traffic cost free to our market-leading vertical platforms through cross-listing. And that is a very unique portfolio setup and one of the reasons why we enjoy a higher EBITDA margin. Our IT costs being third-party services accounts for 1% from revenue and other costs being everything else we need in the business, including costs associated with running a public listed company, account to 5% from revenue and grew 5% this year. In total, operating costs, excluding depreciation and amortization, grew 11% this half year. In terms of profitability, with a 17% increase in top line revenue and continued disciplined cost management, our EBITDA grew by 18%, and the margin expanded by 1 percentage point to 79%. In terms of the cash generation, we continue to be highly cash generative with cash conversion maintained at 99%. Cash generated from operations grew by 17% to EUR 34.2 million. And net cash inflow from operation increased by 18% to EUR 28.5 million. Looking at other performance measures, adjustments to IFRS numbers remain limited. Adjustments were made for the amortization of assets from historic acquisitions and deferred tax. Adjusted operating profit continues to closely align with our EBITDA and also grew by 18%. Adjusted net income increased by 21%, reaching EUR 27.6 million. During the half year, the company purchased and canceled 4.6 million ordinary shares, representing 0.9% of the issued share capital at the start of the year. Adjusted basic EPS grew by 24% to EUR 0.057 per share. As previously mentioned, during the first half of the year, we generated EUR 28.5 million net cash from operations. At the start of the period, outstanding loan balance was EUR 50 million; leverage ratio, 0.5x; and the net debt, EUR 27.5 million. During the half year, we paid final 2024 dividend of EUR 0.021 per share, totaling EUR 10.1 million, allocated EUR 13.8 million to repurchase company shares for cancellation and EUR 2.4 million for buying shares for future employee awards and voluntarily repaid EUR 5 million to reduce gross debt. We ended the half year with gross debt of EUR 45 million, a leverage ratio of 0.4x and a net debt of EUR 25.6 million. Following the half-year-end, additional EUR 7 million was voluntarily repaid, leaving us with EUR 38 million of gross debt. Our capital allocation priorities remain unchanged. We intend to deploy the cash generated within that same year or shortly thereafter. We intend to return 1/3 of adjusted net income each year via interim and final dividends, split approximately 1/3 and 2/3, respectively. The interim dividend for the year 2025 was declared to be EUR 0.012 per share and will be paid in January. We will continue considering value-creating M&A opportunities. All options for financing remain open, including using our cash, increasing debt and even seeking 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 debt repayments and share buybacks from the balance of cash. Thank you. Simonas will now cover the strategic progress.

Hello, everyone. In the next 4 slides, I will update you on the KPIs for each business unit. The structure of the slides remains as usual, but to enhance the clarity for the C2C segment in the automotive and real estate markets, we have added additional KPIs. Alongside active ads, we also disclosed listed ads. The automotive market is performing well. The number of transactions has increased by 7%. In Lithuania, the average car price has risen slightly, while in Estonia, it has decreased slightly. Overall, the average car price across both countries remains at the same level as the last year. In the middle right chart, we can see that private sellers have listed 1% more ads compared to the last year. The active ads shown in the top right chart represents the inventory level on the platforms, which has risen -- which has raised by 9%. Additionally, average revenue per listed ad has increased by 18%, reflecting our pricing adjustments. In B2C segment, yields grew by 17%. 2 main reasons behind the growth: firstly, dealers have more inventory, and they had to purchase more slots; secondly, our pricing and packaging events drove higher adoption of premium packages. And bottom left, you can see that our lead versus closest competitors is very strong, 7x in Lithuania and 40x in Estonia. After a slowdown in 2023, 2024, the real estate market has entered a growth phase. Market activity has increased with a number of transactions rising by 4%. Average prices remain stable, and market sentiment among the brokers is positive. Both C2C and B2C dynamics are similar to auto. Private sellers listed 2% more ads; however, long stronger selling times had led to 20% increase in the C2C inventory. Pricing adjustments introduced in the late spring and C2C customer base segmentation have resulted in 29% growth in yield per listed ad. I will give more color on customer segmentation later. The number of B2C customers increased by 4%, while average revenue per broker grew by 19%. This growth was primarily driven by an annual pricing and packaging event. We maintained very strong leads both in Lithuania and Estonia. Our platforms are respectively 24x and 15x bigger than competitors. Let's take a look at Jobs and Services. Jobs market stays active. The unemployment rate remained at a very low level of 7.6%, and average wages have grown significantly, increasing by 10% over the past year. The market continues to provide a favorable environment for our business. Companies are investing in their recruitment and retention of employees. As shown in the bottom right chart, our customer base grew by 2% and average revenue per customer increased by 12%. As you know, Services segment represents C2C part of our Jobs and Services units. You can see the chart on the top right. This segment is the smallest one, but grows rapidly, both in volume and yield. The number of active apps increased by 9% and yield grew by 19%. Our job board maintained a strong leadership position with a lead of 5x over the closest competitor. And this time, we also reported the lead of our biggest vertical, Services vertical, Paslaugos.lt. The main competitor is Services category of our own Generalist Skelbiu. As you can see, Paslaugos is 2x bigger. Our main Generalist Skelbiu in Lithuania accounts for 70% of the generalist business line revenue. It is important to stress that it is not a typical generalist. Approximately 75% of its revenue is derived from vertical categories, Automotive, Real Estate, Jobs and Services. Therefore, Skelbiu competes with our own market-leading verticals. As Lina said, Skelbiu ranks as the 6th most visited websites in Lithuania. We strategically leveraged Skelbiu to strengthen our vertical platforms. We have the cross-listing, which generated high-quality traffic for our vertical platforms, strengthening them even more. Generalist platforms experienced moderate growth. We had 6% less ads than a year ago. However, we increased yield by 12%. And our lead over the closest competitor in Lithuania remains as strong as ever of 19x and in Estonia 3x. As always, we are rolling out a lot of improvements to our platforms. I would like to mention a few of them in the next 2 slides. Starting with autos, in Autoplius, we have introduced a market demand assessment tool for dealers. This tool leverages the platform's data to generate the score that reflects supply and demand conditions. Additionally, we have enhanced our support for dealers by offering a car buying tool. This tool facilitates the sourcing of the vehicles from within our platform. Furthermore, a car history check service have been incorporated into their premium B2C packages. At Auto24, we have introduced value-based pricing for our basic B2C package. It features a similar logic of C2C value-based pricing. Price per slot is higher for more expensive cars. Additionally, we have broadened its cooperation with our partner bank to enhance car financing products by offering a bullet loan option for car buyers. At Aruodas, we have implemented a segmentation system for C2C self-service customers, which I have mentioned it before. It allows us to apply different monetization strategies for different segments, like private sellers, developers and agents. Additionally, we have introduced a new B2C package specifically designed for co-living projects. At KV, we have significantly upgraded our map search functionality. We improved accuracy and focused on user experience. We have also elevated the quality of our listings by integrating data from the state registry. This streamlines their listing process and also minimizes inaccuracies. Let's move to Jobs. At Cvbankas, we have developed a proprietary AI matching tool. It leverages large language models and custom embedding technology to match job offers and CVs. We already utilized the model to recommend the best applicants for employers. It saves our customers' time needed for hiring. The model has a wide range of potential applications, including advanced search in CV database, recommending job offers to both active and passive job seekers and more. At GetaPro.lv, we have introduced a value-added service that allows service providers to boost their visibility -- to boost the visibility of their listings. At Skelbiu, we have improved our fraud prevention program by incorporating additional security measures into the buyer-to-seller chat application. Users are now required to verify their identity in case they are sharing some sensitive or potentially fraudulent information. Otherwise, users cannot continue in the conversation. Now I would like to hand back to Justinas to finalize our presentation.

All right. Thank you, Simonas. The underlying markets we operate in are in a recovery with improving macroeconomic environment driving demand in the autos, real estate and labor markets. The inflation has slowed down and the region returned to real wage growth with increasing in customers, consumers' purchasing power. In addition, it's important to remember that the Baltics has been the fastest-growing region in the European Union over the last few decades. This is largely attributed to high export growth, vibrant employment market and a strong credit profile, both public and private. This environment has created a great opportunity for our customers as well as our company to take advantage of the growth and generate profit. Looking forward, the Board remains confident in the outlook for the second half of the year, driven by the successful implementation of pricing and packaging changes and continued momentum across our businesses. For the second half of the year, the Board is expecting the revenue growth of at least 15% with Autos, Real Estate and Jobs & Service segment projected to grow above this target, while the generalist category is expected to grow below the overall group average. Growth will primarily be fueled by B2C ARPU and C2C yield expansion with inventory levels anticipated to remain in line with those observed in H1. This implies an upgrade to full-year revenue outlook, after the overperformance in H1. The Board expects EBITDA margin for the financial year 2025 to expand by 1 percentage point compared to last year. In terms of capital allocation, the Board remains committed to its current policy, prioritizing the use of excess cash to both reduce the gross debt and continued share buyback program, particularly in the absence of compelling M&A opportunities. Thank you for attention. Now it's the time for Q&A.

[Operator Instructions] And the first question goes to William Packer of BNP Paribas.

Justinas, Lina, 3 questions from me, please. Firstly, it's great to see the outlook upgraded. Could you help us think through the inventory assumptions underpinning your H2 guidance? Should we think, for example, you're assuming flat inventory? If so, isn't the upside risk particularly in Real Estate? And remind us, is your model as simple as a 10% growth in inventory leads to a 10% additional growth in revenue? Secondly, inventory has been a tailwind for some time, which is very welcome. But for some of your classified peers, they've had more challenging inventory trends recently. How do you think about derisking the business from a reversal or weakness in inventory, which may come down the road? Is that a strategic priority? Or should we think of inventory volatility as a fact of life and it's the job of ARPU growth to outweigh that when that comes? And then the final question on M&A. The tone seems to have changed again. Is it fair to observe that you're stepping away from doing deals as the competition for assets, and therefore, prices is simply too high, and therefore, back to focusing on returns? Any color there would be helpful.

Thank you, Will, for the questions. As always, quite a long list. Hard to remember all of those, but just made a note. But just remind me if you want to elaborate on any of those. So on the outlook, I think that you are very correct. In the second half of the year, we expect that Real Estate will outperform given the current performance and successful C2C and B2C pricing events. The inventory levels in the second half of the year, we expect to be same as in the first half of the year. So inventory levels, kind of we assume that it will be flat or growing low single digits. Also talking about the inventory, inventory had already a minimum impact in the first half of the year. If you see, the number of ads grew low single digits because we need to look at the list, number of listed ads and number of business customers to make a right assumption. So basically, already this year, we are back to the normal level of inventory, and the growth in terms of inventory is expected to be -- to grow in line with macroeconomical, let's say, GDP growth. On the -- I think that the marketplace business has great -- it's in a great position. Basically, when you have a headwind of inventory, so it means usually the macro is performing very, very well. And when the macro is performing very, very well, so usually, the marketplace press more at pricing lever. In opposite, when you have a tailwind of inventory, it's likely that the macro or underlying is performing less well, but many have a tailwind of inventory growth and which also helps you to grow the business. So basically, in both scenarios and both macro scenarios, the leading -- strong leading marketplace have the tools to grow the business. And basically, until there are not really huge variance, for example, I don't know, unless the economy is not skyrocketing or not crashing completely. So the sweet range for the marketplace, it's kind of quite large. Basically, we can perform quite well with minus 2 macro or plus 2 GDP growth macroeconomic environment. And the third question on M&A. I wouldn't say that our tone is lowering. We are interested in M&A, and we are looking at different M&A deals. I guess maybe after the first half of the year, our tone was a bit higher because we knew that there will be an attractive asset coming on the market, which it's likely we will participate in the competition, and we did participate. But we kept all our criteria being disciplined in pricing. We're being measuring and benchmarking the quality of assets compared to our own assets. And in the end, we did not win that asset. But thinking about -- looking at the past, we look not at a single target. We looked at quite a few of them in the last 3 years. And I think that we will continue the same practice, but also keeping the discipline in line. I think that I have said many, many times that we are very fine not to acquire anything, but continue with our share buybacks because we think that our company and our shares are highly valuable and our assets are really premium assets. At the same time, if there will be an asset acquirer, we will look at it opportunistically if we like their market position, if we like -- if we think that it's reasonably priced, then we will look at it.

[Operator Instructions] And the next question goes to Ciaran Donnelly of Berenberg.