Enento Group Oyj (ENENTO) Earnings Call Transcript & Summary

Good afternoon, all, and welcome to Enento Group's Second Quarter 2020 Earnings Webcast and Conference Call. My name is Pia Katila. I'm Asiakastieto Investor Relations Manager. And I'm joined by our CEO, Jukka Ruuska; CFO, Elina Stråhlman; and Head of Financial Planning and Analysis, Antti Kauppila. We will first go through our Q2 presentation, followed by Q&A session. And for your information, all the presentation material is now available on our investor pages, and the recording, later today. At this point, I will hand over this to Jukka Ruuska. Please, Jukka.

Thank you, Pia, and a very warm welcome to our second quarter presentation. And even though this is second quarter, so this is the very first presentation under Enento name, so Enento name was changed in June. It has been quite unusual circumstances with COVID-19, as we all know. And I think that the key messages -- the key highlights from the second quarter is that, first of all, our resilient business model. And that was supported by our own fast actions, and those actions has meant that we have been able to adopt our base working to these changing -- or circumstances. And one of the key evidence of that is that we managed to launch 20 new services during the second quarter, which was great. And then as already mentioned, so clearly, one big thing was to decide to change the name at the General Meeting in June from Asiakastieto Group to Enento Group. But let's have a bit closer look at the second quarter. Let's discuss Enento briefly on a channel basis and then let's concentrate to the financial development. And this is Enento, as most of you recognize. And we have the long history, more than 100 years back in history. And then to the new trend. Obviously, the first question is why the change in brand, why to make life more difficult? And the key reasons for changing brand are, first of all, that we want to highlight our Nordic characteristics. Now once we have been broadening our business in the Nordic region, we have become a true Nordic player, and the new brand is highlighting that. The other aspect is that, concurrently, more clear majority of our customers and majority of our employees as well have great difficulties to pronounce Asiakastieto Group, and that is not how it should be. So definitely, we want to have easily pronounceable name and a name you can recognize. And now we have started the journey to really bring Enento as a known name and brand. And clearly, what we have built in our message and including logo is that we are building on data, but then we are creating trust with our data and transparency offering. We have also very recently disclosed our new strategy, and the certainty was discussed more in detail in the first quarter result briefing. But something I would like to repeat is that our reason to exist, our mission, is to build trust in the every day. And trust is the key in order to make transactions life easier. And trust is based on transparency. And what we are providing with our services is transparency, and that is truly building trust, and we are doing that in every day. Briefly to Enento in general. So as already mentioned, so everything is based on data. We are providing only data-based services. Data is the common denominator in our activities. And then we are processing data with our intelligent algorithms, with our systems. And then we are providing it as services and, all the time in great -- to the greater extent, as solutions for our customers so that they are easy to use. In terms of our competitive advantages, so the very basic thing is in data collection, data acquisition side. So we are collecting data from multiple sources. And in this data collection, our brand is helping us, since we have been for a long time in our marketplaces. For example, companies from which we are collecting a lot of data are trusting that we are using that data in a correct manner and that it's beneficial for companies to release their data for us. We are processing our data very carefully, and that is the key why we can broadly say that we have great quality data. And it means that we have very robust procedures and systems, verifying the correctness of the date. And in our business, it is usually said that the s*** in means s*** out, so the data quality is a must. Nowadays, we are collecting a lot more and utilizing a lot more unstructured data, like, for example, data from Twitter is one of those examples. Then one topic we haven't been actually discussing that much is that our data architecture is built on granularity, and it means that all data is stored in our database in such so small units as possible. It's as granular general as possible. And it means that once it's in atoms in our database, then we can build all kind of services from that data flexibly and everything. In terms of production, the high available is the key. And many of our customers are using our services to run the main businesses, i.e., our services are mission-critical. And we have been able to keep extremely high service availability and quality. And respectively, keeping high security standards and respecting data privacy are the key requisites for us as operators. And service development is something that we have put a lot of effort, and we are putting. So it's a very central position in our strategy. And it is based on very tight dialogue with our customers. So we don't believe that you can sit by your desk and invent great things. The best things are coming in interaction with your customers, and that is something we are doing a lot. And we have been able to launch services, which we do consider as world-class services, like the corporate responsibility or ESG report on nonlisted companies. And then on distribution and sales. So to a large extent, our revenue is coming from services, which are integrated to our customers' production systems, production facilities. And that is extremely efficient way to do it, but it is also a sticky way to do it. And then in the other end of our distribution. So we have more than 6 million unique visitors on our Nordic websites, and that is a huge clout in the Nordic context. These are our business areas, and this is our offering. And then we are getting closer to the quarterly things and numbers. So our growth rate during the second quarter was 3.4%, and that is something that I would consider decent under these corona times. In terms of integration and business development. So on the integration front, we proceeded according to plan. And as I was already mentioning in the very beginning, I think that we have managed to continue our business development in a very efficient manner, meaning that we were able to launch 20 new services during the second quarter. And the share of new services on our entire revenue was 4.9%. So we are proceeding on that side according to plan as well. And as we have been indicating, so we expect the new services share of the revenue to be higher this year compared to last year. And then let's get some taste bites on our new services. First, corona company report launched in Finland is our first seasonal service, seasonal product. And that seasonality is related to corona. So it is to serve our customers on the corona times as smoothly as possible. And it means that we have been collecting to that kind of data that is most fast-moving, most up-to-date, but we have also increased new data being relevant to these times. For example, this new report includes state on corona subsidies and governmental support for companies. So if a company has received that kind of subsidies, it is visible in this report. Then we have a new service in Sweden. In Swedish, called [Foreign Language], which is a bit easier name than the English one, Housing Society Service web application. But nevertheless, the point of the service is that, with this service, you can get information to get understanding what is the financial condition of your housing company. In Sweden, they are called as [Foreign Language]. And that is directive for consumers, so consumer can check either her or his own housing company, [Foreign Language]. Or if she is looking for a new apartment, what is the financial state, financial conditions or that possible new housing company. We launched as well in Sweden a new exciting service, and this is as well directed for consumers. And it provides possibility for consumers to monitor their data in dark web. And for ordinary consumers, like for me, I don't have a clue how could I get into dark web. But there can be data, and most probably is, of many of us. And with this, you can check it. And we are going to provide this dark web monitoring service to Finland as well during this fall. Then if we go to financials during the second quarter, we already discussed the growth. So 3.4%. Let me discuss the contents and drivers for growth a bit later. In terms of profitability, so adjusted EBITDA grew by a bit less than the top line, 2.3%. And the reason why EBITDA was growing slower than the top line was, first of all, the impact from Proff acquisition. So this is the last quarter when the numbers -- comparison numbers are not including Proff numbers. So Proff was consolidated from the third quarter last year onwards. For the second, during this corona time, our sales mix have been changing slightly towards that type of services where we have higher sales cost, i.e., the sales commissions are higher. And then also our organic growth rate has been low, and that means that our usual operational leverage is not working. And then we continue to have higher IT costs. And then we have been investing to do marketing activities as well. In terms of EBITDA, so we had EUR 1.8 million one-off costs, which has been exhausted in our adjusted EBITDA. And almost entirely, those costs came from M&A-related costs, expert -- external expert costs. So that was the address of those one-off costs. Then if I now look at the growth and growth drivers. So the right-hand picture over here is the most interesting one. And this is, say, a different way to show this. And for this quarter, we had sort of items, elements of headwind and tailwind. The key headwind was coming from COVID-related economic impacts, i.e. that at when -- and the corona and the virus has been slowing down economic activity, so it does mean that our volume component has been significantly lower. And that has been visible, especially in our risk decision and in consumer information services, which was declining both in Sweden and Finland. In Finland, the decline was much clearer due to the new regulation that came in connection with corona disease, i.e. that in Finland, and the interest rate cut was taken from 20% to 10% level, and it has had a significant impact to consumer lending market in Finland. Another area where we definitely had sort of major headwind was display ad sales. So there was a significant decrease. Then the area where we have had tailwind is, on the one hand, that kind of countercyclical impact we had, had in business information, especially in Finland. And that also result of sort of high-risk knowledge, recognition of eventual risk. And also that we were able to provide our services for corona-related purposes like the governmental subsidy decisioning. Another area with good growth is our Swedish consumer business, even we are providing the direct to consumers, our services on an online basis, it was growing very nicely. And then on addition to that, our digital processes offering was growing well, both the housing and compliance-related parts. And then on the bottom, we definitely have the Proff acquisition. So there was this kind of an organic growth component as well. And I was discussing, to a large extent already, actually, the business area specific growth drivers, assets. So with risk decision, consumer information services down due to the sort of lesser activity level, but also that the risk appetite among the providers was lower. But then there was this kind of count element from business information side. On SMEC, SME and Consumers, the Proff is consolidated. So Proff is the key component. Digital processes growing very well. And then customer data management declining on the B2B side and in [indiscernible]. However, the Finnish business on consumer side was growing. Then looking at the margin and components on margin cost components. So first, concerning the materials and services. So that cost was growing by 6.6%, i.e., clearly faster than the top line. And the reason for that is that we have been collecting new data, and we have been improving our date all the time. In terms of personnel expenses. So there is many transactions, which are -- or actually, 2 transactions, which are having an impact. So first, we acquired Proff, training with the Proff personnel. Roughly speaking, 66 persons. And then we outsourced Affärsfakta telephone sales activities in Sweden, which is, roughly speaking, 100 persons. And then on top of that, so we have been bringing some additional cost savings. Operating -- other operating expenses have been growing significantly. And to a large extent, reflecting this change of Affärsfakta from own operation to do outsourced operation. i.e., that entirely cost base was converted into other operating expense. The Proff impact is there, likewise, the IT cost increase that continued. And that is something that we are definitely aiming to discontinue. And then the marketing costs as well. Free cash flow, 5.2%. And then looking at our leverage and balance sheet. So the net debt in relation to adjusted EBITDA at level EUR 0.3 million, which is our targeted area. So that is exactly now at the target. And on the investment side, we kept investing, roughly speaking, as much as previous year. And actually now, we have decided to get a bit higher than what we decided when were building our corona contingency level. So if the original investment budget was over here, then we took the safety measures when we didn't have visibility. But now we are daring to increase our investment level somewhat again. I think that I don't go to COVID things more. Something I would like to finalize this presentation is the resilience. And as I started by saying that the second quarter has shown that we have resilient business model. So it is based that, first of all, on the fact that risk-management services are counter-cyclical and thereby, resilient. i.e., you are needing risk management services during the good days and bad days. But clearly, when the things are getting worse, then also the intensity and interest for risk management tends to go up. Then we have quite a lot of things that are noncyclical. And one of the things bringing noncyclicality is that with many whole services we are providing, we can also create cost savings. I think that this digitalization of housing processes is an example, excellent example. And it provides significant cost savings, cost savings to banks and real estate brokers. And then we have that kind of must-have offerings, which have also this counter-cyclical or noncyclical characteristics. And compliance services are a good example of those. And then the sustainability services, which we are investing in, I think that, that will be in this category likewise. So this was the presentation part. And now it would be time for questions.

Okay. We are ready for the questions, and we start with the questions over the telephone conference line. Please, operator?

[Operator Instructions] We'll now take our first question.

Sami Sarkamies here from Nordea Markets. Can you hear me?

Yes, we can.

Okay. I have 3 questions. Firstly, on the guidance, what gave you the confidence to issue new full year guidance after Q2 report? Is this driven by bottoming out of initial COVID-19 impacts?

Good. And if you take the first -- one question per time, so I think that it's better -- easier to remember at least the questions. Yes, indeed. So we dare to provide guidance. And in terms of the guidance, the reason is that now, we have seen at least during the second quarter, what are the impact and how this kind of virus pandemic is impacting the economic conditions and society as a whole. And the underlying assumptions we have in our guidance is that we are going to see recovery, but a slow recovery. And it includes possibility -- or actually assumes that we are not getting rid of corona during this year. So we are co-living, co-existing with corona during the year. And therefore, we thought that we are feeling comfortable to provide this level of guidance.

Okay. Then my second question would be that do you see any pent up demand in any area of your business? Or should we regard Q2 weakness as lost revenue for the year?

So I think that, clearly, the areas where we have seen the most headwind, i.e., the consumer information services with risk decision and then the display advertisement activities. So the consumer information market is once again driven by demand. I think that basically, the demand is there. Then we have the offering side, i.e., that are service providers, the consumer -- lenders there. And at least our current touch is that we have seen sort of improving willingness, sort of improving activity in terms of lenders. And then the third is this regulatory front, i.e., that now we have in Finland this 10% interest rate cap in place. That is temporary, fortunately enough, and it will go to the end of the year. And now on those players who have decided to stay on market, they have been sort of consolidating the operations. And they know what they can do, what they cannot do. And therefore, I think that at least -- we think that we saw the bottom in more or less in the sort of earlier parts of second quarter. So we are slightly optimistic on that item. Then what comes to the display ads market. So I think that's more guessing. And I wouldn't expect too much change coming. And then in terms of those positive areas. So what comes to digital processes. So we have good reasons to expect the good growth to continue as well when it comes to the -- our direct-to-consumer offering in Sweden. And we hope, and I believe that also that will happen in Finland so that there will be sort of continued growth on that side. So -- and then what comes to business information. So that's very much now the question of economic activity in the B2B market. One additional comment -- and Sami, one additional comment is that, clearly, what we have seen now is that the housing market has been recovering fast, both in Sweden and Finland, and that is definitely supporting our business for those services needed.

Okay. That's very helpful. My final question would be, would it be possible to disclose the organic sales growth number for Q2?

We are not disclosing organic growth. But as a guidance, so the revenue for Proff, roughly speaking, SEK 100 million, and that is sort of the ballpark that has remained. So that gives you possibilities to make quite accurate estimate on that.

We'll now take our next question. Thank you.

This is Pete-Veikko Kujala from SEB. A couple of questions from my side as well, mostly relating to the cost side of the business. You mentioned in Q1 that you were going for roughly EUR 5 million of cost savings during the year. How much of those savings did we already see when you managed to achieve in Q2?

So our estimate is that we have reached some 80% of those cost savings. So actually, we have reached, but as a net impact because there are some other cost items having impacts. So we have reached, roughly speaking, 80% of those savings, but they don't materialize during the second quarter. So Elina, do you have something clever to say to this question?

Yes. So the savings are divided quite evenly between quarters. So I guess that's the best guidance that we can give on those.

All right. That's very helpful. And then the other question is also relating to the cost side of the business and especially the other expenses line. Looking after 2020, do you expect that -- basically that cost line to stay on the level of this year? Or is there something kind of extraordinary in the 2020 year that's going to inflate that cost line?

Did you ask concerning some specific cost line or generally speaking, costs?

Yes, other expenses.

Yes, other. I think that, generally speaking, it is a sort of normal cost base. I think that the only specific item -- or there are sort of 2 specific items. And well, I will take 2 steps back. So clearly, these changes that has come with structural issues, i.e., that we have the larger commission-based external sales force, that will continue. However, clearly, our goal is to decrease the customer acquisition cost by selling more subscriptions over the time, but that is a gradual change. And then those 2 cost lines we have been discussing, IT and marketing. And if you start with marketing. So for this year, we put some extraordinary monies due to our rebranding, launching the Enento name brand. So clearly, that is something that will not repeat as such. Then the sort of normal planning marketing activity is related very much to our direct-to-consumer operations. They will continue. Then on IT side, so I think that we have a bit sort of 2 conflicting trends. On the other hand, so we believe that we have had unusually high cost level on IT for the first half. On the other hand, we have to remember that we are in a process to rebuild our IT platform or replace our IT platform. And it doesn't happen over the night. So that definitely means that we are going to have sort of multiple or duplicate system to some extent during the coming years. And it will mean that the maintenance cost will be, on a temporary basis, higher. But that temporary period is some 3, 4 years before we are getting rid of duplicated platforms.

[Operator Instructions] It appears there are no further questions at this time.

Okay. Thank you for those questions. Pia, do we have some questions?

No. That was all.

No further questions. So thank you very much for this discussion, and looking forward to discuss our next quarter results then. Thank you.