Enento Group Oyj (ENENTO) Earnings Call Transcript & Summary

Good afternoon, all, and welcome to Enento Group's Third Quarter 2020 Earnings Webcast and Conference Call. My name is Pia Katila. I'm Asiakastieto's Investor Relations Manager, and I'm joined by CEO, Jukka Ruuska; CFO, Elina Stråhlman; Head of Planning and Analysis, Antti Kauppila. We will open this news conference with Q3 presentation followed by Q&A session. At this point, I will hand over this to Jukka Ruuska. Please, Jukka?

Thank you, Pia. And it's a great pleasure to be discussing with you Enento Group's third quarter results and outlook. And we continue to be under quite unusual circumstances also during the third quarter. But I think that thanks to our great personnel and Enento people, so this has been committed, so we have continued to work and continued to deliver. So that's great. Thanks for these great people. And same type of agenda. So I will be concentrating quite a bit on new services and related topics. And then as a specific theme, as a specific topic, for this quarterly review, we have customer experience. And that is a reflection of our customer-first theme, which is one of the key themes for us within Enento. I will be more or less jumping over on these general slides. They are something that you can entertain yourself with in your own convenience. So if we continue all the way to growth drivers and growth formula. And on a group level, so the third quarter was more or less flat, flat exactly on actual numbers and minus 1% with comparable ForEx rates. And this impact and the growth drivers for this quarter was very much coming from volume. However, this time, on a negative side, so our volume component was declining, especially with Risk Decisions business area. And the reason for that is this very obvious, i.e., COVID-19. And fortunately enough, that decline in volume component was almost compensated by new services. So we had a good growth coming from new services. So that is working, and we are delivering regarding to our earlier communication, which is great. And then we have been able to increase the penetration in some submarkets segments, for example, direct-to-consumer segment in Sweden has been growing nicely. Something we haven't seen is that kind of sense of urgency for risk management-related topics, i.e., speaking -- one can say that the economic activity has been going down due to the COVID situation. But then there hasn't been that kind of increase in the sense of urgency, that kind of perception and understanding of the increasing risk levels, a lot due from the fact that the defaults, both bidding consumers and bidding companies, have stayed on a low level. When it comes to the company, it's, I would say, on an artificially low level. And I was expecting increase to the company defaults already during this quarter. But at least, for the time being, there hasn't been signs of that, but still, I believe that, at some point, the default rate has to be going up because there's so many payments that have been delayed and, at some point, those payments has to be made. This is the quarter in a nutshell, but let's discuss those numbers more in the detail. As I said so, business development and new services is a key growth contributor to us. But before that, very briefly addressing the integration process, so we are following the plan and we are -- we have a continued comfortable feeling what comes to delivery of those communicated synergy benefits in the end of next year. And obviously, there are quite a bit more to be delivered in connection with our platform transformation program in due course. But that is not going to be during next year, but it goes further in time. Then in terms of the new services. So the share of new services was 6.3%. Auto sales -- net sales during third quarter, which is a good level and a nice increase compared to the earlier quarters. And for the full year, we have communicated that we are expecting to be on a higher level than last year, and that seems to be happening indeed. And during the whole year, we have been now launching 44 new services. And 7 of those new services were launched during the third quarter. And especially now with nonexisting or actually declining volume component, so this growth is extremely valuable. Then let's pick up a few examples of the new services from the third quarter. The first one is Customer Pro. And Customer Pro is sort of do-it-yourself service when you are looking after segment groups or communication groups on the consumer side. And there is another slide coming on that. Then beneficial owner monitoring service was added to our Swedish compliance service suite, and then ESG report was brought available also on an online basis, i.e., that it is actually now available for everybody who goes to our e-commerce or digital channel. But coming back to this Customer Pro. So we are running for noncredit purposes database on Finnish consumers, and that data is coming from multiple sources. And then now we have built this kind of data or user interface, which enables our customers, by themselves, formulate or build these target groups and audiences for communication and marketing. And then those can be used in various channels. And clearly, the point with this service is that this is making these services much more scalable than they used to be. So before the launch of Customer Pro, all these target groups and audiences were formulated manually. So it required a discussion between customer and our salesperson and then eventually with the person creating this specific group or audience. So this is making the process much more efficient and scalable from our point of view. And from a customer point of view, this means that these groups and audiences can be created [ 4 days ] and 24 hours. And also, the customers can simulate with this tool what kind of groups are they wanting to address. Then jumping over to the beneficial owner service. So now the anti-money laundering directive is requiring that in multiple transactions related to legal entities, a beneficial owner has to be defined. And the process is actually fairly complicated because there can be all kind of cross-holdings and that kind of structures. And also, for example, banks have obligation to monitor, i.e., to keep updated data on beneficial owners all the time, and now we are adding this monitoring functionality, so that our customers can automate that part of the process as well. Good. Then going to this specific theme of this quarterly report, and that's customer experience. And we have put great effort and focus on our customer experience. As always, there is plenty to do, and it will never get ready. But with this focus, we have been able to improve customer experience, and we have also brought more systematic ways to measure our customer experience. If you are not able to measure it, then you can -- you are not able to manage it either. And the first thing that we are now being implementing broadly is a touch point Net Promoter Score. And Net Promoter Score ratio tells which share of your customers are willing to recommend you and your services. And we have put a fair amount of attention in order to improve our customer dialogue and customer meetings and making it measurable. So now we are providing possibility and asking for feedback in the form of NPS from all our customer meetings and from all customer meeting points otherwise as well. And therefore also the number of responses -- respondents have been increasing. And now it starts to be on a level where it really tells what is the perception among customers. And the key thing is that we have been able to improve -- to use these measurements to improve the customer perception, customer experience on these meetings. And we are in a very good level at 70 currently. The other focus area for us during this year has been the new customers. So actually, in our analysis, we found out that the new customers, customers which have been our customers less than 1 year, are significantly on a low satisfaction level than the rest of the clientele core. And clearly, that is not how it should be. And it is also meaning that we haven't been able to commit to onboard new customers sufficiently or efficiently enough to start using our services or to understand the value and usage of our services. And therefore, we have put a lot of effort to this, simply to improve the onboarding process. And it means that, for example, we have built that kind of customer journeys to our marketing automation that you are getting automatically support, and there are also certain points when there is a sort of real-life contacting to the customers, for example, if the new customer is not using some particular service. Then we have been improving our material and a lot of other stuff as well. And as a result, during this year, we have been able to improve our Net Promoter Score ratio significantly among these new customers. And it's always positive to see that when you are putting effort, focus on something, then you are getting improvements. Then going to another angle of customer experience. And since new services development is in such a central position in our strategy and growth, so clearly, the new services development process is one of the key interfaces for us and our customers. And I would like to share one good example how we are working, especially now under corona situation, COVID-19 situation. This is an example of the development process of corporate information, company information, data-sharing platform. And the data to be shared is the amount of existing loans and other liabilities a company has. And the need has been coming from the fact that under corona situations, it would be highly beneficial to know what is the actual situation with the company, also in terms of the existing liabilities. And with this kind of customer data-sharing platform, it is possible to get real-time information for this to balance situation of a company. So that was the starting point. But it's not good enough that we are inventing something by our desks. We have to get customers involved and customers to guide us whether this particular area is, first of all, relevant; and for the second, how it should be executed. And in order to do that, so we invited, actually, all relevant players within this market to participate to a series of workshops. And actually, in the end, so we get more than 15 lenders to participate and contribute with it but, first of all, in a feedback for the need and relevance of this service but also for the service design of this particular service. And at least I think that the result was great. And now we are going to launch this specific new service in January, i.e., that from January onwards, lenders can ask with company's consent what is the liability situation in that company. So great process and great example of our development together with our customers. And then going for numbers, what were the key numbers? Already discussed, so growth-wise, so our top line on actual numbers was flat and with comparable ForEx, minus 1%. What was positive was that EBITDA grew by 4.4% on a little bit comparable ForEx numbers and despite the fact that the top line didn't grow and also that our sales mix has changed and changed that direction. For example, our SMEC business has been growing, and within SMEC area, we have that type of costs we don't have in the institution like customer acquisition costs and sales commissions. And as already mentioned also, the new services growth was good. We were about 40% in terms of the EBITDA margin. And the contribution for EBITDA margin and EBITDA growth were coming from the cost savings as a result of our contingency plan from synergies but also from the fact that the holidays, vacations are held nowadays more and more during the third quarter, which means that the vacation is coming more to Q3 and having a positive impact to costs. Our third quarter is always the strongest quarter in terms of the margin. And then if we continue to discuss the top line development of different business areas, our Risk Decisions business area was declining almost 7%, and Risk Decisions is the largest business area by sales, so that is definitely a very significant drop in terms of top line. And if we discuss a bit more in detail, so starting from the Finnish market. So in Finnish consumer market, so the key things, key drivers, for this decline was, first of all, that the demand for consumer financing was drying up. And my interpretation is that with those having jobs, being at the work, so actually, the possibilities to consume were much less during the COVID-19 times. No traveling to Spain, no parties of at least not the same caliber. Obviously, the consumers have been spending to home improvements and that kind of things, but it looks like that the consumption has been decreasing. And respectively, the appetite, the need for consumer financing has been decreased. And then we have those ones who have lost jobs or have been on temporary leaves. So clearly, for them, the situation is quite different. But there, the regulation on interest rate cap, setting the maximum interest rate level at 10%, is preventing actually a fair share of those persons from coming to the consumer market, the consumer lending market. And this temporary regulation has also meant that there are a number of players at the Finnish market who have stopped temporary the lending operations and some even completely. So it has had an impact to the market structure as such. On company side, flattish development, reflecting again the decreased level of economic activity. Companies are not lending. That was also visible in the statistics from Bank of Finland. And the transactions -- number of transactions between companies have been decreased. And also, those positive volume factors that we had during the second quarter, i.e., the changes to the existing loans, like changing the amortization scheme, so going for amortization-free period and so forth, it has been decreasing significantly. One could even say that it has discontinued during the third quarter. And also, the government-based subsidy decision volumes have been dropping very much during the third quarter. The housing and real estate market, and especially housing market, has been very strong in Finland, but it hasn't contributed to Risk Decisions since in Finland, the agreements with large customers are, to a large extent, fixed fees. So on the short term, it doesn't bring any growth. On the longer term, it should be reflected to the price levels. In Sweden, pretty much the same drivers, obviously, without this temporary regulation driver, negative drive, and as such, a deep decline in terms of the Risk Decisions net sales. With SMEC, always peaking, 5% growth. And the key contributors for that growth are D2C, direct-to-consumer, business in Sweden; and also the SME business continued to grow. Even the display market has been recovering, to some extent, at the latter part of the quarter. Then Digital Processes, very handsome growth. And here is the winner from the housing market situation. So the housing volumes and record volumes both in Finland and Sweden is reflected to this growth plus the great new services we have been launching within the Digital Processes area. And then Customer Data Management, slightly on plus, roughly speaking, 4%. And the growth driver for CDM was this noncredit consumer business in Finland, which was growing nicely. Then going more in detail to our EBITDA. So as already mentioned, despite the declining or declining top sales -- entirely declining top sales on a comparable ForEx basis and this mix change, i.e., that Risk Decisions is declining and the growth being on SMEC, so we managed to grow our EBITDA. And that impact is coming from the costs. In terms of the materials and services, the decline is reflecting the decline in our Finnish consumer business on credit side because in Finnish credit information business on consumers, we have to always go after certain data elements, which have variable cost. So when the volumes are dropping on that side, so it has a positive impact to our materials and services cost. Personnel expense is down as a function of, i.e., Swedish telephone operation outsourcing and this vacation salaries and then other parts going down as well. And then we have had some of these automated savings like traveling, so no traveling costs for time being. Strong cash flow during the third quarter. And respectively, the ratio between net debt and adjusted EBITDA at level of 2.4. And the cash conversion, roughly speaking, 75%. Then if we go to our guidance. So what we are guiding is that we are going to grow for the full year. And that applies still. And clearly, the second wave of corona has made visibilities somewhat less. But nevertheless, we are very comfortable to be growing as such the full year figure. And then that in terms of the margin, our EBITDA margins, so it will be at the same level as last year. And clearly, it means that for the fourth quarter, so the margin level is -- margin growth or EBITDA growth is getting more normalized. And then finally, reflecting this few and expectations behind the guidance and also reflecting the strong cash flow we had in third quarter, so the Board decided to use the authorization to pay additional distribution of funds, meaning that we are going to pay this year the same dividend or distribution of funds as we did last year. So that was all I wanted to highlight. Now it's maybe time for questions.

Okay. Now 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 the first question.

This is Pete-Veikko Kujala calling from SEB. Can you hear me okay?

Yes.

Hello?

Yes, we do.

Excellent. I have a couple of questions, but let's, for example, start with a more general question about the recent topics. Can you give any comments on how the Vastaamo data bridge has affected you or your demand for your products on the consumer side here in Finland?

Yes. Clearly, the Vastaamo data leakage, so for those not being familiar with the case, so there was a very sizable data leakage from a mental health service company called Vastaamo. And this incident brought the cybersecurity and data privacy issues to very much discussion in Finland. And it did mean also that those persons or victims of the leakage were very concerned about their personal information from a fraud point of view, i.e., that, that information would be used for identity theft. And therefore, there was a lot of actually huge increase or traffic at our D2C site, Omatieto, and also the sales were coming -- going up. And then together with Vastaamo, the company, we made an arrangement that jointly we provided free of charge these security services for those victims of the leakage. And it will contribute some growth to us over the time period. But I think that more importantly, it brought the knowledge, the importance of this, and also brings a great platform to keep growing with the B2B, B2C or direct-to-consumer offering in Finland. And now I have to advertise that we are actually launching also a dark web monitoring service for Finnish consumers in near future, which enables then individuals to check whether their data is available for sale in a dark web environment. So some growth, but the key thing is that we could help the victims of the leakage. And I think that this is going to -- this increased the knowledge of the audience in Finland a lot of these threats and the need for these services.

Yes. All right. And of course, it's getting late into the year, and you have your guidance, so we can do our calculations from that as well. But could you give some comments on how you see, of course, on the other hand, the current demand situation in your business? But also are you more relaxed with the cost base right now? So are you basically investing again? And how aggressively are you still kind of on the cost savings side?

Yes. In terms of the current outlook for the future, so we are very much in a situation where the customers are a bit living in the middle. So not too much is happening, i.e. -- and what I mean with that is that from our point of view, the best business environment is that when the economy is growing nicely, and then we get the volume growth component coming from that. Then the second base is that things are getting sufficiently awful, i.e., that there is such a decline in economy that it creates that kind of sense of urgency, and that is not the case. And then that means that we are in the middle and sort of with fairly modest level of transactions in the economy and still, on a comparable basis, declining GDP. And then from a volume growth point of view, that is the diverse alternative of these 3. However, we definitely expect a good contribution from our new services also in the future and being able to offset this dull environment with new services, to a large extent. Then what comes to our costs and level of comfort with costs, so I think that we are still sticking to the quite hard discipline on costs. However, what we have done is that we have been pulling some speed to our CapEx, and that is something we are going to continue next year, i.e., that we are investing to our platform renewal program, so that we can really be sure that we can be ready at some point, and so that we can retain sufficient investment to our new services development and do some cost savings items as well. So to summarize that, so on OpEx side, we want to be strict, but clearly, we are accelerating our CapEx.

Yes. Understood. And last one from me, a bit on the strategic side. Bisnode, your -- possibly you main competitor was acquired by Dun & Bradstreet not too long ago. But do you see any changes in the consolidation space in the Nordics? Is there increased pressure to consolidate between the countries now? And any thoughts on this deal?