Ströer SE & Co. KGaA (SAX) Earnings Call Transcript & Summary

Dear, ladies and gentlemen, thank you for joining our Q4 results call today. Together with my Co-CEO, Christian Schmalzl; and our CFO, Christian Baier, we will present our preliminary figures and business highlights for the fiscal year 2019. First, I will comment on our main KPIs of the fiscal year 2019 and our Out-of-Home plus strategy. Christian Schmalzl will give you a business update and will talk you through our key initiatives of last year, organic growth areas and business highlights. Finally, Christian Baier will present the details of our financial performance and the outlook for 2020. 2019 was again an excellent year for us, for the company and for our shareholders. We have never been stronger, we have never been better positioned and we have never had a more superior perspective than today on the basis of our Out-of-Home Plus strategy for the coming years. We are quite satisfied with the achievement of 2019, meeting and exceeding our targets and guidance for the full year. It is our ambition to make sure our long-term success story and to continuously increase total shareholder value. The results of 2019 are strengthening our foundation for sustainable and profitable growth and to outperform the German media market. For the full year 2019, our revenue grew strongly by 5% from EUR 1.508 billion to EUR 1.591 billion. Organic growth was remarkable 7.1%. These figures are fully in line with our guidance and the clear proof point of our strong market position. The adjusted EBITDA increased by 6% from EUR 538 million to EUR 570 million. Our adjusted EBIT showed a positive development and increased by 5% from EUR 266 million to EUR 280 million. Adjusted net income increased as well by 6% from EUR 199 million to EUR 210 million. Operating cash flow in 2019 went up significantly by 18% from EUR 410 million to EUR 484 million. The net investments of around EUR 114 million are in line with our CapEx plan of 6% to 7% of sales. Based on the strong operational performance and our ongoing financial discipline, we were able to reduce our net financial debt slightly from EUR 1.561 billion to EUR 1.542 billion. With EUR 548 million, our bank debt remains on a very conservative level. We focus on our sustainable growing core business, Out-of-Home. Out-of-Home has a strong and stable momentum in Germany, with positive forecasts of all major analysis from Zenith, MAGNA Global, [ Disney ] and IPG for the next and upcoming years. Urbanization is increasing and mobility is growing in Germany, which drives audience and reach for out-of-home. Digitization and the related change in media consumption does not affect out-of-home negatively. It's the other way around, especially digital out-of-home, which step-by-step becomes the lead channel for brand advertising. For the first time ever, TD market shares are beginning to decline in Germany, and we are confident that we are at the start of tectonic shift of the German media landscape with Out-of-Home being a structured winner of that development. On the back of this, we are leveraging organic growth opportunities. We are benefiting from growing regional and local demand of small and midsized enterprises. Our structural investment in state-of-the-art do-it-for-you sales and ERP systems as well as the huge local sales force are paying off. On top of that, more and more demand-side platforms, DSPs, are being connected to our digital inventory, and that by itself is growing day-by-day and would even grow much faster in the very near future, as we will point out later. Furthermore, we see no relevant M&A activities for our group in the upcoming quarters. Focus remains to reduce dilution of our management resources. That is why we disposed non-German businesses and some smaller e-commerce models that have been too small or too volatile for us. Within Direct Media, we are focusing on sales services instead of inbound services as this is more profitable and present better opportunities for integrated solutions for our clients. Besides our core business, we have 2 highlight assets in our portfolio: Statista and Asam. Revenue of Statista grew as forecasted by 30%, fueled by strong growth in all geographies, supported by new products and services in 174 countries. Asam also showed a remarkable revenue growth of 18% at an EBIT margin level of around 20% in a competitive market with more and more business on the own e-commerce platform. We are very happy with the sustainable business models and the successful founder-led management teams. We are convinced that the companies will contribute significantly to our total shareholder value strategy. The picture shown here is a great example of the success of the globalization strategy and especially in Statista's single largest market, U.S. Also the White House relies on Statista content in the meantime. Apart from our strong execution, the structural growth momentum for our Out-of-Home is giving us sustainable tailwind. In the last 8 years, the share of Out-of-Home within the total ad market grew from 3.5% to over 7% in Germany. And also, the market entry of Google, Facebook and meanwhile also Amazon has clearly changed the media landscape. Out-of-Home has constantly outperformed the overall ad market. Our leading position in the German out-of-home market has furthermore helped to also outperform all our local peers, like TV and print. It's remarkable to even look at the quarterly growth rate of Out-of-Home versus the total ad market. Quarter-by-quarter, over the last 3 years, including 2019, Out-of-Home grows 3 to 4x faster than the total ad market in Germany. It's not only the historic long-term trends that gives us confidence. As already mentioned, the advertising market context has changed over the last 6 to 12 months. 2019 was really a year of new dynamics. After the ongoing decline of print over the last decade, linear television is stagnating when you look at Nielsen data and cross billing. The reported net numbers show the full picture. TV is going backwards by roughly 4% to 5% at the moment, with no positive outlook for the future due to the massive success of platforms like Netflix, Prime, Apple TV or Disney+, that will launch in Germany soon. Latest forecast from Nielsen and other market research companies are underlining this trend, and we are convinced that Out-of-Home will continue to win market share, driven by digitization as well as automation and outperform the ad market in the next 5 to 10 years, at least at the pace of the last 3 years. Ultimately, we want to increase our overall share of wallet and, therefore, incrementally push Out-of-Home, especially when more and more clients challenge the current focus on TV on how to better optimize the video advertising investments. It's interesting to see some trends amongst our top customers in 2019, which might also give indications for coming development. Many key accounts that reduced TV advertising, simultaneously increased their out-of-home share. And even if TV, like in the case of Amazon and Volkswagen, is benefiting from increasing spendings, out-of-home is growing faster than ever. Within the out-of-home market, we believe that our Out-of-Home plus strategy is globally quite unique. There's no other company that delivers on the following key KPIs like Ströer does, a focused company with a really robust advertising market and low volatility, even in times of changing macro environment, fully consolidated out-of-home market with only 2 relevant players and a very high entry barrier for potential new players. The market share of the leading company in Germany, Ströer, is clearly above 50%. National campaigns are not possible without the national market leader. Proprietary tech deck and the programmatic capabilities from many years experience in the online business and significant digital programmatic volume with DSPs as part of the sales organization. The scalable local sales force to address the huge local print-dominated SME market. Strong share of wallet with key accounts through a combination of out-of-home, online, mobile and direct marketing accelerated recent decline of competitive media, opening up new growth opportunities. And the long-term protected premium portfolio to benefit overproportionately from the future digitization of out-of-home. All that is what Out-of-Home plus is about, and we are currently ticking off our boxes. Also, a couple of strategic parameters have obviously changed over the last 18 months. We are quite consistent in our focus on operational excellence. For 29 quarters in a row, we delivered robust organic growth. Let me now hand over to Christian, who will explain in more detail our operational focus areas in 2019.

Thank you, Udo. And the results of 2019 also set the guidelines and focus area for 2020. First of all, we massively invest and prioritize the digitization of our infrastructure. We kept our plan to add 500 new premium screens, indoor and outdoor, by the end of 2019. Leveraging tech and data in a smart way to increase sales force is our second focus area. The further acceleration of tech sales and programmatic revenues for our Digital Out-of-Home product remains key. In 2019, we already generated more than 1/4 of public video revenues via DSPs and trading desks, one of the key reasons that public video grew beyond 30% and attracted completely new hardly cannibalizing budget. Thirdly, the further ramp-up of local sales resources was and remains the #1 sales priority. We are on track with our growth plan, despite the ongoing challenge that the number of employment-seeking citizens in Germany has been historically low. Finally, the combination of out-of-home with online and direct puts us in quite a unique position, and we work hard on increasing our client relevance and maximizing our share of wallet, especially amongst our top key accounts. The further optimization of the online as well as a stronger focus on sales in our Direct Media segment will support this in the future. The broad range of over 20,000 long-term portfolio out-of-home contracts is a strong foundation of our operations, and with our acquisition team, we've added another 1,350 top locations on private ground in 2019. This gives us even more flexibility to digitize the right inventory to deliver top-class advertising solutions for our clients parallel to profitable allocation of CapEx with reasonable payback times. The constantly decreasing prices for digital out-of-home displays now gives us the opportunity to start the digitization of our premium roadside inventory on a bigger scale since the digitization of our indoor locations via our public video product is almost completed. We already saw the huge digital upside for the out-of-home industry 25 years ago when we introduced 9 square meters poster scrollers to the German out-of-home market, anticipating that the premium locations would be exactly the ones which also would have the necessary quality and audience frequency for digitization and LED technology on a later stage. After 10 years, ongoing strong competition for big-format premium locations in Germany in the early '90s, we were very satisfied to secure a market share of more than 90% in the premium 9-square-meter market in cities with more than 100,000 inhabitants. In 2019 and early 2020, we got substantially more permissions to deploy our digital roadside infrastructure, all locations being in the forerun now will become operational in the upcoming years and contribute to our further growth. The extremely positive development of programmatic revenue streams for our Digital Out-of-Home inventory is another proof of the smart integration of out-of-home and online. It has become a constantly growing base part of the business and when you look at the year-over-year development of programmatic digital out-of-home on a weekly basis, you see more and more weeks with clients allocating bigger budgets that used to be exclusively on TV before. And there is one aspect that clearly differentiates us from other out-of-home peers. No one else around the globe has a nationwide video network that reaches half of the population in all key cities. We have our products at the most frequented locations in the country. No matter if you look at Hamburg, Munich, Berlin, Frankfurt or any other top city in Germany, the frequency at the train stations, which built the backbone of public video, is 3 to 5x higher than in the respective high streets in the city centers, and we constantly develop new public video product features. Dynamic creation allows us to be super flexible in our system, pretty close to how clients are used to advertise online and mobile. Creators can apply in near real-time to the current relevant context. Audience-based targeting leverages the assets that we uniquely built in our data joint venture with the Otto Group. We are able to target very specific audiences in near real-time along their customer journey in out-of-home broadcast and can then activate them online or mobile. A first-party and fully GDPR-compliant data pool with the unique Ströer ID gives us a very complete picture of key audiences and will further improve targeting. As we showed in the previous quarterly presentations, the biggest sources of revenue in the local and regional media market are traditional media like newspapers, freebie weeklies, radio, printed directories and telephone books or printed direct marketing and fairs, all those media are facing massive structural challenges. To further penetrate this local and regional ad market, we continue to increase our overall sales force capacities and are on track exceeding our goal of 1,000 people at the end of 2019. Despite the strong national sales development, we generated slightly more than 60% of revenues via regional and local customers in 2019. Over 54,000 active clients with an increasing share of multiyear deals makes us more and more independent from the short-term volatility of campaign-oriented large customers, even if upfront investments in the sales force have been and are necessary. Beyond the growing effectiveness per sales person, we've used 2019 to further improve efficiencies as well. We streamlined internal processes, automated collaboration between outbound sales and sales support and then developed and introduced a new digital front end for our organization. All client information from our CRM system, meeting calendars and KPI dashboards are integrated on the same platform and tablet that our hunters also use for their client meetings and presentations. They have live access to all relevant products based on availabilities, can therefore create by far more interactive client sessions, and ultimately, get a digital signature from the client for the contract, which goes directly into our ad ops and ERP system. Our new sales front end, we call it EasyS, will make our sales force faster and more flexible and will prevent us from hiring too many sales support managers. However, we still believe in do-it-for-you instead of do-it-yourself solutions. On the back of our strong out-of-home portfolio and together with our 2 support businesses, we've continuously improved our marketing and sales positioning over time. Our combination of out-of-home, online, mobile and Direct Media and the fact that all areas are growing, gives us confidence for the coming years. In addition, there is no other sales organization that is combining a leading national position with a full nationwide local sales infrastructure. We are the only player in the market with full access to every single client from the largest to the smallest advertiser in the market. We are maximizing our share of wallet by investing in incremental key account structures, which service marketing teams almost like agencies, deliver strategic advice and planning as well as creative or production services out of one hand by bundling our offerings commercially and by leveraging existing contacts and client insights to cross- and up-sell with and across our different media categories. The Vodafone virtual store, Facebook brand campaign and Google's award-winning real-time advertising campaigns are good examples of how powerful our integrated offering worked out. That said, we constantly review our products and make sure that we stay close to the needs of our clients. In the last 2 quarters, we've invested significantly in localizing our flagship portal T-Online, and today, we have 29 local city portals live to sell traffic in combination with Out-of-Home in an even smarter way to local customers. In the second half of 2019, we've also started implementing a new content management system that allows us to run all of our publishing assets T-Online, Justice Watson, Desired, GIGA and all others on the basis of one platform. The daily newsletter by our editor-in-chief has been successfully established in Germany and gives us amazing reputation amongst political influencers. And by the way, in 2019, we had more than 120 encounters with major advertising clients who visited our content hub and editorial office in Berlin. As part of our Out-of-Home plus strategy, we support our core business Out-of-Home with online and Direct Media and in the area of national customers, thereby significantly increasing our share of wallet. However, the results of GDPR have changed the market in 2018 and '19, and we tackled the challenges with a stronger focus on sales and performance in our Direct Media segment. The door-to-door sales has been showing strong growth in the last 2 years, and we see sustainable and structural demand tailwind from clients for the next 5 years at least, as digitization of our sales process continues to drive margin. The contact centers focusing on sales and -- service to sales, where we also handle more complex services and integrate cross and upselling, have a strong customer base which is growing into e-commerce and digital businesses. The integration of tech and data is key for us and leverages our good client access, and therefore, we are targeting cross-selling opportunities within our core business. Those 2 sales-oriented direct media segments are very close to our core business and Ströer's DNA and perform beyond our original expectations. In contrast, pure service or customer care contact centers has been showing limited growth and margin potential and have only lower impact on group customer access. Therefore, we deconsolidated 12 sites and brought that business into a joint venture structure with the industry partner Tricontes. Going forward, we still can offer those service-oriented businesses via our key account structure to clients who want to get everything, sales and service out of one hand, but the management of the contact centers and the responsibility will be in the hands of our new partner. The impact is approximately EUR 85 million revenue on an annualized basis. Signing was in Q4 2019. Closing of the deal was in January and is reflected in our continued operations. Let's look in more detail at our P&L, cash flow and segment results, and I hand over to Christian.

Thank you, Christian. Before we run through our financials of 2019, let me start with some remarks on the figures. As in the past quarters, for the full year as well as for the fourth quarter, we will again only present straightforward figures, which include the effects of IFRS 11 and IFRS 16 on the basis of our continuing operations. As discussed in our previous call, we tapped out our inbound call centers of the D+S 360 group and contributed them to a service-oriented call center powerhouse led by Tricontes 360. As this has to be recognized under IFRS 5, we treat the carve-out as discontinued operations in our figures. Accordingly, all effects are booked in just one P&L line. All other disposals such as Ströer Mobile Performance, Conexus and Foodist are treated differently and are still included in the prior year numbers. To have a fair view on the development of fiscal year 2019, especially on organic revenue development, these numbers have to be eliminated. Despite that we have discussed the full year effect of these divestments already in the prior quarters, please let me reiterate the total full year effect. EUR 50 million on revenue and EUR 5 million adjusted EBITDA. Please also note that the numbers presented in this call are preliminary and unaudited at present. The final figures will be published in our annual report on 30th of March. Revenues of fiscal year 2019 were up by 6% on absolute terms from EUR 1.508 billion to EUR 1.591 billion despite the disposal effects in Digital Out-of-Home and Content and Direct Media up and totaled EUR 50 million, which are still included in previous year's figures as pointed out. When it comes to our organic growth performance with 7.1%, we slightly overachieved our own expectations, and this in a continued demanding German media market. Adjusted EBITDA developed in line with the sales and increased by 6% from EUR 538 million to EUR 570 million. Exceptional items of EUR 7 million are higher than in the previous year, mainly due to projects to optimize our T-Online footprint, such as our T-Online presence with 29 local subdomains as well as process optimization, such as the implementation of new content management system and additional restructuring expenses in our dialog marketing business. Depreciation and amortization increased by 5% from EUR 341 million to EUR 359 million, pretty much in line with our business growth. The financial result of EUR 33 million is on previous year's level. With EUR 25 million, tax expenses are above previous year due to a higher tax base. Going forward, we expect a slight increase from this low level. Net income, adjusted and unadjusted, increased in line with operational performance. Adjusted net income was up by 6% from EUR 199 million to EUR 210 million. As said before, 2019 was a successful year and showed positive sales and earnings momentum. This enabled us to achieve our ambitious targets. Both Out-of-Home Media as well as Digital Out-of-Home and Content were crucial to this development and showed organic growth of 5.6% and 8.9%, respectively. For Direct Media, organic growth was a remarkable 13.7%. In absolute terms, out-of-home media revenue grew by 7% from EUR 664 million to EUR 709 million. This strong development was driven by local and regional sales initiatives as well as strong national demand. With this development, we were able to significantly outperform the German media market, and it is a clear proof point that out-of-home is one of the winning formats in the structural change. Adjusted EBITDA of Out-of-Home Media increased from EUR 310 million to EUR 324 million. The EBITDA margin stands at 45.7%, slightly below prior year's level. Despite the strong performance across all sales channels and favorable product mix in our core business, the strong developments in Ambient Media as well as the expansion of local and regional sales force took their share and had a minor dilution effect. Revenue growth of Digital Out-of-Home and Content was mainly triggered by a strong performance of our public video business as well as Statista, which more than compensated the effects from divestments in the segment, such as twiago or Ströer Mobile Performance. All in all, reported revenue grew to EUR 588 million from EUR 567 million in the previous year. In 2019, adjusted EBITDA of Digital Out-of-Home and Content was EUR 212 million with a margin of 35.9% or 170 basis points above previous year's margin of 34.2%. This was mainly driven by a positive margin development of Statista and an ongoing highly profitable public video business. Reported revenue of the continuing business and Direct Media segment was up from EUR 303 million to EUR 341 million, a revenue growth of 12.6% reported. This remarkable revenue development was fueled by an outstanding performance of our door-to-door business, Ranger, which was able to overcompensate changes in the segment portfolio, such as the known divestments of Conexus and Foodist. Adjusted EBITDA for full year 2019 was EUR 54 million, up by 7.6% versus prior year and corresponded to an EBITDA margin of 16%, basically on previous year's level. Ranger, in particular, is responsible for this positive EBITDA development. In addition, the elevated profitability of our remaining sales-driven dialog business in comparison to our old setup contributed to EBITDA growth. Let me briefly say a few words about the fourth quarter. The results of this quarter contributed to the positive full year development as expected, even in the light of the tough comps from previous year's quarter. Organic sales growth for the group was 6.7%. Organic sales growth of Q4 in the Out-of-Home segment was just under 6% up to EUR 214.4 million, and the adjusted EBITDA rose to around EUR 101 million. Digital Out-of-Home and Content grew even stronger when compared with full year developments by more than 11% organic to EUR 189 million revenues, and adjusted EBITDA was up to EUR 75 million. Direct Media's revenue was up on an organic basis by roughly 10% to EUR 86 million, and adjusted EBITDA increased from EUR 11.6 million to EUR 13.1 million in the fourth quarter 2019. The positive margin development is mainly attributable to margin uptake in dialog marketing and reflects the success of our restructuring efforts. To derive adjusted net income from reported net income, you must add back around EUR 91 million, which essentially consists of 4 adjustments. Exceptional items amount to EUR 34 million; around EUR 80 million are attributable to restructuring, in particular, T-Online and dialog marketing; some EUR 6 million result from other changes in the portfolio; and EUR 10 million are compiled by diverse items. Going forward, we expect a decline in exceptional items, especially because of our muted M&A activities. D&A-related adjustments of EUR 69 million, mainly refer to revalued assets of acquired companies following IFRS purchase price accounting. This depreciation is purely linked to past M&A acquisitions and remained almost stable versus previous year. For the same reason as described above, we expect also this item to decline in the future. Adjustments in the financial result amounted EUR 2 million and are mainly linked to effects from disposals of noncore businesses. The tax adjustment of around EUR 50 million is mainly caused by a higher tax base of the adjusted earnings before tax. Taking these 4 adjustments into account, adjusted net income for our continuing business is EUR 210 million for 2019, approximately 6% higher as the adjusted net income of EUR 199 million in 2018. Our free cash flow adjusted for fiscal year 2019 developed quite strongly versus prior year, even when taking the EUR 25 million onetime tax cash out that we faced last year into account. Total free cash flow adjusted in 2019 was up by almost 40% from EUR 140 million to EUR 195 million. Net exceptional items of EUR 34 million increased slightly versus the prior year and were caused by substantial divestment efforts, as discussed before. Tax cash out dropped to EUR 39 million in 2019 from EUR 54 million in the previous year, mainly due to the beforementioned onetime tax payment in 2018. Working capital developed in our favor and improved to EUR 11 million compared to minus EUR 5 million in 2018. This relates mainly to seasonal fluctuations, but also to our continuous efforts to improve working capital. In particular, falling panel prices for our digital boards enabled us to keep investments into our growth opportunities stable. With EUR 140 million CapEx, it's basically flat compared to 2018 and fully in line with our guidance of 6% to 7% of sales. Lease liability repayments increased by EUR 17 million from EUR 158 million to EUR 175 million and reflect business growth. Our bank leverage ratio stayed stable and is 1.44 in the reporting period. Let me now say some words on corporate social responsibility and sustainability, a topic that is of increasing importance to our investors, but also to Ströer as a company. Our innumerous funds include CSR topics in the investment process, and we are also receiving an increasing number of questionnaires from analysts on this topic. Furthermore, we are expecting further legislation on the matter, both from the EU and national bodies. Therefore, we are now taking action. In the first step, we are currently conducting a materiality assessment. We've interviewed managers of our company and have spoken to key stakeholders outside of our company, most importantly, our investors, to derive those sustainability matters that are material to our business. The key focus of our sustainability strategy will be to further strengthen our corporate governance and to responsibly address all relevant social matters. Whilst Ströer as the leading German auto advertising company neither emits CO2 on a large-scale nor handles hazardous products, we will also investigate how to reduce our footprint on the environment. In order to provide the capital market with sound information on our sustainability efforts, we plan to publish our first sustainability report at the beginning of June. I would now like to share some insights on the digitalization of our business processes. While we have focused our energy in the recent years on growing our portfolio of businesses, the key focus for us in the years to come is streamlining our internal processes. In this effort, we have started to apply 4 key technologies. Process mining gives us a clear understanding on how processes are currently performed in the day-to-day business. This allows us to focus on the top improvement areas by using modern process optimization technology. Service -- Software as a Service platforms, help us focus on process digitalization on highly matured infrastructure like AWS and Azure. Key platforms include Score Ayuda for digital out-of-home bookings and playouts, EasyS as the mobile sales platform and Salesforce as our customer management platform. Business Process Management, or BPM, brings automatization to our end-to-end process chains and massively reduces manual effort. Our BPM initiatives do not only focus on internal processes, but also reach beyond enterprise boundaries, i.e., help us to integrate important customers and other key business partners. Robotic process automation, or RPA, replaces highly repetitive manual work by bridging gaps between our IT system in an automated way. Using this technology, we can deliver automation within weeks. Using a faster Ströer technology, we will become faster in our processes, realize efficiencies and eventually strengthen our margin. Let us now get to our guidance for 2020. Just like for 2019, we expect for 2020 as a whole, sales and earnings growth in the mid single-digit percentage range and are looking forward to a strong start to the new financial year. As a reminder, mid-single digit means, in our definition, 3% to 7%. With that, let me close our presentation with a reference to our annual financial report and proposal of dividend on March 30 as well as the publication of our first quarterly statement 2020 on May 12. Thank you, everyone. We are now happy to take your questions.

The first question is from Marcus Diebel, JPMorgan.

It's Marcus. Congratulations for these results. Very encouraging to see these developments. I have 3 questions. The first one, maybe on Christian Baier on the free cash flow. Very strong development this year. Do you think that the same cash conversion will also occur next year? Or is there anything to consider in terms of your higher CapEx plan, working capital? Will that be more or less the same cash conversion also in 2020? One question for Udo maybe on -- if you can comment on the current out-of-home market share and more importantly, where do you think this will really go? Is it going to be 10%? Or is there a chance that, in Germany, the out-of-home share can actually be meaningfully higher than in other European countries? And also, if you could comment on the latest developments, Google and the connection of their DSP? And then lastly, maybe one question for Christian Schmalzl on the outlook. So is it fair to say that you see, so far, really no impact at all from, let's say, weak car industry even from some concerns around, obviously, the virus on advertising? Is there really no slowdown at all whatsoever in the German ad market today? Is that the fair read of the guidance?

Yes. Thank you, Marcus. I think the first question is out-of-home market share. We think that the next target for us is 10%. And I think this is common sense in the overall market of the customers and also from the media industry that it is going to achieve in upcoming, let's say, 2 or 3 years, difficult to say always because we always have some statistic effects also because Google, Facebook and Amazon, as you might know, the numbers are not integrated in the statistics. On the long run, maybe you remember when we bought Deutsche Telekom in 2003, we were around 2%, 2.7%, and we forecasted exactly the number where we are today. And I think that, let's say, 12%, 13% on the long run, maybe 15% is that what is completely realistic because we already saw now on the last 4, 5 quarters, demand from completely new customers, which we never saw before where we first stepped into outdoor because the customers, the overall market is preparing in a situation where free-to-air TV is actually much weaker in terms of brand building. And we already discussed it a couple of times. At the end, you always talk about brand and performance. And on the long run, digital out-of-home and out-of-home is clearly the key source for brand building. So that's -- we see now that customers who never used out-of-home before are slightly tapping into the business, and that gives us the confidence. But we always say, we deliver 5% in average for the next 10 years. So we are 100% convinced that this is a very realistic market expectation.

Is that -- just to follow up, is that really the key national advertisers that you say are now incremental customers? Or is it -- I -- it sounds like it's more national, so I mean, in the SME segment, that is clear anyway. But basically, you -- basically nationals from TV?

And the local area, clearly, print was a key medium for local players, directories and newspapers, stuff like that. So this is going to disappear. So that means that out-of-home has a little visibility for local clients in the future. And this is -- I think this is around the globe the same situation. And national clients, it's the same. So last year and the last whatever, 2, 3 years, business was strong. It's always strong in local, and it was -- this year, now, it's quite strong, especially starting the year on our national clients. So we saw quite -- we see quite encouraging Q1, which is where all our divisions had a very good start in the year. And so we see not on the local but on the national clients now.

Marcus, I'm happy to take the question on free cash flow and cash flow conversion. Just looking in 2019, cash flow and the positive development that was driven by 3 components: a, obviously, our better operational performance; b, a more normal tax rate as compared to 2018; and c, then also improvements in working capital. We believe all these effects to be structural in nature and would also expect them to be there next year. When it comes to CapEx, we believe, also for this year, for 2020, we will take around, which was 6% to 7% of revenues. So we might see a slight increase, but also not to a major extent. So yes, the answer is, we expect similar cash conversion also in 2020.

And on your last question, Marcus, I'd say, first of all, I mean, no one is able to really predict what that COVID-19 virus at the end of the day will mean because, I mean, it's still early days. But that said, in the last 2 or 3 weeks, I think since that topic is more visible and critical, we haven't seen any negative impact. Again, maybe also looking into the next couple of weeks, 60% of our business is regional and local, 40% is national. Out of the national business, I think roughly 1/3 is digital out-of-home, which, as Udo said, has currently really strong momentum. So I think that's maybe the last medium that people would cut at the moment. And coming to specific industries, I just double checked while my colleagues were asking. Automotive, for instance, has a share of our total out-of-home revenues of slightly less than 5%. So tourism is below 1%. I think our business sales-wise is so diversified that even I think it's getting tougher, I think we're probably better prepared and more diversified than anyone else. But as I said before, for the moment, we haven't seen any negative impact.

And by the way, in terms of outlook, there was a bit of a confusion maybe because somewhere I saw that 1 or 2 our friends thought that we had a lower guidance than last year, so mid-single digit was also our initial guidance for last year and then we precised it that the mid-single digit for us is 3% to 7%. So the guidance for 2020 is exactly the same guidance like for 2019, 3% to 7%.

The next question is from Annick Maas, Exane BNP Paribas.

My first question is on the traditional out-of-home organic revenue growth. Can you please isolate how much of that was due to the digital roadside screens? And my second one is on AsamBeauty. Is this the year where we are going to dispose of that business, IPO it or sell it or whatever? And my third one is, just again on the guidance. So just to make sure that this is not including any -- essentially, a month ago, would you have given the same guidance than you do today? Or did you bake in any cautiousness into that guidance, i.e., would have -- would the guidance have been bigger before -- higher before than it is now?

Thank you for the question. No, we would have given the same guidance and it's unchanged. I mean -- and if you're realistic, nobody knows exactly what's going to happen. If you see the confidence of our customers, it's unchanged. If you look on the first quarter, it's looked better than last year. But this has nothing to say. So we are confident on delivering our guidance like we did it in the last 29 quarters. And our confidence is completely unchanged. So as already said, first quarter was now better than expected, but we can also change the second quarter. Again, we are not so hysterically focused on quarters. For us, it's -- the key is that we prepare the portfolio where we are pretty much sure to deliver organic growth for the next 10 years. And we are really focused to make sure that we have an ongoing structural growth story where we can increase our total shareholder value quarter-by-quarter, but more important, year-on-year. So even if there would be an impact from coronavirus, it would not change the position of the company. But up to now, we have 0 impact from coronavirus. And I personally think that is completely, let's say, hysteric what we see in the market. In every average influenza wave in Germany, 25,000 people are dying. Nobody is talking about that. And now we have 140 people infected in Germany from 80-something million people. I don't think that in 2 or 3 months, anybody is talking about it anymore. So regarding -- but to answer your question again, unchanged, our expectations, like 4, 8 weeks ago. And for the Asam, we want to achieve EUR 200 million turnover, and that's the moment when we are going to decide how we capitalize the value of our shareholders. It's actually a similar situation like on Statista. Statista clearly is a key asset for us because we own 100%. And it's a unique asset, so valuations are on a completely different level than on Asam. So like we always said, at around 2023, it's a moment when we are going to capitalize the values here. It's the same. Asam is totally on track. As you saw, I think, the first time we published now officially our margins, it's a very profitable business. And we own 51%, not 100% because we never -- also never wanted to own 100% because they don't understand anything from this business. It's a last man standing from strategy, which we finished already almost now 1.5 years ago. But there's no need to sell it now because the value is increasing rapidly quarter-by-quarter. We had already, with some big strategic players, some interesting talks because all the big established companies are searching for new, modern, fast-growing digital start-ups here in this area. So that's why we are pretty much convinced that both Statista and Asam are going to deliver a significant value at the moment, and we're going to capitalize it.

And on your roadside screen question and how much that contributed to the growth. The impact growth-wise on the Out-of-Home segment is somewhere between 5% and 10%. I mean you can calculate it. We added another 120 locations throughout the year. You cannot monetize them the full year. We have existing revenues there. So if you have, in year 1, maybe EUR 20,000 or EUR 25,000 maybe even EUR 30,000 per site on top that comes through the upgrade of the infrastructure, probably worth 5%, 6%, 7% of the total growth of the Out-of-Home segment.

That is good. Can I just ask one more? I think you mentioned the number of multiyear contracts that you have. Can you just give us the percentage of revenues that, that makes up, please, in out-of-home?

I think it's about -- more than 1 year, it's probably around 17% or 18%.

The next question is from Katherine Tait, Goldman Sachs.

Thanks for the presentation and the clarity on the outlook and the sort of impact from the virus. I'm just wondering if you can give us your exposure to public transport networks and help us understand that in the case that there was some sort of reduced numbers coming through those sort of public transport networks, does that directly impact the contracts that you already have with advertisers? Are they based on a certain number of eyeballs? Or is that a totally separate sort of agreement? And then secondly, just on the internal process streamlining, really interesting to sort of see the details there. Can you give us an indication that you're looking at sort of cost savings number related to this? Or will that be sort of reinvested in terms of the sort of sales and marketing pressures that you're making? How should we think about that sort of flowing through into your financials?

I think on the transport network, I would say, 90% to 95% of our revenues are linked to the average audience and frequency numbers that we have. So there is no immediate impact, for instance, if there is 2 weeks with less travel on the advertiser contracts. The other way around if suddenly the audience doubles for whatever reasons, we wouldn't suddenly double the prices. So I think it's based on normal annual averages. They are 5% and that's, I think, roughly 20% of the programmatic part where we actually add real-time data. But I think there, the unsold inventory as well as, I think, the demand are still on a level where we can easily compensate. So there is no short or mid-term impact on that. I mean, it would be different if a national railway system would be down for half a year or so, then you would have discussions, but I think that's completely worst case scenarios that are not realistic, so no impact.

Katherine, on your second question, the internal processes, the way we think about it is that, specifically, in this year 2020, to some extent, I need to invest into this first, so I'm talking about additional software licenses, I'm talking about, again, new skill sets that we need to really be able to digitize and automate our systems and processes. So we are really looking for improvements to happen from '21 onwards. At the moment, we believe they will go straight into the bottom line. If we want to and need to reinvest them, I think we will figure out along the way.

The next question is from Julien Roch, Barclays.

My first question is, could we get your German outdoor revenue because the whole call is about out-of-door plus and your strategy, but we don't really have your outdoor figures because you have international outdoor in the Out-of-Home segment, and you do not split public video between outdoor and online. So could we get a total revenue in million euros for German outdoor? Or could you give us the revenue for international in out-of-home media and public video in Digital out-of-home Content? That's my first question. My second question is on net debt. Excluding IFRS 16 leases, the net debt went up EUR 30 million to EUR 548 million. The free cash flow was EUR 196 million. You haven't disclosed the dividend, but should be EUR 112 million, EUR 2 per share and 56.2 million shares. And I think M&A should be a positive as you sold asset but did not buy anything. So if I put 0 on M&A, because we don't have the numbers, the net debt should have gone down EUR 84 million, but it went up EUR 30 million, so there's a EUR 114 million gap. Can you explain the net debt movement? I mean we don't have all the numbers? And then the last question is, you just said that you're streamlining digitization, 2020 period of investment, 2021 improvement straight to the bottom line, could we get a -- either 2021 or midterm impact on the margin here? Is it going to increase margin by 100 basis points, 200 basis points, 500 basis points? These are my 3 questions.

Maybe I'll start with your first one. So the public video revenue number is roughly EUR 140 million. And within the traditional out-of-home, there is EUR 32 million from Poland and approximately EUR 20 million of lower business that is -- or the giant poster business that is outside of Germany. So if I'm calculating it correctly, the German out-of-home business all-in, including the German giant poster part and including Digital Out-of-Home and public video is roughly EUR 770 million in 2019.

Yes. I can -- I'm happy to take the question on net debt and free cash flow. Julien, I think the key difference is what we put or paid for put options. Specifically for Statista, we bought the remaining shares from the management, which was roughly EUR 30 million. We also paid for put options of some Auto around EUR 22 million and a few others. So I think that explains the delta there, and obviously for that, we took out a bit more debt at the banks. So I think that's the key difference that you're looking for. Right, and then last question was on our digitization, automation efforts and the margin impact. So this is actually something that we still kind of like need to quantify and it's something that we ultimately want to share in our Capital Market Day later, basically during this year.

The next question is from Patrick Schmidt, Warburg Research.

I've got 2 more basically. And so maybe on the coronavirus, do you see any issues in your supply chain? I'm talking about the digital panels, basically. I think you're sourcing them from China. So do you have any problems there? And could you share some more color on Statista? So what do you think about the growth rate next year? How is your APAC expansion running where current profitability or EBITDA margins, that would be great.

So on your first question around virus and supply chain. So yes, we have a sourcing office in Shanghai and the people there already work since end of December in their home offices. But currently, we only have about 40% of our hardware coming from China. Almost half of what we need is currently coming from the U.S. from a company called Daktronics. The other parts are coming from South Korea and Japan. So I think we've quite a diversified supplier structure. And at the moment, we have roughly the -- everything we need for the next 8 to 9 months. So we've double checked that and already started a little bit earlier than normal, the ordering process, just to make sure that in case we need to queue a little bit, we started everything earlier. So therefore, no real impact for 2020.

Also, on working capital, then if you, I don't know, order earlier and then you don't need them or are not able to install them directly or doesn't make sense? Or...

No, we order earlier just in case the delivery takes a little bit longer, yes, but payment terms are according to the original plans. We just let the people, earlier, know what we need and make them confirm that they are able to deliver that, give them a little bit more time just to be on the safe side, as no one knows. But at least, also based on the feedback that we got even from China for the moment, yes, I think their overall processes are a little bit delayed for 3 to 4 weeks at the moment, but no material impact so far. I mean no one knows what the next months might bring, but at the moment, it all looks quite reasonable, what they tell us.

Okay. And so you have no problem with your current rollout strategy of further digital screens?

No. And in case we would see that it might be more tricky in the second half of the year, as I said, we have suppliers in the U.S. that are already connected where we constantly have RFPs out, so we could easily change the sourcing strategy to other countries where we have less challenges. And on Statista, well, I think we continue with what we've done over the last years. I think the growth that we've seen in 2019 seems to be also what the company is able to deliver in 2020. At the moment, we do not really look at every detail of the bottom line because the most important point for us is to increase content, open up new offices, increase sales force and just drive revenues and the visibility of the product and the company. But I think as a lot of their action plans require 12 to 18 months to find reflection in the P&L, I think everything we had to do for a strong 2020 was already done in 2018 and 2019, so we are quite confident to see the same growth as in the last 2 and 3 years.

Okay. And margins are still around, let's say, 25%, 30%? Or are they more I don't know, especially in developed countries like here in Germany or Europe, is it more like 35%? Or how should we think about maybe a final profitability?

No, I mean the final profitability hasn't really changed, we said, but it can be in the mid-30s. And that's what we see in quite developed countries like Germany. And the average margin of the group at the moment depends on the mix between the countries, but I think 2019 was really good year with a margin somewhere close to -- somewhere between 20% and 25%, I think, precisely at the middle of that. And realistically, around that corridor, we will probably also see the development in the next 1 or 2 years. But again, as I said, even if the margin would drop by 2% or 3%, it wouldn't be crucial for us as long as the top line development and the exploration of new countries and customers develops the way we want. I think top line growth is, at the moment, a focus.

Sure. I was just wondering whether in a steady state scenario, EBITDA margins could maybe more like in the direction of 40% or something like that? Similar, we saw it, I don't know, eMarketer from Axel Springer from time to time, they reported EBITDA margins of 40% and might be a comparable business model.

Oh, no, not comparable at all. This is a completely different business model. And we produce our own data, so we have hundreds of data scientists and analysts who produce proprietary data. This is a completely different business, what they have, which is growing at a much lower pace. You cannot compare that.

Your next question is from Christoph Bast, Bankhaus Lampe.

One very simple question. Could you provide us with your Q4 numbers and also with your Q4 2018 numbers? That means revenues and adjusted EBITDA for each of your business segments. And could you also provide us with the organic growth number of the different product groups? So that would be extremely helpful to set your operating performance in the final quarter. And then secondly, as you already outlined, your exceptional items have grown quite substantially in 2019. Can you just give us a bit more detail how this EUR 34 million distributed among the different effects and how we should think about this cost line in 2020? That would be great.

Christoph, I can start with your last question with the exceptionals. So we're talking about EUR 34 million of exceptional items. As pointed out, roughly EUR 18 million of that is due to reorganization, specifically in T-Online and content management systems, for example, we implemented there, but also in our dialog marketing business. Another EUR 6 million are due to changes in our portfolio. This relate to integration, M&A activity, specifically in the out-of-home group. We have another EUR 5 million as the results from our disposals, and there's another EUR 5 million also with regard to our equity incentive plan. This is roughly how the EUR 34 million breakdown.

Okay. And going forward, this would then roughly drop to, I don't know, EUR 5 million for the equity incentives? Or is that a bit too optimistic?

For sure, going forward, we expect the number -- the overall number of EUR 34 million to come down, as we said, also because of our muted M&A activities.

Okay.

I think on Q4, I think we just double checked, we would probably upload a presentation with an appendix where the detailed Q4 numbers are per segment. So that you have everything there, and we don't have to go through everything. Just the same status for the full year, but just for Q4.

Fantastic. But could you just add the organic growth rates for the product segments? Would that be possible, at least for Digital Out-of-Home and Content for display video and...

For segment, yes. For Digital Out-of-Home, we can tell it to you, it's been around 34%, 35% in Q4, public video part.

Okay, okay, okay. And display mobile and digital marketing services, is that also possible to get the number here?

We don't disclose it on a quarterly basis, but I think it was low single-digit growth for display and mobile, or -- now let me see, it's mid-single digit, I think, for -- closer to the mid-single digit. And subscription service is, I think, the biggest part is, anyway, Statista. I don't know, somewhere between 28% and 32% in Q4.

The next question is from Catharina Claes, Hauck & Aufhäuser.

First question would be on your digitization of business processes. Maybe could you just give us a little time line, what would you, yes, approach first? Or is it like -- more like everything in one project? And do you see any of those 4 areas which could trigger delay in that? That would be -- I don't know that it will go by the end of 2021? Then another question on the coronavirus. Do you see any -- I mean, I know that, obviously, local sales is the bigger share of revenues, but do you see any restrictions in the sales force? Or like -- I mean, at your client side, maybe that you are anyhow limited in delivering the meetings or delaying on contract to close? And then a quick one on the dividend structure and the FX. So you said that the development should be similar for 2020 and '21, but is that also similar for your dividend? That was my question.

Okay. Once again, on the corona or COVID virus, so far, there are no restrictions. I think what we see is that bigger marketing fairs or anything like that. That's where, I think, clients are a bit nervous, national advertisers, but normal one-on-one meetings or meetings with smaller groups, there are no restrictions so far. I think people shake a little bit less hands, but that's pretty much it at the moment. And I think on the dividend, we will announce details with the final and audited results of 2019 at -- I think it's at the end of this month, March 30.

Yes. Catharina, on your digitization and automation question. So for me, that really will be a key focus for the next 3 years to come. What we will focus on first is 2 business areas. One, here in the central function, specifically also looking into finance and our shared accounting services. There, we believe we have significant efficiencies that we can realize. And then the second bigger area is our out-of-home business unit, specifically looking into sales processes and the sales support staff that we have there. So these are the 2 key focus areas for 2020.

We have a follow-up question from Julien Roch, Barclays.

As you've been so fantastic answering every number question, I'm going to continue to ask them. So could we have the revenue for Statista and Asam in 2019 in million euros?

No, because otherwise you won't stop asking.

Fair enough. Okay.

I think Statista is -- sorry, Asam is around EUR 85 million and Statista is in the low to EUR mid-60s million. But no more questions now in numbers, Julien.

Only for Christian then.

That's fun.

The next question is from Patricia Pare, UBS.

Maybe just 2 last questions from my side. You talked about how spend from national advertisers had been quite strong in 2019. Can you quantify how much the national grew versus local? And then my second question is on the audio segmentation that you are doing on the public video network screens. What level of targeting are you doing right now? And can you go deeper and do you want to go deeper?

Just on the mix, I think in the last 3 years, on average, 1/3 of our growth came from national and 2/3 from regional and local. And this year, it was more, 42%, 43% from national and 57%, 58% from regional and local, so a slightly stronger year for national that might differ over time. And we'll see if there is a general trend from national advertisers that is also influenced by the TV developments that we've seen, especially in the last 2 or 3 quarters.

The level of targeting in public video?

I think we constantly introduce more targeting features and audience segments to give clients more specific opportunities. What we've seen so far is that the share of targeted spend goes more towards what we call event or incident targeting so that you activate the screens based on temperature and not on very detailed subsegment target groups. But I think at the moment, that kind of targeting-related revenues are 15% of the total public video, and we think it will grow over proportionally. But at the moment, it's not like that everything is shifting from broadcasting to very detailed targeting. I think the sweet spot of the medium at the moment is that it's getting tougher and tougher to reach broad audiences, especially for our nationwide advertisers, that's where the traditional broadcasters like TV or radio, prints have challenges. And I think that's exactly where we can help compensating the net reach shortfall, and I think that's also the trend we currently see for 2020. Yes, more targeting products. Yes, slightly more growth than in the traditional, but not really changing dramatically. Out-of-home is still a mass medium.

The next question is from Catherine O'Neill, Citi.

I just got one question on your digital, I guess, content part of the business and the announcement by Google that over the next couple of years, it plans to block third-party cookies. I just wondered what proportion of your revenue or inventories is not owned in your active as a sort of up-sales function? And how much relies of it on third-party cookies, if any? And also, could you talk a bit more about your first-party sort of ID strategy and how many of the population you already have on your database, for example, so you're moving away from reliance on third-party sourcing of data?

Yes. When you look at the combined business, so our publishing assets as well as the sales house, then you see that roughly 1/3 of our revenues go on or come from owned and operated assets and 2/3 of revenues are coming from third-party inventories. If you look at profits, it's very different, 70% to 75% of the profits come from owned and operated assets and 25% on third-party. When you look at the structure of the third-party inventory, we still have the majority of our inventory with, what we call, premium publishers. So it's like the leading football website, kicker, or its regional newspapers, where roughly 80% of the revenues are driven by the specific content and the portal and the environment, so it's not pure audience buying. So roughly, at the moment, 20% of the third-party revenues are driven by cookies. And I think it's still manageable for us, but nevertheless, we think it's an important part of the business, and that's why we went into that Auto joint venture and the cumulated net reach of those first-party audience data from the roughly 60 e-commerce shops of the Auto Group have a net reach of, I think, 38 million unique users, and our total inventory has currently net reach of, I think, almost 50 million uniques. So we can cover roughly 75% of our audience meanwhile through the data of the Auto joint venture. And we see the demand, especially for alternative data and targeted products at the moment growing because most of our clients are experimenting with it. And I think whatever market developments show the -- that, really, third-party cookie-driven business is a smaller part of our profits and a smaller part of the third-party inventory. And the JV setup that we have with Auto should bring us in a quiet position, maybe also if other local players get into more difficult situations after Google changing their policies.

There are no further questions. I would like to hand back to the gentleman for some closing remarks.

So thank you very much for your time, your questions, and we're looking forward to speak to most of you in 3 weeks' time when we publish our final results and talk more about the dividends. Have a great day, and wash your hands. Bye-bye.