Vend Marketplaces ASA (VENDA) Earnings Call Transcript & Summary

Good day, and welcome to the Schibsted ASA Q1 2020 Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Jann-Boje Meinecke, Head of IR. Please go ahead, sir.

Thank you. Good afternoon. My name is Jann-Boje, and I'm the Head of IR in Schibsted. A warm welcome to all of you joining us here today for the Q&A session with the Q1 results. Together with me here in Oslo is our CEO, Kristin Skogen Lund; our CFO, Ragnar Kårhus; and also our Head of Group Communications of Atle Lessum. This morning, we presented the Q1 results as a webcast, and probably many of you have followed. If not, you can find a recording of the webcast shortly on our IR website. And Adevinta reported their Q1 results yesterday morning, and their recording and presentation is also available on their site at adevinta.com. Now I would like to hand over to Kristin to give a short introduction before we start the Q&A. Kristin, please go ahead.

Thank you, Jann-Boje, and hello, everybody. So this morning, we reported the results of the first quarter, obviously, an unusual quarter due to the COVID-19 pandemic. Taking into consideration the huge impact that the pandemic has on everyday life and global economic activity and our businesses, Q1 has been satisfactory for the group. We have initiated a range of measures to adapt to the uncertain situation and at the same time, continue to deliver fully functional services. In this context, I would highlight that our news media operations have played a tremendously important role during the crisis, providing users with balanced and trustworthy information. Financially, we have seen a negative impact on revenues during the last weeks of March, and April has developed similarly. For the quarter, our revenues, excluding the contribution from Adevinta declined by 2% or by 4% adjusting for currency fluctuations. Our Nordic marketplaces saw a slower revenue growth in Q1. In Norway, the revenue development was flat. This was driven by a revenue decline in the job and travel verticals due to lower volumes. In Sweden, our renewed approach to the car market has continued to prove successful, and revenues continue to grow in Q1. Measures have been taken on the cost side. And for Norway, we are now targeting a 40% to 45% EBITDA margin for the full year 2020. Looking at News Media, we have seen traffic records over the last weeks, and good growth in digital subscriptions have continued. However, advertising revenues experienced a significant drop, and that had a direct impact on our bottom line. Lendo in Sweden delivered another quarter with double-digit revenue growth, and Denmark continues to perform well, whereas Norway and Finland slowed down further. We have taken the decision to close down the Lendo operation in Poland and to significantly scale down the operations in Austria. Our growth portfolio had a mixed development in Q1, with distribution continuing to perform well, further fueled by the e-commerce growth that we have seen during the COVID-19 outbreak, whereas the revenues in the advertising-driven services have declined. The described negative revenue trends led to a significant drop in operating margin in Q1. As I presented earlier today, we will continue to implement measures to ensure adequate operational and financial robustness during a period of significant turmoil and uncertainty. The most important initiative is a cost program for News Media to accelerate the transition to a future oriented, digitally sustainable news organization. Building on the measures which we announced at the Q4 presentation, the total program includes cost reductions of around NOK 500 million compared to the cost level of News Media in 2019. Implementation has started and -- with first effects occurring during the second half of 2020, and we will have full effect in place in 2021. In April, Schibsted refinanced a NOK 1 billion bond maturing later this year, securing our liquidity reserve. We have a net debt level, which is lower than our targeted range of 1x to 3x EBITDA. Though our financial position is solid, and all in all, we are well prepared to navigate in this current rough waters, and at the same time, preserve capacity to act on opportunities that might and hopefully will occur. So just to very briefly summarize, Nordic marketplaces slowed revenue growth, particularly affected by COVID-19 from mid-March, measures taken on the cost side here. Second, structural changes in News Media continue, and we have started to implement the cost program to accelerate the transition to a fully digital sustainable news organization. And thirdly, Lendo in Sweden and Denmark continues to show good growth so far. And we will reduce spending for the expansion in the current market environment. And with that, I would like to hand over the word to our operator, so you can pose your Q&As. Please, operator, go ahead.

[Operator Instructions] We will now take our first question.

I have a few questions please. Firstly, on Blocket. Would it be possible to also get a range for the margin target for this year, similar to what you set for Finn? And it looks like top line is better, but you're also making investments. So any comment will be helpful there. The second question is on the advertising trends. Is it possible to have maybe an update for April within Nordic marketplaces but also News Media? And in general, like how quickly do you think advertising could come back, especially within News? Or do you think it could further accelerate a structural shift and it's going to come back more gradually? And thirdly, I think on News Media, I mean you mentioned you want to save costs and accelerate the transition to a fully digital news organization. Do you think at some point, it could become digital only? I'm just wondering. And what would that imply for the overall cost base?

Okay. I'll start from the bottom. About becoming digital only, I mean, as long as we have good profitability in the paper, it doesn't make any sense to cut it out. And it's still the fact that we source quite a lot of our revenues from the paper. But we want to make sure that we have the robustness to not be dependent upon paper volumes going forward, and that's why we're urging and speeding up our transition so that we will be digitally sustainable long before we will see the removal of paper. So I believe we will have paper going for many years still. But we just do not want to depend upon it. And as we said, we're constantly working on the efficiency in that whole value chain regarding the paper, both print and distribution. When it comes to cost, obviously, we have costs associated with print and distribution. But for now, it is -- the numbers show that it's -- it makes sense to keep it for a good while going forward. When it comes to advertising trends, it is just so incredibly hard to predict anything these days because it's all very volatile, as you know, and we see fluctuations also from week to week. So it's not like 1 constant trend that we can extrapolate from. I think it's fair to say that we saw a very severe hit instantly after the lockdown, and that has come around a bit, and it's more positive than we saw. But I really -- I think it would be irresponsible to try to speculate and give you a clear guidance, unfortunately. We wish we knew better, but it's difficult these days. And then on the range of Blocket, Ragnar, maybe you want to fill in on that one.

Yes, I can do that. First of all, as Blocket, sort of, is a -- have fewer verticals and hence and also less variable cost base compared to Finn. So we are not -- sorry, we are not concrete on the range in the same areas for Finn. But I think you must expect some margin contraction in Blocket compared to what we have seen in previous quarters.

And on advertising. I mean, is it -- I understand it's very difficult to predict, but would it be possible to at least get a sense of maybe the first weeks of April versus the last week of March, how that has -- to get a bit of a figures that would help us.

I was going to say that if you look at the first sort of -- first week of April and this year, we see a drop of around 25% to 30%.

25% to 30%.

We will now take our next question.

Eirik from Carnegie. Two quick ones. Number one, I was wondering if you could give a bit color on potential price cuts and/or payment deferrals across Nordic marketplaces? And how are you working with your customers there? And number 2, in your presentation earlier today, you noted that you see a relatively high willingness to pay for your News Media products. Could you give some color on the ARPU level and/or revenue mix effects in Q1? So the volume versus price for the subscription papers, that will be -- or not the subscription papers, but the subscription revenue?

If you take to sort of the -- to give some comments on Nordic marketplaces first. I think in general, we are not -- sort of have not implemented any general price cuts or payment deferrals. We are in some close dialogues with our customers in general. But in Blocket, we have for April, for the month of April, reduced the prices with 25%, but we have not for month of -- but we have not taken any decisions for the month of May yet.

Great. And just on the willingness to pay and ARPU levels and/or revenue mix effects in Q1, what's really been driving the -- the strong growth in subscription revenues? Is it volume-based or price based or kind of a 50-50 mix?

In the first quarter, it's primarily volume based.

We will now take our next question from Mikael Lindahl from NS Intressenter.

I have some questions regarding Prisjakt that has historically grown with -- in line with the e-commerce market of at least 15% per year and is now flat. And there's some extra costs, I also read about. What's -- what is the situation here?

If you look at Prisjakt, the business model is actually based on 2 revenue streams. It's on -- it's advertising, display advertising. And then it's sort of the click based. And what we've seen, particularly in sort of in the last part of the first quarter as a result of the corona crisis is that we have seen a very strong positive development on the click volumes, whereby the display advertising has been quite significantly reduced. So that is the main effect for Prisjakt short term.

We will now take our next question.

My first question is a follow-up on the cost structure. Can you please discuss what is roughly the percentage of fixed versus variable costs across the different segments? And what sort of drop-through to EBITDA should we expect going forward compared to Q1 for Schibsted excluding Adevinta? And then second question, can you please give us an update on your thoughts around the stake in Adevinta. At the time of the spin, you clearly stated you plan to be a long-term owner of Adevinta but just wondering if you would consider reducing the stake slightly, if in the current environment, you need more flexibility from a liquidity standpoint or to return to your cash return policy?

I can maybe start on the Adevinta part and then maybe Ragnar, you do the cost part later. So we maintain our ownership strategy for Adevinta. We have -- we look at that ownership long term. We want to support Adevinta and if any opportunity occur for them for any substantial M&A or structural deals, we will be supportive, that could change our level of ownership, but it will not necessarily change our willingness to be a long-term owner of Adevinta. And right now, we do see our financial positions as rather strong. So for the moment, we do not foresee that we would need to do any sell-down or anything like that to secure our own finances. Ragnar, will you answer the cost part, please?

Look at our cost structure, sort of on a more general basis, I can say that the cost base is sort of the -- it's a larger part of fixed cost within the News Media business. It's a larger portion of variable costs within marketplaces. That also means that if you look at the advertising revenues in general, most of the reduction in advertising will sort of, the main rule, hit the bottom line or the EBITDA, so more or less sort of 100%. We have today with respect to sort of News marketplaces, we have said that we target an EBITDA range of between 40% and 45% for Finn for 2020, meaning that there are some flexibility in the cost base. Also if the market should soften even further on what we're seeing today.

And I think we can also say from my side. I mean, like Ragnar said, the cost structure in News Media is less flexible. And this is also the reason why we work in a structured manner to taking out cost in News Media. And that's why we stepped up now the -- the cost program, which was announced this morning with NOK 500 million with NOK 100 million the second half of 2020 and NOK 400 million next year to take out costs going forward, but more in a structured ways because costs aren't as flexible as Nordic marketplaces.

[Operator Instructions] We will now take our next question.

First, costs in -- especially the other growth segments, but also other financial services, increased in Q1 compared to previous quarters. Can you give any more color on what level we should expect going forward here. Secondly, within News Media, you said in your report that restructuring costs will occur in relation to the cost reduction program. Could you quantify this more? And thirdly, M&A. Can you give any color on what segments or countries you are looking at or -- and perhaps, if you think it's possible to look into an acquisition within Sweden Classified, again, given the competition authority's view last time.

I can maybe start on the M&A, and you can prepare the other 2, Ragnar. So I would just say that our M&A priorities are pretty much unchanged despite of corona. I mean we have the same priorities, meaning that the most important for us is to see if we can further consolidate Nordic marketplaces and where Finland and also Sweden is the most obvious candidate. We also look at interesting opportunities within, for instance, financial services or other growth areas for us. But we maintain previous priorities in terms of M&A.

Yes. With respect to costs within the other growth area, and on financial services. Within financial services, I would say that the cost increase in the first quarter was primarily due to increased marketing costs early in Q1. And we are continuously working also within that area to sort of adjust the cost base to the present situation. So yes, we will work to reduce the costs without actually being bit, sort of, that clear on exactly, sort of, how much does -- how much that will influenced the margins that will also, of course, affect very -- be dependent on the top line development in the quarters to come. Within other growth, this area has been quite severely hit by the reduced advertising revenues as many of those companies are ad based. But we have started to implement cost reductions within these areas as well, reducing marketing, in Lets Deal, also sort of made some more structural -- taking some more structural initiatives, including reducing the number of employees. So we will always work to make sure to avoid these companies sort of being -- having being -- not being profitable. So -- but it's still difficult to, sort of, give clear guidance on that, sort of, on the short-term due to the low visibility on the revenue side.

And then I guess it's fair to say that we are also ramping up some of our assets within distribution, which is seeing very strong growth now. And this push effort is also requiring some indebtedness.

Thanks, and restructuring costs within New Media. I don't know if you could quantify this anymore.

It is...

I believe it's too early to say. I think we'll have to come back to that.

[Operator Instructions] There are currently no questions in -- oh pardon me, we will now take our next question.

This is Martin Mølsæter from DNB. I just noticed on the call this morning that you highlighted that in Finn, there was a 7% growth before corona, and then you ended up at 0. Do you have a similar figure for how the development was in profit in Q1.

I can say that Blocket was more or less in the same area as Finn.

[Operator Instructions] There are currently no more questions in the queue at this time. I will now turn the call back to your host for any further comments.

Well, I guess then we just want to thank you all for listening in and for your good questions, and wish you a good, continued day. Thank you very much.

Ladies and gentlemen, that will conclude today's conference, and you may now all disconnect.