Vend Marketplaces ASA (VENDA) Earnings Call Transcript & Summary

Good day and welcome to Schibsted ASA Q2 2020 Conference Call and Q&A. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jann-Boje Meinecke, Head of IR. Please go ahead, sir.

Good afternoon. Thank you for joining us today for the Q&A session for our Q2 results. On the call with me today is our CEO, Kristin Skogen Lund; our CFO, Ragnar Kårhus; and our EVP for Nordic Marketplaces and CEO for Finn, Christian Printzell Halvorsen. This morning, we held our webcast presentation for the Q2 results and the recording is available on our IR website. And with that, I would like to hand over to Kristin.

Thank you, Jann-Boje, and welcome, everyone. I am pleased to report that we, despite the COVID-19, delivered solid financial results this quarter and our measures enabled us to safeguard our employees and continue to deliver fully functional and relevant services to our customers through this time. During the second quarter, revenues have improved and EBITDA for Schibsted, excluding Adevinta, was NOK 498 million, which is significantly better than the first quarter. Furthermore, I'm excited that we have come to an agreement with Sanoma to acquire their Finnish multi-vertical online marketplace, Oikotie. And with this acquisition, we've strengthened our position in jobs and real estate in Finland, and we are confident that this acquisition will help us create more value for all our stakeholders going forward. During the second quarter, our Nordic Marketplaces have seen a revenue decline, driven by lower volumes, specifically in April and May, while temporary cost savings secured still solid margins. In June, volumes have continued to recover in all verticals, and motor seems to be rather resilient, actually, showing year-on-year volume growth for June in both Norway and Sweden. If we look at News Media, revenues from digital subscription showed strong growth. Advertising revenues declined significantly year-on-year, driven by COVID, but -- yet performance was strong given the market environment, and this is due to focused product development and high sales activity. I think this, again, was enabled by our decision to not do group-wide temporary layoffs back in March, but rather focus on the possibilities for the midterm. EBITDA is down year-on-year, but improved significantly compared to the first quarter, with a strong margin of 8%. The announced cost program is on track, and implementation has started. If you look at Lendo, we have seen an underlying revenue decline this quarter, but trends have also here improved in June. And finally, our e-commerce businesses, Distribution and Prisjakt, had, had a tailwind from the changes in consumer behavior during the COVID pandemic and recorded strong revenue growth in the second quarter. So with that, operator, I'll turn back to you, and I hope you can organize our Q&A session, please.

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

I hope you can hear me well. This is Adrien from Bank of America. So I've got a couple of questions, please. Two in the short term, the one for the long term. First of all, you made this morning some comments around the margin outlook for Swedish classifieds. Just wondering if you could clarify for us what you meant by margin decline in H2? Is it year-on-year? Is it compared to the first half? And if you could provide maybe some quantum, that would be great. That's the first question. The second question is, can you discuss perhaps some advertising trends that you see in Q3 2020 for the News Media business? And the third question, more for the long run. Just wondering if you could discuss the economics of the transactional model in classifieds from an EBITDA margin perspective? How long does it take to breakeven this activity? And what sort of long-term potential can you achieve with the transactional model?

All right. Christian here from Nordic Marketplaces. I'll try to answer the first question about margin development in Sweden. So we had good margin development now in Q2, which was stable compared to Q1 and a slight decline from Q2 last year. And we see that there will be most likely a slight decline also in the second half of 2020, but we are not being more specific than that, I think.

I can then comment on the advertising trends in news. So there's been an improvement during the quarter. And that trend continues into July, but we are 2 weeks into July. And July is a special month anyway. So I think it's very difficult to predict the advertising market because it's even more unstable and unpredictable than it normally is. We have, however, ever seen that some of the product innovations that we did during this quarter, launching new advertising products has had success. We also see that, for example, content marketing works really well, and we see good growth in that. We also see that it's the national, sort of more classic FMCG, et cetera, customers that still buy a lot of advertising, while it's typically the more retail-oriented, regional, smaller customers that suffer. So I don't know if that answered your question fully, but I believe it's hard to give visibility on the advertising market going forward. Do you want to do transaction one, Christian?

Yes. And then I can try to respond to the last question around transactional models. We have said that the transformation to transactional models will be a key growth driver for Nordic Marketplaces going forward. So it's an area of lot of interest and effort from our side. And we are already doing quite a lot here. We have some examples as Casa, which is a transactional model for rentals in real estate. We have Nettbil, which is the consumer-to-business side of car transactions, and we are also doing C2C transactions. And with regards to the economics of it, we see that when we transform from an advertise -- ad-oriented model to a transactional model, we may increase revenues as much as 10x, 15x, even 20x or 25x in some areas. So that is really interesting, even though the whole volume will not transform that way. EBITDA margin-wise, we think that some of these models will have a lower margin because there are costs related to performing the transaction. So there may over time, but I think it will take some time to beat some margin contraction as a result but, of course, then with higher absolute EBITDA.

That was extremely clear, Christian. Yes. Very, very clear. And just very sorry to be picky on my first question. When you say a slight decline, you are mentioning -- referring to the 42% you have achieved in the first half?

Yes.

Which is classified, probably. Okay, very clear.

We will take our next question.

It's Silvia Cuneo from Deutsche Bank. My first questions are related to the acquisition in Finland. You mentioned this morning that you're planning to implement the marketplace playbook to leverage the generalist traffic with the vertical penetration. So can you please share some operational metrics to point to the benefits of operating both generalist and vertical models? For example, in terms of what set of traffic typically also visits at least a vertical trade over time. And just wondering if this will be applicable in the same way to Tori and Oikotie even if you maintain the brands separate? And also, can you please discuss the market share position of Oikotie in terms of customer penetration for the jobs and real estate verticals? And finally, can you share some details on the positive performance in the car vertical? Both Norway and Sweden returned to growth already, thanks to the new product. Can you please talk more of what that gives to car dealers? And what was the underlying performance of the listings? And also in detail on the local car markets there would be great.

All right. Those were a lot of questions, but let me try to answer them. Yes, you are right. We are going to leverage the playbook that we have used before, where we try to combine a generalist with very high traffic and broad reach, but maybe not the best monetization mechanisms with the verticals that have usually lower traffic but better monetization. So we can, for example -- and I mean I showed some examples of that in the presentation today, where you could see the difference between Tori and Oikotie. So we are planning to use the traffic of Tori to drive more users than to Oikotie, or even use some of the ads on Oikotie and distribute them through Tori. You can also just mention that the Tori has 33 million visits per month, while Oikotie has 11 million visits per month, just so you can compare. And we can do this even with separate brands. We have done that in many other countries. Spain is a good example, where this is used successfully in that way. Then, the question was around the market shares in Finland. I don't have the exact numbers of market share. But what I can say is that in jobs, Oikotie is a clear winner, a clear leader, especially in the white-collar segment. In real estate, we are strong #2, just slightly behind the #2 -- the #1, sorry, which is Etuovi from Alma Media. And we are in a quite strong position in the Helsinki region. But I don't have the absolute market share numbers. Then, finally, the question was about the motor vertical. And I took it as that, that question was related to Norway and Sweden. And yes, you are right. The car or motor market has -- is actually the market that has normalized the most and which is in positive territory, both for Norway and for Sweden, where we have seen positive growth, particularly towards the end of the quarter.

Okay. Just on the last question, on the motor vertical, also, the question was if you could maybe share some detail on the underlying performance of the listings given the -- I understood this may mean that the growth was driven by the new product you introduced in Tori. So if you could talk about the trends underlying?

Generally, what I can say is that traffic has been growing very solidly in all the sites. And that also means that the underlying performance of the products that we have in the market has also been very good, yes.

And just to comment from my side, I think, Silvia, we also relate to maybe to the effect in Sweden from the change of the pricing model which we had last June. And also, in addition, then we introduced like bump as features. So before we had a slot-based model, you could basically just repost your car to come on top in the listing. Now with the new pricing model, you have basically have to buy a bump to come on top. So this also has an effect basically on the revenues in Blocket, which then leads to 11% underlying revenue growth in the motor vertical in Q2.

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

It's Lisa Yang from Goldman. I have a question on Finland. Would you be able to elaborate on the time line for rolling out new products and services once you consolidate Oikotie? And do you think it could require further investments in the near term? And when do you think we should start to see the benefit? And also curious why you don't want to integrate the 2 platforms that could also potentially result in potential cost savings? So just curious to hear your thoughts around that. The second question is on Lendo. I think you mentioned you've received a PSD2 license. I'm just wondering if you can explain sort of what that means? And how should we think about the potential opportunity -- expansion opportunity there now that you have this license? The third question that is on News Media. I mean clearly, very, very strong cost savings in Q2. I'm just wondering if you could maybe give some color in terms of how much of this NOK 100 million cost-saving program you're expecting for the year was already done in Q2? And whether it could be upside to that NOK 100 million number for this year and potentially to the NOK 500 million number that you're talking before the -- by the end of next year? And the very last one, if I may. Obviously, jobs is clear. And I think, the nearest concerns from the investors given it's more cyclical, is it possible to have an exit rate for jobs at the end of June for Finn? And how should we think about the lag between the listings and revenue?

Okay. I can begin with the first question around Finland and time line for launching new products and services. I think it's fair to say that, particularly in the real estate area, we are going to invest in the time going forward to really strengthen the offering in the market and to be able to move from this strong #2 position to a winning position in the market. So that will take some time, and we don't have -- we're not going out with a set time line for that, but you can expect that there will be investments for some time to really capture that #1 position. Then, when it comes to combining the platforms and synergies, I think, first of all, I want to say that I think the main rationale behind the acquisition in Finland is not cost synergies, but it's about scale and presence in Finland. That said, we are going to combine the 2 organizations into 1 integrated organization, 1 integrated technology team, for example. And therefore, I think it's probably likely that we, over time, will find that some things will be developed together and hence, be a more efficient organization from that point of view, also from -- and also on the technical side.

All right. I can try to do the one on the license. So we -- yes, in June, we were granted that license by the Norwegian Financial Supervisory Authority. And basically, it makes it possible for us to expand our service offering into payments and account services, and that will open up opportunities for serving both our users and the bank partners better than today. It will also enable us to create new types of services, and then we will get back to you when we have those specific services ready for the market. I can also add that the license is granted in Norway, but it can be utilized in all markets through this global setup that we have established in Norway now. And then when it comes to the cost savings in News Media, we haven't quantified how much of the new savings are taking place in the second quarter, but it's just an indication to say that some of it is already being implemented and showing. But I think it's -- it wouldn't be correct to try to specify too much. However, I think it's fair to say that we expect this year's savings to be north of the NOK 100 million. I would be careful to try to be too specific as of how much beyond the NOK 100 million.

And then there was a question around the jobs market and the exit rate, and I don't think we will give concrete numbers on that. But we can just reiterate to say that there has been an improvement throughout the quarter.

Okay. Can I ask actually another question, please? On M&A, now that you've done Oikotie, and I think your leverage is going to end up at over 2x at the end of Q3. Do you think that means an opportunity in Sweden is probably less imminent? How should -- how do you think about future M&A opportunities for Schibsted?

No. I think, first of all, I mean during -- in the not too distant future, I mean this will again be deleveraged. And then I also believe if the right opportunities occur, it should be possible for us, with our very good bank relations, to manage to finance -- have a bridge finance in the shorter term if that should be necessary. But we feel we are in a solid financial situation, and we will keep pursuing interesting opportunities.

We will now take our next question.

This is Eirik from Carnegie in Oslo. Many have been answered, but I have a couple. So the first is on Finn. Just wondering kind of how you're working with your jobs customers there to reboost the listings? Are you solely dependent on the return of the job market? Or are you considering other short-term actions, for instance, price or payment deferrals to boost listings? My second question is on your targets. You stick to the 8% to 12% revenue growth in Nordic Marketplaces. Based on historical growth rates in Oikotie and the potential we see now, will this asset come in and contribute to 8% to 12% revenue growth from day 1, correct me for COVID, of course? Or should we expect that it will take some time before growth really ramps up to the 8% to 12% level? Just trying to get a picture of what the market should expect in the form of P&L impact going forward. And my final question is that you seem to be doing a lot of things right in Distribution with your new businesses there. There has surfaced rumors in the Nordics that Amazon is close to entering the market from a central warehouse in southern Sweden. Could you please share your thoughts on how a potential Amazon entry would affect your new businesses in Distribution? And do you see this mainly as a threat or a potential companion?

Okay. I can begin by commenting on the jobs market in Norway. It is right, as you said, we are, to a large degree, dependent on the underlying jobs market because we are, I mean so strong in Norway that we will follow the underlying market. That said, there are things we can do and the sales team that we have, they have worked quite a lot now to work with customers to sell, upsell products and so on, that has actually increased the revenue in that vertical. We have not done anything in terms of reduced prices or deferred payments and so on, as we have not seen that to be required in the jobs market. And then with regards to the long-term charges of 8% to 12% growth, we are not commenting on individual sites or assets with regards to that and also not in the short term. This is a medium- to long-term target.

Okay. I'll do the one on Distribution. I'm happy to say that because I am personally extremely excited about it. And I think you might be right. We also have reasons to believe that Amazon is on its way. And for now, we have the Distribution business only running in Norway. And as you know, we are a rather dispersed populated country with a difficult geographies. So for Amazon to build up a separate distribution network to serve Norway is very unlikely. So they will seek partnership with existing players. And beyond that, I can't really comment because it's hard for me to predict how they will -- what they will do, but it would surprise me if they establish their own network.

We will now take our next question.

[indiscernible] Actually, I just have 2 questions left here. Firstly, on your EBITDA margin guidance for Norway. You guide for being in the high end of the 40%, 45% range. I mean all I can see that implies quite sharp margin contraction in the second half of the 2020. So just wondering if you could talk a bit about the drivers behind that assumption. And then secondly, I think I read something about your Nettbil transaction being under investigation or coming under investigation of the Norwegian Competition Authorities. So just wondering if you could talk a little bit about that as well, sort of what their main concern is? And what you believe the main possible consequences could be of this?

Okay. It was a little bit difficult to hear you, but I think I got the question. First was about EBITDA margin for Norway. And we indicated that we will be in the 40% to 45% range. And if the positive trend of the market recovery continues, we will end up in the upper end of that range. I think then it's important to note a couple of things. One is that usually -- Q2, for example, is usually the strongest quarter that we have in Finn, while Q4 is actually the weakest quarter of the year. So that's also kind of a normal thing in any year. And then, in addition, I also said that we have now done quite significant temporary cost reductions. And as I indicated in today's presentation, we are now seeing market to recover, and we will increase our investments in growth in Finland. That will also potentially contribute with some softer margins in the second half compared to what you have seen, I mean in this quarter, for example. And then the second question was around Nettbil, and it is correct that the Competition Authority is reviewing the deal, and we are in dialogue with the authorities. And we hope that, that will resolve itself, but we are not kind of commenting on the details of that review as it is ongoing.

[Operator Instructions] It appears there are no more questions at this time. I'd like to turn the conference back over to Mr. Jann-Boje Meinecke. Thank you.

Great. That wraps up the Q&A for our earnings call today. Thank you so much for joining us, and myself and whole management team is looking forward to speak to you soon. Thank you so much.

Thank you.

Thank you.

That concludes today's call. Thank you for your participation. You may now disconnect.