Vend Marketplaces Asa B

Good day and welcome to the Shipstead 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. Jan Boje Meinecke. Go ahead, sir.

Thank you.

Good afternoon. My name is Jan Boje, and I'm the head of IRN Shipstead. 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 Skogenlund, our CFO, Ragnar Kohus, and also our Head of Group Communications, Asle Lesum. 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 IO website. And Adewinta reported their Q1 results yesterday morning, and their recording and presentation is also available on their site at adewinta.com. Now I would like to hand the word over to Christine to give a short introduction before we start the Q&A. Christine, please go ahead.

Thank you, Jan Boye, 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 in 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 Adavinta, 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 lender 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 trend 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 500 million Norwegian kroner 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, Shipstead refinanced Norwegian Kroner 1 billion bond, maturing later this year, securing our liquidity reserves. We have a net debt level which is lower than our targeted range of 1 to 3 times EBTA. So our financial position is solid. And all in all, we are well prepared to navigate in these 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 slow 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&A.

Please, operator, go ahead.

Thank you, ladies and gentlemen. If you would like to ask a question, you can do so now by pressing star 1 on your telephone. That's star 1 if you'd like to ask a question. We'll pause for a moment to allow people to queue.

We will now take our first question.

Please go ahead. Your line is now open.

Good afternoon, everyone. I have a few questions, please. Firstly, on Blockit, would it be possible to also get a range for the margin target for this year, similar to what you said for Finn? It looks like top line is better, but you're also making investments, so any range would 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, how quickly do you think advertising could come back, you know, especially within news or, you know, do you think, you know, it could further accelerate the structure 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 what would that imply for the overall cost base?

Thank you. 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. 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 cost associated with print and distribution. But for now, it is, you know, the numbers show that 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 one 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 that has, you know, 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 blockers, Ragnar, maybe you want to fill in on that one.

Yes, I can do that. First of all, I would say that blockers have fewer verticals on their hands and also less variable cost base compared to thin blocks. So we are not concrete on the range in the same way as with Finn, but I think we must expect some margin contraction in Blockit compared to what we have seen in previous quarters.

I understand it's very difficult to predict, but would it be possible to at least get a sense of maybe the first week of April versus last week of March, how that has to get a bit of figures that would help us?

I was going to say that if you look at the first First weeks of April, then we see a drop over around 25 to 30 percent. Twenty-five to 30 percent? Okay. Thank you.

Thank you. We will now take our next question. Please go ahead, caller. The line is now open.

Yes. Hi, guys. from Carnegie. Thanks for taking my questions. Two quick ones. Number one, I was wondering if you could give a bit of color on potential price cuts and or payment deferrals across Nordic marketplaces and how you're working with your customers there. And number two, in your presentation earlier today, you noted that you see a relatively high willingness to pay for your news media product. Could you give some color on the ARPA level and or revenue mix effects in Q1? So the volume versus price for the subscription papers, or not the subscription papers, but the subscription revenue.

Thank you.

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

Great, thank you.

And just on the willingness to pay and ARPU levels and or revenue mix effects in Q1, what's really been driving 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. Okay, perfect. Thank you.

Thank you. We will now take our next question from Mikael Linda from NS Intercenter. Please go ahead. Your line is open.

I have some questions regarding price act that has historically grown 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 is the situation here?

If you look at preset, the business model is actually based on two revenue streams. It's advertising, display advertising, and then it's sort of the click spec and click based. What we have seen, particularly in sort of the last part of the first quarter, as a result of the, of the, of the crisis is that the, we have seen a very strong cost of development on the click volumes, whereby the display advertising has, has been quite significantly reduced. So that is the main effect for the, for the short term.

Thank you.

Thank you. We will now take our next question. Please go ahead, caller. Your line is now open.

Good afternoon. Thank you very much for taking my questions. My first question is a follow-up on the cost factor. Can you please describe 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 ships that are 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 this pin, you clearly stated you plan to be a long-term owner of ADEVINTA. but just wondering if you would consider reducing the stakes slightly if in the current environment you need more flexibility from a liquidity standpoint or to return to your cash return policy.

Thank you.

I can maybe start on the Adavinta part and then maybe Ragnar you do the cost part later. So we maintain our ownership strategy for Adavinta. We have a We look at that ownership long-term. We want to support Adavinta, and if any opportunity occurs 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 Adavinta. 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?

We look at our cost structure, but on a more general basis, I can say that the cost base is sort of the, It's a larger part of fixed costs 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 our reduction in advertising, the main rule, hit the bottom line of EBITDA, more or less over 100%. With respect to marketplaces, we have said that we target an EBITDA range of between 40 and 45% for FIN for 2020, meaning that There are some flexibility in the cost base also if the market should soften even further from 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 cost program, which was announced this morning. with 500 million, with 100 million the second half of 2020, and 400 million next year to take out costs going forward, but more in a structured way because costs aren't as flexible as Nordic marketplaces.

Thank you.

Thank you. As a reminder, if you would like to ask a question, you can do so by pressing star 1 on your telephone. We will now take our next question. Please go ahead. Caller, your line is now open.

Hi. In Arctic. 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 USMIDA, you stated in your report that restructuring costs will occur in relation to the cost reduction program. Could you quantify this more? Thirdly, M&A, can you give any color on what segments or countries you are looking at and perhaps if you think it's possible to look into an acquisition win in Sweden classified, again, given the competition of tourists this view last time. Thanks.

I can maybe start on the M&A, and you can prepare the other two, 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 And 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 candidates. 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 cost without actually being that clear on exactly how much that will influence the margins. That will also, of course, be dependent on the top line development in the quarters to come. Within other growth, this area has been quite severely hit by the advertising revenues. One of those companies are ad-based. But we have started to implement cost reductions within these areas as well, reducing marketing, inlet to deal. We also sort of made some more structural, taken some more structural initiatives, including reducing the number of employees. 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 give clear guidance on that, so on the short term, due to the, due to the, to the low visibility on the revenue side.

And then I guess it's fair to say that we're also wrapping up some of our efforts within distribution, which is seeing very strong growth now.

And the push effort is also requiring some investments.

Thanks. And restructuring costs within used media. I don't know if you could quantify this anymore. I believe it's too early to say.

I think we'll have to come back to that. Okay, thanks.

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone. Star one if you'd like to ask a question. There are currently no questions. Oh, pardon me. We will now take our next question. Please go ahead, caller. The line is now open.

Hi. Good afternoon. This is Martin Reska from BNB. 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 zero. Do you have a similar figure for how the development was in Blockit in Q1?

I don't have a figure.

I can say that Blockit was more or less in the same areas as him.

Okay, thank you. Thank you. There are currently... Well, I guess then we just want to thank you all for listening in and your good questions and wish you a good... That will conclude today's conference.