Earnings Call: Q2 2021

Aug 19, 2021

Welcome to the North Media Q2 2021 Interim Report. Throughout the call, all participants will be in listen only mode, and afterwards, there will be a question and answer session. I will now hand the call over to your speakers. Please begin your meeting. Hello, everyone, and welcome to this presentation of Northmedia's half year results and the revised full year outlook. We appreciate your interest. And going forward, we plan to host calls for international investors twice a year to service the growing shareholder base outside of Denmark. Please turn to slide 2 for today's agenda and lineup. My name is Cor Vee. I'm Group Executive Director and CFO, and I'm joined by my two colleagues and Executive Vice Presidents, Lasse Brot, CEO of FK Distribution and Henrik Gluevi, CEO of Online, that's Olli Pottel and Ophir. We will kick off the presentation with a couple of highlights and my colleagues will then detail the businesses' performances and outlook. We will end the presentation with 6 month financials, full year outlook and a brief update on our strategy, followed by a Q and A session. And with these opening remarks, let's go to Slide number 3, please. Consolidated revenue in Q2 was DKK259 1,000,000. Revenue was up 2% from Q2 last year, where we saw some impact from the close down of Danish Business Life and Society amidst the corona pandemic. Last Mile recorded 1% growth, while growth in the digital services was 13%. EBIT came at DKK68 1,000,000 versus DKK56 1,000,000 last year. And the EBIT margin improved 4 percentage points to 26.1 percent, driven by efficiencies, cost savings and better product price mix. All businesses, except for BK, were profitable. FK Distribution and Ophir delivered solid margin improvements, While Bolivotal sustained high margins despite introduction of freemium products and higher marketing spend. Net profit, excluding return on equities, was DKK51 1,000,000, a decent improvement over last year. Overall results were largely as expected. We made good progress with our strategic priorities And we are revising the full year outlook upwards. We will detail all this during the presentation. First, I'll hand you over to Lasse for a review of FK Distributions performance on Slide 4. Hello and welcome everybody. I will take you through our last mile segment, FK distribution. And for the Q2 of 2021, the revenue was up 1%. Volumes were stable and prices were slightly higher than last year. EBIT in the second quarter was DKK 62,000,000 Which is an improvement of DKK 8,000,000 driven by cost saving from the ongoing optimization of our operations. Market conditions were relatively stable. Our DCL volume development in a little while and A landmark event obviously was the expansion of the contract with Deutsche Post, Well, we were more than tripled in volume. We started packaging leaflets for 480,000 households in the Northern Germany On the 1st July this year. This is no game changer in financial terms Because the real money lies in the door to door distribution, which Deutsche Post continues to handle. The agreement is a seal of approval of our effective climate friendly packaging setup. And we hope this agreement could be A stepping stone for additional business outside of Denmark. Initially, we are exploring the potential for pacing for up to 2,000,000 households in Germany. The 6 month revenue was down 3% at DKK431,000,000. Q2 was solid, while Q1 was softer because border shops, shopping centers and minor customers Rescheduled campaigns during COVID-nineteen lockdowns in January February. Half year earnings were DKK124 1,000,000 and we succeeded in lifting the EBIT margin by 2.3 percentage point to a total of 28.7 percent despite the lower top line satisfying results all in all. Please continue to slide 5 please. I'd like to offer some insights into volumes. Leaflets, local newspapers and direct mail remain our core business And account for more than 90% of revenue. The reminder is digital offerings And logistical service for 3rd parties. Just for comparison, we expect the revenue from the Cooperation with Deutsche Post to account for around 1% of our total revenue in 2021. Historically, printed matter volumes declined by around 88% per year driven by retail consolidation, Increased online shopping and mergers of local newspapers. Last year COVID-nineteen gravitates This development and led to a 10% volume drop. This year volumes are down 4%, reflecting that we expect a lower structural decline in volume going forward. Notably, the large supermarket chains, electronic chains, Business merchants and other large retailers continue to rely strongly on leaflets to drive customers into stores. In fact, volume from the bigger customers this year are either unchanged or even higher than last year. And we have Only recently extended our existing agreement with 1 of Denmark's leading retailers selling group through to 2024. Oppositely, small customers reduce volumes. They may be more exposed to structural changes in retail or they may have been hit harder by COVID-nineteen forcing them to reduce marketing spend. Moving to the full year outlook, we narrowed the guidance range in May. Last week we upgraded guidance. We now see full year revenue between DKK 865,000,000 and DKK 880,000,000 with an EBIT result of DKK235,000,000 to DKK 245,000,000. This mirrors highly visibility with regard to demand and COVID-nineteen effects. That's it for me for now. Please turn to Slide 6 with Henrik and Olli Pertwej. Thank you, Lesa, and also a warm welcome from me. Right now, we are in the process of refining Bolivotal's business model. We're introducing subscription based products and services, but we are also giving away certain products for free to Solidify the new platform. As we have outlined in the annual report, these changes were expected to leave a mark on performance in the first half year, and they did. Growth was 1% in Q2 and 3% in the first half year. That is somewhat below the growth rates we have grown accustomed to and which we eventually expect to return to. In spite of introducing these changes to the business model, we were able to produce a profit margin of 35.5 percent in Q2, while the profit margin in the first half year was slightly down to 31.8%. This corresponds to an EBIT result of DKK 13,000,000, which we, in all fairness, believe is a good result. Slide 7, please. The new platform in Volvo Cell is progressing well progressing well. Basically, we are in the process of expanding our addressable market by adding 3 new revenue streams with significant commercial potential. Together, they hold the potential to secure polyporsair larger and more stable and predictable income and cash flows. Let me elaborate on these 4 revenue streams. The first revenue stream, the marketplace, remains the focal point of Holopetse. We match HomeSeek is landlords in a controlled and secure environment where all landlords and housing units are fully validated. We are the undisputed market leader in Denmark, and we have an emerging presence in Sweden. We're using data from the market to develop and launch new SaaS products and services. This brings me to the 2nd revenue stream, which is data. We arrange more than 110,000 rental notes in Denmark. That accounts For 50% to 55% of all transactions in Denmark, and we're in dialogue with even more tenants via the marketplace. So we know the market inside out. We know where demand is, what potential tenants are looking for, who they are and what they're willing to pay, etcetera. We have the same insight into the supply side, the available homes, rents, rental periods, etcetera. So we are currently launching a new subscription based online solution, combining all demand and supply factors with information from public registers. This solution based on data allows users to access the rental market virtually and gather information Even down to street level, one of the first subscribers is the Danish Central Bank, National Bank. And we hope that this solution will be in demand among Developers, real estate companies, managers, banks, contractors and landlords. The 3rd revenue stream. Subscription based services designed to help small and medium sized landlords Administered properties and their property portfolio. Services here span from advertising, market data and rental management solutions, Whatever the landlord needs to run his property and property portfolio. And finally, the 4th revenue stream, Service Providers. We offer solutions to tenants who found their new home on our marketplace. We currently offer Access to electricity providers with good traction and conversion rates. Last week, we added an insurance partner to the portfolio. Later in Q3, We'll be adding a broadband service partner to the portfolio. All service providers pay all of the fee for each reference, And we made it easy and safe for tenants and landlords to choose a service provider. To drive more landlords and tenants into our ecosystem, we're giving away certain products for free. In June, we launched a new digital rental contract free of charge. And other products and services will follow here. The new products are expected to drive double digit growth from Q4 And onward. We are slightly behind the plan, and we have decided to lower the 2021 guidance accordingly. We now expect the full year revenue to come out between DKK90,000,000 and DKK94 1,000,000 with an EBIT result of DKK 29,000,000 to DKK31 million. Despite the slight downwards revision, we continue to target top line and earnings growth compared to last year. Slide 8, please. Let's have a look at our job platform. Ophir had an excellent Q2 where revenue more than doubled. Q2 was in fact the 4th consecutive quarter with high double or even triple digit growth As you will appreciate from the figure. The market is strong. The Danish economy is recovering after COVID-nineteen, But we do estimate that Ophir has outgrown the market in recent quarters as Ophir strengthens continues to strengthen its market One of the most recent initiatives is a partnership with Google for Jobs, which fits perfectly with Orpheus Focus on posting job vacancies on Sony, including Google and LinkedIn. Revenue growth in the half year was 84%. Progress was driven by higher volumes of job postings and better prices, whereas income from software licenses continued to drop full year as expected. The half year EBIT result improved to a profit of DKK 3,000,000 corresponding to an EBIT margin of 18%, the best ever result for Ophir. Next slide, please. A key strategic priority for Ophir is to grow the business with private employers. Ophir has a traditional stronghold among public employers, but we strive to win market shares by adding new customer groups. As you'll see from the figure, These efforts have started paying off. Revenue from private job openings has grown by 180% since January 2020, While revenue from public jobs is up by 70%. Orpheus has invested heavily in its infrastructure and data platform And develop a comprehensive job universe. Vacancies are being posted on several job portals and social media channels Supported by our large candidate database. This approach allows us to target both active and passive job seekers and create high job ad Effect for our customers. We originally targeted 36,400 jobs this year, But we may now be looking at around 40,000 job postings in 2021. Based on this forecast and better than expected results, We are updating the full year outlook. Revenue is now expected between DKK 31,000,000 and DKK 34,000,000. That's 50% to 60% growth over last year. Likewise, we're raising EBIT guidance to DKK 3,000,000 to DKK 5,000,000, Up from the previous DKK 1,000,000 to DKK 2,000,000 range. And these numbers underline that restructuring Ophir is history. We have now entered a phase of profitable growth, and we are still far from realizing the full potential. With this, I'll hand it over to you, Karl. Next slide, please. Thank you, Henrik. And let's continue with B Key, which is our business with digital access to locked doors. BK numbers in the first half year were soft, but we expect top line growth to return in the second half year. 6 months revenue was down 18% due to postponement of planned home care projects. Last year, we on boarded 3 municipalities, and they paid an upfront fee for implementation of our systems and installations. This year, we have planned to implement expansion of 3 existing municipal customers, but all these implementation were postponed by the customers. While the contracts are secured, we don't know yet whether implementation is deferred to the second half This year or to 2022. And thus, it also impacts our full year guidance, as I will address on the next slide. Meanwhile, we continue to invest in developing the new market segment, stairwells, which holds an attractive potential supported by trends such as convenience, online shopping and sustainability. Stairwells caters to home deliveries of groceries, Parcels and post as well as property administrators and others with legitimate business in secured multistory buildings. We installed a chip, we call it smart relay, in the entry phones of secured stairwells. And this allows our customers To enter the building and deliver goods to the end user's doormat even though the end user is not at home. EBIT was a loss of DKK3.5 million corresponding to an EBIT margin of minus 30.4 percent, Compared to a loss of DKK3.3 million and an EBIT margin of minus 23.6 percent in the first half of twenty twenty. Slide 11, please. In the second half of twenty twenty one, We are continuing to invest in the stairwells segment. Coverage is undisputed, and we are increasingly gaining commercial traction As witnessed by the cooperation with the online supermarket, nimli.com. Smart Relay is now installed in 25 1500 stairwells in Greater Copenhagen. This equals 57% coverage, and we now target 60% coverage by year end, down from the previously communicated 70%. While we are not satisfied with the speed of new installations And thus need to downgrade our ambition for this year, there's no doubt that the existing coverage is sufficient to support our expansion in the Stairwells segment. As also witnessed by our ability to attract important customers such as nimli.com. We have slightly adjusted our approach and are increasingly prioritizing large property managers To gain efficient access to many stairwells through one contact point. Due to the continued investments And especially the delayed implementation of home care projects, we are lowering the 2021 guidance to full year revenue of DKK 26,000,000 to DKK 30,000,000 and narrowing our EBIT guidance to between minus DKK 7,000,000 and minus DKK 6,000,000, Thus in line with last year's results. Next slide, please. Let's turn to the group's interim accounts for the 1st 6 months. Revenue was down 2% to DKK502 1,000,000 following the lower structural decline on last mile volumes offset by the businesses in digital services, which recorded 10% growth overall. EBIT was DKK 132,000,000 an improvement of DKK10 1,000,000. The profit margin increased by 2.4 percentage points to 26.3 percent and both Last Mile and Digital Services improved margins. The net result was DKK 151 1,000,000 versus DKK 138 1,000,000 last year. This improvement was driven by Higher operational earnings, but we also had slightly higher returns on securities. Cash flow From operations were down to DKK 66,000,000 which is DKK 114,000,000 lower than last year. This is primarily due COVID-nineteen related postponed payment of VAT and taxes plus changes to the holiday allowance scheme. Last year, we, on the other hand, benefited from the postponements. This year, we settled the last outstanding payments. As at June 2021, our working capital is back to normal. Adjusted for these factors, Cash conversion remains high and investments remain low. Finally, DKK771 1,000,000, an increase of DKK32 1,000,000 from year end, in spite of dividend payment of DKK91 1,000,000 and the before mentioned postponed payments. All in all, solid results, leading us to an update of the full year guidance On Slide 13, please. Last week, We revised the full year guidance for the group. We now expect revenue between DKK10.15 million and DKK10.35 million. We have basically added DKK 20,000,000 to the previously guided revenue range. We now see an EBIT result of Between DKK 250,000,000 DKK 265,000,000 versus the previous outlook of DKK235,000,000 to DKK 255,000,000. Hence, earnings are expected to exceed last year's result, driven by progress in both business areas, Last Mile And Digital Services. The guidance upgrade reflects higher visibility for FK Distributions demand post COVID Ophir's better than expected results as well as the minor download revisions made by Bolivotal and BK. This outlook is subject to COVID-nineteen. Currently, the pandemic is well controlled and doesn't materially affect Danish Business Life. We assume this will also be the case in the second half year. Slide 14. While it's still early days, we can start adding check marks to some of our priorities and our new strategy. FK Distribution extended its cooperation with Deutsche Post. That's one of the efforts targeted to offset the modest Structural volume decline. Other efforts include adding new products to the portfolio, developing new offerings And strengthening the digital activities. Bolivotal is in the process of expanding its addressable markets by rolling out the new platform. Ophel has solid growth in private jobs and continues to strengthen social media and data research capabilities. BKI Added one important client in the stairwell segment on its way to gain critical mass in this new segment. We expect to see an impact of these growth initiatives in 2022, where they support our ambitions to grow group revenue organically by around 3% and strengthened earnings. And now let's turn to Slide 15. This marks the end of our presentation. We are now ready to take your questions. Operator, please go ahead with the instructions for the Q and A session. The first question comes from the line of Blowitz Kiergaard from ABG. Please go ahead. Your line is open. Hi, Cor, Les and Henrik. Am I getting through okay? It's fine. Hello? Yes, sir. So first of all, great idea for this type of conference call. I think many companies could perhaps aspire from that. And lastly, a question Map of Germany, where the highlight areas where they're moving from plastic binders to sustainably friendly binders, Which I guess is something that you are currently helping them with across Germany. Could you give us an update on if you look at your market in Germany and Deutsche Post, What is the potential for FK Distribution in terms of the further collaboration with the company? Yes. First of all, we are very satisfied that our developed band roll has this huge impact on the Deutsche Post. And they have chosen This solution for the whole market. That means that we right now deliver 480,000 to 480,000 households each week. And Our aim is to expand that to around 2,000,000 households in the Northern Germany. In other parts of Germany, Deutsche Post are testing with other companies how to deliver Leaflets in paperbound arose in that certain areas. So That's why we are saying that this is not a game changer for FK distribution. We hope that this will be a stepping stone For FK, we have the most advanced and highly automized production facilities And Technologies and we are looking into how we can benefit from that. [SPEAKER LARS FRUERGAARD THOMAS:] But in the matter of packaging and this paper bundle, we have some limitations regarding the geography [SPEAKER JEAN LOUIS SERVRANCKX:] Because we are producing out of Thilst in JAKLAND and there's you can say there's a limit for how far we can drive We can transport leaflets down to Germany. And right now we are looking into 2,000,000 households as an aim for us And that is around down to Hamburg. Deutsche Post does a lot of development with Other companies around Germany. And I cannot tell I don't know anything about how they are succeeding in testing in other RF. So it's not like you could be delivering the technology to perhaps other suppliers In other areas of Germany where you don't necessarily pack for Deutsche Post, but you perhaps provided technology for other companies to do it, That's not a likely scenario. First of all, the scenario for us is to be the best in class in Northern Germany. But if they're testing other solutions, then I guess there's other solutions in the market And there's no is there possibility of them using your solution? Not at this moment. At this moment, we are focusing on Northern Germany. If we can collaborate with other companies down in Germany, that would be nice. But for now, we are focusing on A stable production in the Northern Germany. If that scenario changes, of course, We will communicate that as we are used to communicating Our findings and market definitions. That's very clear, Lasse. Thank you very much. And maybe another question from my side, if I may. Cor and Henrik, in your strategic targets, you include M and A activity. Man, you obviously have a great deal of flexibility in your capital reserves to do some M and As. We've heard from quite a lot of Conglomerates companies that they have been quite limited to do acquisitions because of COVID-nineteen restrictions That they weren't able to meet potential takeover targets. Have you witnessed this effect? And could you also perhaps give us an update on what you perhaps Looking into and is this more is there high likelihood of bolt on acquisitions to the other businesses? Or are you Perhaps wanting to add a 4th, let's say, business to North Media. Thank you. Henrik? Yes. Thank you, Laurence, for the question. As we have talked previously, We are working on this as well as on our other strategic priorities. The most likely scenario would be that we would do acquisitions in order to strengthen the businesses that we already Focus on, so a 4th new business area is not the most likely scenario. If we have a substantial news here, we of course will communicate that, but It's not like I see that everything has closed down due to COVID-nineteen. There still has been a lot of activity in this M and A area when it comes to digital businesses. And what do you say? I'd like to add, Laurence, the DKK200 1,000,000 we have allocated in this 3 year strategic period, That's a target that might as well be DKK50 1,000,000. We are not in a hurry. It's very important that If we do an acquisition, as Henrik says, it fits our existing businesses, and it Should be within an area where we can actually add some of the scalability that we know something about. So we are not looking just to buy something at a very high cost. It has to be something we can scale and grow further. And if it turns out to be too expensive or we don't really find anything, we are not in a hurry. The priority number 1 is to Succeed with the strategic targets and ambitions that we have laid off for the next 3 years. So there's a higher likelihood of perhaps strengthening businesses as Henrik mentioned in terms of perhaps bolt on acquisitions rather than doing something substantially new. But is there also higher likelihood of perhaps taking some of the services that you provide today into different geographical markets? Or would you say it's more adding products to existing geographical markets that you operate in today? It's unlikely it will be a completely new business that we are not into today. And we are already looking To grow our businesses into other countries, Lasse just talked about Germany. We know that Bolivotal is already in Sweden. B Key is already also in Norway. So yes, We are looking to go into other countries as well with our businesses. But 1st and foremost, we need to see that we succeed with the plans that we laid out right now With our current businesses. That's super. Thank you very much for taking my questions and have a great evening. Thank you. Likewise. Thank you. The final question comes from Steve Silver from Argus Research. Please go ahead. Your line is open. Thank you very much and congratulations everyone on the margin expansion and some challenging market conditions. My question is also related to the 2022, 2023 strategic plan. But just without putting a dollar figure on it, Just trying to get your sense as to the funds that are allocated for investment internally. Just trying to get a sense of the prioritization of which units would require the most investment to get them to where you want to be, Would that be of technology upgrades or even international expansion? Just trying to get your thoughts as to which business units would command most of that internal investment? We look at growing all of our activities, both within Last Mile and Digital Services. But on the short term, it's probably more likely than we will grow and invest in the digital services businesses In the short term? Well, we haven't divided and said And allocated any specific amount for any specific business. We have allocated DKK200 1,000,000 for the yes, go ahead, Steve. I Just without putting dollar figures just in terms of which unit requires the most continued investment to get it to where you want it to be Longer term, so just not looking for dollar figures or any allocation? But I think it's the 3 businesses in digital services, for example, they are at, you can say, different maturity levels. The Bordeaux is the most mature and right now adding new revenue streams to the business. Ulfi has just went through a turnaround, and B Key is early days where we are still looking To find and to see and see the business model operate Profitable in BK and the Stairwell segment. So it's not who needs the most. We see and we want to grow all of our businesses. It's just that they are at different stages right now. So we don't have any sort of prices. Thank you. We have no further questions. So I will pass back for any closing comments. We can see here a question that has been has come in, in writing. Lesley, this one comes to you, question 1. The margin improvement NFK is really impressive and it would be interesting if you could talk more about what kind of cost savings You've done in practice and how much savings are still left to be done over the next couple of years? Yeah. I can try to say a little about that and primarily of what we have done. And first of all, for a couple of years ago, we started this process where we were going from 2 distribution periods to 1. And in that matter, we have optimized our business so that we have all our leaflets and newspapers Distributed on Wednesday and Thursday. And we took home we have taken home A lot of savings in that matter, of course. And you can say that the EBIT margin improvement this first half year is The long tail of the optimization process is In distribution where we have more than 10,000 distributors and are distributing more than 1,200,000,000 leaflets Newspapers, there is always a long term a long tail in improvements, Doing things a little bit better. We are a volume driven company and thereby even those small improvements Well, you can see that it will hit through to the EBIT margin if you are in control with your business all over. And you can say we're In pretty good control with our pricing and our terms and conditions. And now we have also been able To optimize our whole value chain after we have done this Reduction in distribution periods. So and a matter of fact it's the long tail, it's everyday work For improvements that you can see in the EBIT market. Thank you. And a second question here For you Henrik, and it's line with the question before on the acquisition side. So maybe you can add something there. Let me read it out loud here. How is the pipeline for acquisitions in digital services? Has there been any discussions? And how do you think about price discipline, I. E. Not Pay too much in bidding, etcetera. Also, would you mainly target profitable businesses or also consider turnaround cases? I think that We talked to a lot of different people. But as you also mentioned before, Cor, we're not in a hurry. We need to see that things fit well with our strategies. I don't think that this turnaround case would be the first priority for us. That would be services or customer base, Which will fit with the growth strategies that we have Thank you. And if there are no further questions, I will just thank you very much for your participation today. We hope you found it useful and interesting.