Welcome to the North Media A/S Interim Report Q2 2022. Throughout the call, all participants will be in listen-only mode, and afterwards, there'll be a question-and-answer session. I'll now hand the call over to our speakers. Please begin your meeting.
Hello, everyone, and thank you for joining us on this presentation of our half-year report. My name is Lasse Brodt. I'm Group CEO. With me today is Group CFO Kåre Wigh. First, we would like to kick off the presentation with a few highlights on results and strategy. Then we will look into performance and sales trends across our businesses. We'll finish with the outlook and financial ambitions before we open for the Q&A session. A few financial figures to set the scene. Revenue in Q2 and the first half year was slightly up to DKK 260 million and DKK 508 million, respectively. Double-digit growth in Digital Services was partly offset by a minor decline in FK Distribution.
The EBIT margin was solid, around 20%, and we are dealing with cost inflation in FK Distribution, while growth initiatives in the Digital Services also impacts earnings this year. The cash conversion remained high, free cash flow was up to 93 million DKK. We have the strength to meet strategic objectives and exploit opportunities. Capital resources were DKK 671 million , despite dividend payments and unrealized losses on securities. Our overall results in the first half year were as expected. Looking at the big picture, we are on track with the strategic initiatives outlined in the annual report in February. Starting with FK Distribution, growth, the digital platform MineTilbud, and selected mail exceed plans. This is important because these activities are designed to offset the minor structural decline in volumes in the core business.
We need to sit down with Deutsche Post and discuss how we can expand volumes in Germany while sustainability initiatives in FK are well on the way. BoligPortal's transformation from marketplace to full rental housing platform is progressing. Income from our new partnerships is ahead of plans, and we expect Boligmanager and Data Insight products to make a larger contribution in the second half year. Ofir's development of a new data platform is ahead of plan, and this will allow Ofir's to further strengthen data and research capabilities. All other strategic initiatives progress as planned. Finally, Bekey Home Care business is growing while the efforts to build high-volume businesses in other customer segments remain work in progress. In the current economic climate, cost focus and relentless execution are becoming increasingly important.
We have implemented cost savings in FK while BoligPortal has merged its own and owned Boligmanager's development team to optimize resources and fast-track development. We are ready to take similar steps in the other businesses if needed. A milestone event in Q2 was the official opening of our first solar park, a 5,400 sqmt installation at FK's packaging terminal in Taastrup. The park is expected to cover up to 40% of the terminal power consumption from Q3. We have invested DKK 15 million in panels and battery solution. A similar installation is projected at FK's terminal in Tilst in Jutland at similar cost. Installation will start at the end of August. FK Distribution works to reduce its climate and environmental footprint along the entire value chain. The two solar parks are important initiatives in this respect. Looking into FK.
FK revenue was down 1% in the first half year and 1.7% in Q2 on lower volumes and changes to the product and customer mix, fully in line with the expectations. Leaflet volumes decreased 5.2% in Q2, but please bear in mind that Q2 last year saw a rebound after COVID. There were many orders postponed from Q1 to Q2. We still expect full-year volumes to decline by approximately 4%, supported by growing interest from consumers in leaflets amidst booming prices for energy, food, et cetera. We saw solid growth in our selected post-digital activities, and the packaging operation for Deutsche Post. Digital sales, for instance, were up 17% for the first half year. Albeit from a modest starting point, and we expect double-digit growth to sustain.
Earnings, as expected, were impacted by cost inflation across the entire value chain, labor cost, recruitment, fuel prices, paper, and so on. Soaring prices prompt some customers to print thinner and thinner paper or reduce the number of pages in their leaflets. So far, the cost increases were manageable. We have launched a series of savings and optimizations to ensure satisfactory margins. The EBIT margin was 22.8% in the first half year. Over to you, Kåre.
Thank you, Lasse. This was group highlights and the value business area Last Mile. Now, let's look at the other business area, Digital Services. We, as you remember, have three businesses here, and we'll begin with BoligPortal, where we reported growth rates of 9% in Q2 and 10% in the first half year. The business is getting back on track, growth track, after last year's significant changes to the business model, the data platform and product offering. The main growth drivers were partner-delivered service offerings to tenants and advertising fees from landlords. In fact, in June, BoligPortal recorded all-time high revenue from these partnerships and advertising. At the same time, record high numbers of lease contracts and inspection reports were facilitated. This we see as solid evidence that suppliers of rental units has normalized after last year's unexpected drop.
Revenue from new products and services grew by triple digits and made up around 10% of the total revenue. We expect this year to grow in the second half year on stronger market uptake of the Data Insight market data solution. Margins were down as expected after the acquisition of Boligmanager, but margins remained in the high twenties. Disregarding Boligmanager, earnings were on par with last year. The second business in Digital Services, Ofir. Here we saw growth rates of 32% in the first half year and 20% in Q2. Public sector clients contributed the most to growth, but actually the private sector customers were not far behind. Q2 was in fact the seventh consecutive quarter with double- or triple-digit growth. In general, the Danish job market has been moving for the past 18 months or so.
In Q2, however, we saw early signs that demand may have peaked. Market demand for online job ads was marginally lower than in Q1 of this year, but the demand still exceeded last year's levels. We continue to see a potential for Ofir to gain market shares with our recruitment marketing approach and our extensive use of social media to attract the very important passive job seekers. Earnings, as expected, were impacted by higher business development costs and costs to the new data platform. EBIT came at DKK 2.9 million in the first half year. The third business in Digital Services, Bekey. Bekey recorded or reported growth rates of close to 20% in Q2 and 16% in the first half year.
This growth was driven by Danish municipalities. This is the home care business, as Bekey onboarded new customers and implemented installations that were actually originally scheduled for last year. Distributor customers also contributed to this growth, but their impact was modest. The recurring revenue was up 17% in Q2, and it remains a key priority to grow this recurring license and service fees to create a more stable and predictable revenue stream. Looking at the EBIT results of DKK -3.4 million in Q2, please bear in mind that Bekey this year is expensing all installation and development costs. Remember that we last year capitalized part of these costs. Had we not decided to expense all these development costs, earnings would have been on par with the last year, even though Bekey this year had extra costs to relocate Ukrainian developers after Russia's invasion.
Now let's take a look at the full year outlook, where we basically have narrowed revenue and EBIT ranges for FK Distribution, Ofir, and Bekey, while the EBIT outlook for BoligPortal has been upgraded. On group level, we now expect revenues of DKK 1,015 million-DKK 1,040 million and EBIT result between DKK 195 million and DKK 220 million. This is up from the previous range of DKK 190 million-DKK 220 million. FK Distribution is still expected to decline by around 3%, while Digital Services growth is expected at around 17%. Here just a quick reminder on the financial ambitions for 2023 and 2024, which we presented earlier this year in February. We continue to build the foundation for sustainable growth in Digital Services and a stable revenue development in Last Mile.
Our ambition is unchanged that these efforts and investments will start materializing in 2023 and with increased impact in 2024. Our ambition to pay DKK 5 per share in dividend for each financial year, 2022 to 2024, is also unchanged. Now let's wrap up with a summary. I have three key takeaways from today's presentation. One. We had a good start to 2022, and first half year results were as expected. Cost inflation in FK Distribution is challenging but manageable, and we're dealing with it. The businesses in Digital Services continue their growth path. Two, we're updating or clarifying the full year outlook. BoligPortal's earnings are ahead of plan, and we are narrowing the outlook ranges for the other businesses. Three, most of the strategic initiatives are on track, and the long-term ambitions are intact as well. This concludes our presentation.
We now look forward to taking your questions, and let me also note that last time, unfortunately, we could not see your written questions. This should be possible today, so please do not hesitate. Operator, please go ahead with the Q&A session.
Thank you. If you wish to ask a question via the phones, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find your question has been answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Steve Silver at Argus Research. Please go ahead. Your line is open.
Thank you very much, and thanks for taking the question. It's great to see the business conditions firming up, group wide. My question is, given the recent investments that the company has made into BoligPortal and Ofir, you mentioned during the presentation the potential for a shift in market approach for Bekey. Would that be more strategy based, or do you think that might be something that requires increased investment for the long term?
Yes. Sorry, Steve, you said a change in what in Bekey? I couldn't hear that.
I'm sorry. The shift in the market approach.
Yeah. It's not a new strategy per se. Remember that in Bekey we have the home care sector where we service the Danish municipalities in Denmark and Norway. This business is growing nicely but not rapidly, and that's actually also not the expectations. Where we do expect higher growth, that would be the customers we call distributors and the properties. It's not a new strategy. Those have been the customers for a couple of years.
Mm-hmm.
Our approach to get them on board is what we earlier this year said has changed. It's not a new strategy.
Right
... per se. It's not anything that require further investments, or increase the costs going forward. We have changed the approach and the way we sort of try to sell in these services to the, as I said, distributors and properties.
Great. With the Karman Connect business, the EBIT for that business is very strong in the first half. Is that a business that is growing organically at this point, or might there be other opportunities to invest in further growth for that business?
Yeah. The Karman Connect. Remember, it's not part of our four businesses. It's a subsidiary, so, it's not part of the of the sum of the EBIT for the group. Currently, it's organic growth. The former strategy, one and a half years back, was about actually acquiring other businesses, other similar businesses. It was not growing fast enough and actually also not overall growing the business. The business now is purely organic growth.
Fantastic. Congratulations on the progress.
I can see.
Thank you. One second.
Are there any more?
Currently there are no further questions on the phone.
Yeah. No more.
I'll hand back to you.
Okay. Thank you. Yeah. We have a couple of written questions now. Let's take them from the top, and I'll read it out. I'm actually not sure whether you can all see it. Some of them are in Danish also. First question, what are ROI on your solar parks? It's a little early to say. We have taken the first installation in Taastrup in use now in May, and the battery will actually be installed next week. We are in the process of finding out how to run this. We are trying to organize software to optimize the use of the battery when we have surplus electricity and so forth. The installation of the park in Tilst, in Aarhus, is beginning actually this week.
It's a little early to say what's the ROI. It also depends on whether you calculate a price on the electricity of DKK 0, DKK 1, DKK 5 or DKK 6. I'm quite sure that compared to when we took the decision last year.
It has. At that time, the batteries were probably a little bit expensive. Looking forward, we also want to invest in the green transformation. I'm quite sure right now the ROI is quite nicely positive. It's really mostly about the green transformation we're doing this. It's not about earning money, actually.
All right. Should I take the next one?
Yeah.
I'll try to translate it for you guys. Do we expect that we will take extra cost for wages and for paper in the second half? Will it be the clients or the customers who shall pay, or will it be us? What will it do with the expected volumes for the second half?
First of all, the paper cost. From our opinion, the paper prices are more stable than they were in the first half of 2022. It depends which paper you are buying, but right now we see a stable development in paper that are normally used for leaflets. The cost for papers is not ours, it's our clients or and our customers. It's up to them to negotiate good deals with the paper factories. I can say that we believe in our distribution channel, in this media channel. We have a very huge and very strong media channel regarding volume sales and right now we see that there's an increase in interest due to the inflation and due to the higher prices on, you can say, almost all products.
We have a rise in interest from a consumer oriented perspective. Therefore, we plan and estimate our volumes for the second half as planned in this matter, you can say. The wages, yes, we will have to. We have raised the wages for first half in some areas. Also here we see that the labor market, it's changing a little bit, which in this matter is to our advantage. We think we can manage that as well. All right. Kåre, I think the next one will be yours.
Yes. I'll translate. Have you considered to change the way you book the values of the properties? Today it's construction value less depreciation, whether to change that to the trade values, in case of some changes to the taxation. We're looking into it. It's true that today it's construction value less depreciation. We'll look into it and see whether we should change anything. If something changes in the taxation.
All right. The next one, FK Distribution launched a number of measures to cut overhead costs in order to maintain a satisfactory EBIT margin in Q2 2022. Can you elaborate a little bit more on how this is progressing? If you will continue cutting overhead costs in the coming year as well? You can say we are also always into the business of optimizing our business. Yes, we will continue cutting overheads and optimize our business, so it's suitable for the volume that the market holds for us. The Q2 cut in overheads are going as planned. I'm confident on that matter. I can take the next question as well. Has volumes in Germany been down for the first half? How do you view the future relationship to Deutsche Post?
I guess DT must be Deutsche Post.
Yeah.
The volumes in Germany has been down in the first half due to COVID and you can say there maybe was a little delay in Germany. We saw and cut down in volumes primarily due to COVID. We think going forward that we have a strong relationship to Deutsche Post, and we will continue developing our business with them. That is also going as planned. As you should be aware of, this business with Deutsche Post is not a game changer for North Media. It can be a very good business, but it's not a game changer. All right. Kåre, Bekey?
Yeah. Elaborate on the progress in dialogues. Yeah, can we land them as customers, you ask? We certainly hope so, and we are working very hard on it. We continue to believe that, and that's also what we hear when we have the pilot tests with customers, distributors or property that this product works. What we're still working on is how to price it. You can say that it will be a pricing model where, of course, the price you pay per opening will depend on how many openings you do. What would the price be? You can say maybe around a couple of kroner or 2 kroner per opening.
This is what we're working on with the customers to make sure that this is something that works for us and something that works for them long term. With all these positive pilot tests, we certainly hope that we can land them as customers. It's being asked then which securities shares have you added to the external shares to the securities? We have bought a little bit more of Novo. That's the only change that we have had recently. The question is also here, will there be a negative impact on Boligmanager's EBIT in 2023 from Boligmanager? Yes. As we have said, there's hardly no revenue from Boligmanager this year in 2022.
We should see some revenue in 2023. This year, the impact on EBIT from Boligmanager is around DKK 8 million. DKK 4 million of that is sort of running costs, and the other DKK 4 million is a write-down and a reservation for the acquisition price. There will be something also in 2023. Quite how much we don't know yet. As we have said in the 2023 and 2024 financial ambitions, there's an impact in 2024 from Boligmanager of around 4 percentage points on the EBIT margin. I think that was the last question. Go ahead or I don't know if anyone has more questions in writing or questions via the phone. Go ahead, please.
Currently, no further questions on the phone at this time. Once again, if you do wish to ask a question, please dial zero one on your telephone keypads now.
All right. Thank you all for joining today's call. As you can see from the next slide, we have a couple of presentations lined up, and we hope to see you on one of these or several. As always, you're welcome to call Lasse or myself if you have any additional questions. With that, we wish you all a good day. Thank you.