Welcome to North Media's interim report for Q3 2022. To ask a question, please press five star on your telephone keypad. This call is being recorded. I will now hand it over to the speakers. Please begin.
Hello, everyone, and thank you for joining us on this presentation of our interim report Q3 year to date. My name is Lasse Brodt. I'm Group CEO. With me today is Group CFO Kåre Wigh. Before we take a closer look at our financial performance, I would like to address the current challenging and volatile market situation. In North Media, we are focused on long-term value creation and on having strong capital resources, providing us with a solid foundation to navigate in the, for example, times like this. It means that we do not change our strategic priorities for 2023 and 2024, as underlying parameters for success remain the same, infrastructure, build-up for technology, innovation and scale. It also means that we have a time to make the right tactical and operational adjustments when needed to adapt to the new situations.
Overall, our platforms are less exposed to macroeconomic developments as they primarily supply products and services to private households that we all need. For example, a place to live, food, and a job. At the same time, our strong capital resources provide us with robustness to handle this challenging market situation and to exploit business opportunities when or if they occur. With this overview, I would like to turn to the financial development in Q3 and year to date. Revenue in Q3 and the year to date declined to DKK 228 million and DKK 736 million respectively. Last Mile growth dropped compared to same period last year, while digital services overall continued to deliver growth.
The EBIT margin dropped as we continued to see higher distribution salaries in FK Distribution, while growth initiatives in digital service, including the acquisition of Boligmanager in February this year, also impacts earnings. The cash conversion remains satisfactory and amounted to DKK 119.5 million year to date. We'll continue to have strong capital resources of DKK 676.5 million, despite unrealized losses on securities. Overall results for Q3 year to date were impacted by the development in Q3. Let's turn to slide five to take a closer look at the development. For FK Distribution, overall, our financial results were impacted by cost, but what remains important is that the underlying demand for leaflets remains strong, both from a consumer and a customer perspective. I'll come back to that in a minute.
From a revenue perspective, we saw a down of 4% year to date and 9.8% in Q3 on lower volumes and changes to the product and the customer mix. Particularly in September, we saw a drop more than expected. The leaflet volume decrease related to customers reducing numbers of pages in their leaflets, choosing other formats or thinner paper and running fewer campaigns. We saw this trend as some of our customers are met with paper price increases up to more than 100%. I recently spoke to a customer who has four shops, and he looked into a paper price increase of more than 130% if he were to print catalogs for Christmas sales. In general, customers with durable goods tend to lower their volume, whereas customers providing fast-moving consumer goods have more stable volumes.
Based on this development, we have revised our expectation for the full year volume decline to approximately 5-6% against 4%. The key takeaway is, however, that we continue to see growing interest in leaflets from consumers amidst booming prices for energy, food, et cetera. The effect of leaflets is also visible to our customers. We reach approximately 1.9 million Danish households every week and on our own and on our online platform as well. In addition, we see a flat development in stop stickers, also named as "No thanks" for leaflets. We recorded solid growth in the online segment and Select Post grew as well, although from a modest level. Earnings were impacted by cost inflation across the entire value chain, labor cost, recruitment, fuel prices, paper, et cetera.
We will continue our focus on savings and optimizations to ensure satisfactory margins. I mentioned that our online business shows solid growth. Let me go a bit deeper into this. That consumer shows a growing interest in leaflets is reflected in minetilbud, which is our online platform for digital leaflets and catalogs. You can access the platform on a PC, a laptop, or via an app on mobile device, and the usage is free of charge for consumers. In Q3 2022, our revenue increased by 22% and year to date by 18% as the number of leaflets and product fees has increased, both from existing as well as from new customers.
Year to date, the number of app downloads increased by 20% compared to same period last year, and the same trend was seen both in terms of number of ratings and searches for our product or catalog. We have approximately 1.3 million users, and when there are special events such as Black Week or Black Friday, we will see more than 2 million Danes using mine tilbud. We expect continued growth from mine tilbud as we continue to develop the platform with new products, offerings both for our customers and for the consumers. Now let's turn to the performance in BoligPortal. BoligPortal reported growth rates of 11% in Q3 and 10.4% year to date. The business continued to develop from Q2 this year and delivered a new all-time high quarterly revenue.
The main growth drivers were new services and advertising fees from landlords. The quarter revenue from new products and services increased by more than 200%. Combined, they made up to 10% of the revenue. At the same time, record high numbers of lease contracts and inspection reports were facilitated. In September, we saw a slowdown of number of new subscribers, and that is likely due to increased inflation and general uncertainty in our society. Margins were down as expected after the acquisition of Boligmanager, but remained in the mid 20s%. Disregarding Boligmanager, EBIT was higher than last year. I'll now hand over to Kåre and take us through the developments in the other business. Kåre?
Thank you, Lasse. Let's take a look at our job portal, Ofir, where we saw growth rates of 3.4% in Q3, which is substantially lower than the 22% growth we saw year to date. Public sector clients remained to be the main contributor to this growth. In Q2, we saw early signs that job ad demand may have peaked. That was confirmed in September, where the overall market saw a decline of 17%, whereas our job ad business remained stable. At the same time, job cam paigns on social media increased, and this is fully aligned with our ambition to strengthen our position as a market leader on social media. Ofir earnings were impacted by the lower growth, but in particular by higher business development costs and cost to develop a new data platform.
EBIT came out at DKK 3.1 million year to date. Let's take a look at Bekey on the next slide. In Bekey, we saw a declining growth rate of 8.3% in Q3 while we were up 9% year to date. The decline is related to lower sales of hardware to installations in municipalities. In the segment Home Care and Denmark, we generated the majority of the revenue and new contracts with municipalities were signed during the quarter. Revenue from recurring license and service fees increased by 8%, and it remains key to grow this part to create a more stable and predictable revenue stream. Also, in another segment, distributor customers contributed to growth, but that impact was still quite modest.
EBIT was -DKK 3.2 million in Q3, and please bear in mind that Bekey this year is expensing all installation and development costs. Had we not decided to expense all development costs, earnings would have been on par with last year. Finally, let me mention that we have a new CEO for Bekey coming up. He will take his position in mid-November. With these business highlights, let's recap our strategic progress on the next slide. Overall, looking at the big picture, we are largely on track with the strategic initiatives that we outlined in the annual report back in February earlier this year. As Lasse already has highlighted earlier, in this call, we do face some challenging market conditions, but our strategic direction and priorities both for this year and for the coming couple of years is unchanged.
We continue to work on our initiatives while we have a stronger cost focus to mitigate on the current cost inflation. On the next slide, lastly, let's take a look at the full year outlook. Yesterday, we also announced that we have revised our guidance for the full year. While we delivered first half year results as expected, Q3 developed, as we have just talked about, a little less positive. In addition to the declining volumes in FK Distribution in Q3, which is mainly due to paper price increases, as Lasse just explained, we also see that revenue from smaller customers seem to be lower than expected in Q4. Based on this development, we have revised our 2022 outlook.
For the group, we now expect revenue to be between DKK 995 million and DKK 1,010 million, and EBIT to be between DKK 190 million and DKK 200 million. The background for these group expectations is that in Last Mile, we now expect 5% lower revenue against previously 3%, and we have narrowed the EBIT range to
Between DKK 188 and DKK 192 million . That margin is still a solid margin of around 23%. In digital services, we now expect revenue of between DKK 158 and DKK 164 million , and the EBIT range is narrowed to between DKK 12 and DKK 17 million . In conclusion, there are three takeaways from today's presentation. Yes, Q3 results were impacted by the current market conditions. Our focus on long-term value creation and financial robustness provide us room to navigate in these uneasy macroeconomic environments. Our strategic direction is unchanged. With this summary, let's go to the Q&A session.
Dear participants, if you have a question for the speakers, please press five star on your telephone keypad. To withdraw your question, please press five star again. We will have a brief pause while the questions are being registered. The first question is from the line of Mikkel Kirkegaard Petersen. Your line will now be unmuted.
Hi. I just had one question regarding the outlook for Last Mile. When we look at Q4, if I subtract the user data numbers, we are looking into a margin in Last Mile of around 28%, which is substantially higher than what you've reported in the previous quarters this year. Can you just give us some insights into what is driving this? Because I guess the distribution salaries are not coming down, but what will happen in Q4 in order for the margin to pick up? That's my question. Thank you.
Yeah, thank you for that question. It's important to remember that, for example, as you see in Q3, margins are actually lower than it typically is in the other quarters because volumes are quite low in Q3, primarily because volumes are very low in July because of the summer holidays. On the other side, margins are typically higher in Q4, which is a big quarter because of the Christmas volumes. As FK Distribution is a volume business, more volume means typically higher margins. You're right, the cost, all other things being equal, is the same between Q3 and Q4. Because the volumes are higher, the margins also go higher.
Okay. Thank you. I just didn't expect that much of an increase, but that sounds good and reassuring in terms of getting the profitability back on track. Thanks.
Thank you, Mikkel. The next question is from the line of Søren Pihl from DNB. Søren, your line is now unmuted.
Yeah, hi. It's actually a question on personally in the same line as the previous one. Because I mean, on the one hand you're talking about this paper costs for customers, and they're scaling down. On the other hand, you're talking about that the demand for leaflets is increasing and people are looking more into offers and so I just wonder. There seems to be two opposite effects here. How do you see these two effects pan out in the coming quarters?
It's important to mention that we don't buy paper, and we don't produce paper, first of all.
Oh.
It seems like the manufacturers of paper has been raising the prices going forward this year. Without the paper raise, we would have looked into a strong demand for leaflets for selling products. Now you can say they almost equalize each other. We think that when we see a more stable price development in the paper market, we will look into a you can say a more stable development in the volume again.
Okay
From our point of view, they are equalizing each other.
Okay. If you look at the paper market, is it the energy cost that has been driving the prices, or is it the?
It's.
The buy of raw woods or what is it?
It is a market who are in strong use of energy. It costs a lot of heat to make paper. The right one to ask that question is, of course, the paper manufacturers of paper. We will say mainly it's the energy and the lack of employees around Europe on the paper production facilities.
Just perhaps a follow-up here. Yeah. If your customers are migrating to minetilbud, what does that mean for your margin?
If you mean if the consumers merge to digital platforms?
No. Yeah. More of your customers. I mean, if a supermarket chain decides to scale down on the leaflet and instead go for the online for minetilbud.
Yeah
What would that apply for your margin?
From our point of view, it's all about making a marketplace and aggregating offers. We will do that. We do that, of course, in the physical markets as you have been seeing for many years, and now also with some volume now in the digital market. We think it's not one or the other. It will be both, and it will be a stable development over time. Of course, our goal and aim is to be an attractive aggregator for consumers and for customers on digital platform, but also on the physical platform. I think if you're looking into the ad spending business, the media market, there are a lot of channels to choose to expose your offers in.
Around our core customers, I think we have a very attractive offer on both platforms. I'll think that we will see a development over time, quite an easy.
Okay. You're not seeing a tendency that your customers is moving away from the paper-based leaflet, and towards the online offering?
Um-
It's going hand in hand, if I could say that.
We see right now is they're saving costs in general.
Yeah.
At all media platforms, they are doing a cutback. I think this is not an analyst, but what we see is that they make a harder cutback in other channels than in the leaflets and distribution channel. We are confident with the strength in our platforms. We think that we help our clients to, our customers to sell, to make the volume sale. That's a good offer that we bring to the market with the physical leaflets. That's also reach is important in this market, and we have a reach of 1.9 million households. That's almost 4 million adults, people in Denmark.
We have by far the largest reach when it's volume sales. It's all about.
Okay. Thank you.
The next question is from the line of Mikkel Kousgaard Rasmussen from ABG. Your line is now unmuted.
Thank you guys for the presentation. I have two questions. The first ones were already asked by other participants, but I'll ask two other questions then. The first one is related to BoligPortal. Or let me rephrase. Should we consider BoligPortal as somewhat of a hedge in a recession? You know, people are in a recession, they would probably tend to prefer rented housing over becoming homeowners. What are your thoughts about that?
I don't know if I would say hedge. It's true that BoligPortal in many ways, as also goes for our other products, FK Distribution, Ofir, Bekey, we are relatively maybe less impacted by a recession, high growth because our products are products or services that are very sort of basic for a Danish household.
Yeah
As we have seen now in Q3, especially with FK Distribution and lower volumes, our customers are hit by higher prices on paper and news. We don't go sort of completely. We are also impacted, but maybe less so than some others because of our products are so basic, you can say.
Yeah. I mean more like, you know, sort of less exposure at least. That's a good answer. The next question is concerned with Ofir. You've seen that or you already noted in Q2 that the Danish labor market may have peaked, and you've seen lower or less classified ads here, at least fewer ads here in this quarter. Should we expect that to continue going forward or, I mean, in a recession, it would be obvious to think that there would be less demand for new employees, right?
Yeah. I think in Denmark we still have a very, very low unemployment rate, and in many sectors there's still a high sort of demand or lack of hands.
Mm-hmm
Secondly, the market share of Ofir is still quite low, maybe around 8%-9%. There's plenty of room to grow from. That being said, there is room for Ofir to continue to grow. On the other hand, of course, it's probably more difficult to grow at the same pace as we've seen the past couple of quarters, if the market slows down a bit. Growth could be lower. That's also why we have reduced the expectations for Q4 from Ofir. There's plenty of room to grow further forward, even though the markets would slow down a bit.
Just let me confirm, is it correctly understood that you, looking at Jobindex, have a way higher margin at this point in time? Are you gonna reach that margin at some point? Are you gonna continue to invest in growth in Ofir?
For now, we'll certainly continue to invest, because we have a strong ambition to grow.
Yeah
Ofir. In the coming years it will cost money and as you know, we expense anything we invest in. In the coming years
Mm-hmm
Ofir will also. As we see this year, there will be higher costs on developing, for example, the new platform.
Yes. Thank you so much. Those were my questions.
Thank you, Mikkel. As a reminder, please press five star on your telephone keypad to ask a question. We will have a brief pause while questions are being registered. There are no further questions at this moment, and I will now hand it back to the speakers for any closing remarks.
There are some written questions here from Sebastian. He's writing here. He's asking regarding FK, how much of the cost base is fixed variable, and how do you see the margin go into 2023? I can point you to the segment information in the report where you can see the margins and the split between the costs. The margin going into 2023, it's too early to call. But the overall ambition we have is to maintain a solid margin in FK Distribution just as the one we have currently. The second question is, when will you announce a guidance for 2023?
We typically guide for the coming year in connection with the annual report for the year, which will be probably in February of 2023. Another question here from Nils Christensen. Why do North Media invest capital in high-risk stocks while your strategy for acquisition doesn't allow for that risk of investment? With background for the above question, do North Media lack confidence of pursuing growth companies? We do have an ambition to increase our M&A activities.
I think you should see the change we did recently in the management team with Lasse as CEO, and myself as CFO, and Lisbeth on the HR, as a sign of that because we have also strengthened the capacity and the number of people we have on the group level to work with exactly strategy and M&A. We are currently setting up this new management team and structure together also with the business units. We certainly have an ambition to work more within this area. Another question here. Can you elaborate briefly about the tax regime in Denmark with regards to the stock portfolio, especially how U.S. stock profits are taxed?
Further, is there any implied tax that will be payable if stock portfolio is liquidated? Yeah. It's actually. If we turn out to have a loss on the stocks this year, that loss will be deductible from the profits from our businesses. So in that sense, it's deductible as we also pay the tax when we have profits. Regarding the U.S. stocks, we have an agreement with the bank to have the taxes deducted so we don't pay the taxes twice. The next one, it's in Danish. I'll try to translate.
If management in Q4 should prioritize acquisition of own stock versus American IT stocks, what can we expect that management and the board has written around about share buybacks. We do buy back own shares every now and then when we find it a good situation to do that. I can't really sort of compare or say own shares versus American IT shares. We do have this long-term view on our external shares as a part of our capital base. As we have talked about before, we are really long-term on these shares. Bear in mind then going back and comparing to December 2015, our external shares was DKK 196 million. Now it's DKK 537 million.
More than half of that increase is still even though this year has been quite negative, generated by increasing share prices. In that sense, we are really long on the shares, and we don't try to time the market in that respect. There's more on that question. Why do you keep these investor events when there's only one? It's probably one person who runs the business in North Media, your main shareholder. Is it good governance to let one investor run the business? Do you feel like hostages? Absolutely no hostage here I can say. I feel we have a very good governance with a board that sets the direction, strategic direction.
We have now set a I believe a very strong new management team as I talked about before. I'm absolutely confident that we are going in the right direction with a good governance overall. There's a question here also on the shares. Who is the chief of investing in North Media and bears the responsibility to have lost DKK 230 million of the shareholders' money this year? You bought the Facebook share in Q4 2021, have now lost 75%. Any words on that? Well, our stock portfolio is run by our main shareholder, Richard Bunck , Vice Chairman of the Board. He has been given that mandate from the board together with myself.
We are the two persons that run this primarily. I wouldn't really comment specifically on Facebook. As I said before, we need to see this long term. Yes, this year has been a negative. The prior years have been quite nicely positive. We see this in the long run. We don't really look at it month by month in that respect. There's another question here. Would you consider divesting part of the investment portfolio as an extraordinary dividend? We are very long on our strong capital base.
As we have said, and what the board has been saying all the time, we have an ambition to pay out an attractive and constant dividend to the shareholders, i.e., DKK 5 per share per year. That's really what we can say about the dividend in that respect. I believe that was it. Any final questions? If not, we thank you for dialing in, and please reach out if you have any other questions. You are more than welcome to contact either Lasse or myself. Thank you for your listening and your questions today. Thank you.