Hello, and welcome to the Schibsted 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. Jann-Boje Meinecke Head of IR. Please go ahead, Sir.
Thank you. Good afternoon. My name is Jann-Boje , and I'm the Head of IR in Schibsted. A very well 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, Christian Printzell Halvorsen, our CFO, Ragnar Kårhus, and also our Head of Group Communications, Atle Lessum. This morning we presented the Q1 results, at the webcast, and probably many of you have followed. If not, you can find the recording of the webcast shortly on our IR website. Adevinta reported their Q1 results yesterday morning, and their recording and presentation is also available on their site at adevinta.com. Now I would like to hand the word over to Christian , to give a short introduction before we start the Q&A. Christian, please go ahead.
Thank you,Jann-Boje, and hello everybody. So this morning we reported results for 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 and 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 week of March, and April has developed similarly. For the quarter, our revenues, excluding the contributions from Adevinta, declined by 2% or by 4%, suggesting 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 with the car market has continued to prove successful, and revenues continue to grow in Q1. Measures have been taken on the plus side, and for Norway, we are now targeting a 40%-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 Lendo 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 trends 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 NOK 500 million, 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, Schibsted refinanced a NOK one billion bond, maturing later this year, securing our liquidity reserve. We have a net debt level which is lower than our targeted range of one to two times EBITDA. 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.
I'll just 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 a cost program to accelerate the transition to a fully digitally sustainable news organization, and thirdly, Lendo in Sweden and Denmark continue 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 one on your telephone. Press star one 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 budget, would it be possible to also get a range for the market for this year, similar to what you, you know, set for Finn? And it looks like supply's 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, like, how quickly do you think advertising could come back, you know, especially within news? Or, you know, did you think it could further accelerate the structural shift and it's gonna come back more gradually?
Thirdly, I think on News Media. I mean, you mentioned you wanna 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, and what would that imply for the overall marketplace? Thank you.
Okay. I'll start from the bottom. About becoming digital only, I mean, as long as we have, you know, good profitability in the paper, it doesn't make any sense to cut it out, and accept the fact that, you know, we source quite a lot of our revenues from the paper. But 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're more digitally sustainable long before we will see the removal of paper. So I believe we will have paper going for many years still. But just do not want to depend upon it. And as you 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 costs 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 has, you know, come around a bit, and it's more positive than we thought. But I believe it would be irresponsible to try to speculate and give you guidance, unfortunately.
We wish, we wish we knew better, but it's difficult these days, and then on the range of Blocket, Ragnar, maybe you want to fill in on that one.
Yes, I can do that. First of all, I would say that Blocket has fewer verticals on our hands and also less variable cost base compared to Finn. So we are not concrete on the range in the same way as with Finn. I think you must expect some margin contraction in Blocket compared to what we have seen in previous quarters.
Thanks. As we were talking, I mean, is it very difficult to predict? But would it be possible to at least get a sense of, you know, maybe the first week of April versus, you know, last week of March, you know, how that has to get a bit of a, you know, figures and help us?
I was gonna say that if you look at the first weeks of April, then we see a drop of around 25%-30%.
25%-30%? Oh, okay. Thank you.
Thank you. We will now take our next question. Please go ahead, caller. The line is now open.
Yes. Hi, guys. Thanks for taking my questions. Two quick ones. Number one, I was wondering if you could give a color on potential price cuts and/or payment deferrals across Nordic Marketplaces and how we've been 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 products. Could you give some color on the RPO level and/or revenue mix effects in Q1? So the volume versus price for the subscription, basically, or not the subscription papers, but the subscription revenue. Thank you.
If you take the sort of to give some comments on Nordic Marketplaces first, I think in general, we have not implemented any general price cuts or payment deferrals. We are in sort of close dialogues with our customers, in general, but in Blocket, we have for the month of April reduced the prices by 25%. We're monitoring, but we're not making any decisions for the month of May yet.
Great. Thank you. Just on the willingness to pay and RPO levels and/or revenue mix effects in Q1, what's really been driving the strong growth in subscription revenue? Is it volume-based or price-based or kind of a 50/50 mix?
In the first quarter, it's primarily volume-based.
Okay. Thank you.
Thank you. We will now take our next question from Mikal Lundahl from NS Intercenter. Please go ahead. Your line is open.
I have some questions regarding FINN's gap that has historically grown with in line with the e-commerce market of at least 15% per year, and it's now flat, and there's some extra costs I also read about. What is the situation here?
If you look at three steps, the business model is exactly based on two revenue streams. It's advertising, display advertising, and then it's sort of the click-based. What we have seen, particularly in the last part of the first quarter, as a result of the corona crisis, is that we have seen a very strong positive development on the click volumes, whereby the display advertising has been quite significantly reduced. That is the main effect for the three step 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 discuss 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 Schibsted 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 spin-off, you clearly stated you plan to be a long-term owner of Adevinta, but just wondering if you would consider reducing the stake 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 Adevinta front, and then maybe, Ragnar, you do the cost part. Sure. So, we maintain our ownership strategy for Adevinta. We have a, you know, we look at that ownership long-term. We want to support Adevinta, and, you know, 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 Adevinta. And right now, we do see our financial position as rather strong. So, at the moment, it's we do not foresee that we would need to do any sales on or anything like that to secure our own finances. Ragnar, will you answer the cost part, please?
If you look at the cost structure, sort of on a more general basis, I can say that the cost base is sort of it's a larger part of fixed cost within the News Media business. It's a larger portion of variable costs within marketplaces. It also means that if you look at the advertising revenues in general, most of our reduction in advertising will sort of mainly hit the bottom line of the EBITDA, so more or less sort of 100%. We have, with respect to sort of news to marketplaces, we have said that we target an EBITDA range of between 40% and 45.5% for Finn for 2020 and for 2021, meaning that there is some flexibility in the cost base also if the market should soften even further from what we're seeing today.
I think we can also say from my side, I mean, like Ragnar said, the cost structure in News Media is less flexible. This is also the reason why we work in a structured manner to take out costs in News Media. That's why we stepped up now the cost program, which we've announced this morning, with NOK 500 million, with NOK 100 million in the second half of 2020, and NOK 400 million next year to take out costs going forward, but more in a structured way because costs aren't as flexible as in other marketplaces.
Thank you.
Thank you. As a reminder, if you would like to ask a question, you can do so by pressing star one on your telephone. We will now take our next question. Please go ahead, caller. Your line is now open.
Hi. I'm just going to answer in RPH first. Costs, especially in the overall growth segments, but also under Financial Services, increased in Q1 compared to previous quarters. Can you give any guidance on what level we should expect going forward here? Secondly, within News Media, 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 guidance on what segments or countries you are looking at, or and perhaps if you think it's possible to look into an acquisition within Swedish classifieds again, given the competition for this last time? Thanks.
Can I 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 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 places. 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, 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 costs without actually being sort of not clear on exactly how much that will influence the margins, but will also, of course, be dependent on the top line development in the quarters to come. Within other growth areas, we've been quite severely hit by the reduced advertising revenues. Most of those companies are ad-based.
But we have started to implement cost reductions within these areas as well, reducing marketing and lead deals. We have also sort of taken some more structural initiatives, including reducing the number of employees. So we will always work to make sure to avoid these companies sort of not being profitable. But it's still difficult to give clear guidance on that sort of on the short term due to the sort of low visibility on the revenue side.
And I guess it's fair to say that we are also ramping up some of the footprint distribution, which is seeing very strong growth now, and this effort is also requiring some investment.
Thanks. Restructuring costs within News Media. I don't know if you could quantify this anymore.
I believe it's fair to say it will 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 Esken from GMP. 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 Blocket in Q1?
I can say that look, it was more or less in the same areas, as in.
Okay. Thank you.
Thank you. As a reminder, if anyone would like to ask a question, please press star one. There are currently no more questions in the queue at this time. I will now turn the call back to your host for any further comments.
I guess then we just want to thank you all for listening in and for your good questions, and wish you a good continued day. Thank you very much.
Ladies and gentlemen, that will conclude today's conference, and you may now all.