Welcome to the Karnov Group Q4 report 2019. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Today, I am pleased to present CEO Flemming Breinholt and CFO Dora Brink Clausen. Please go ahead with your meeting.
Thank you very much. Welcome everyone to this earnings conference for Karnov Group, where we are going to present the outcome of our fourth quarter and the full year 2019. Next slide, please. I'm Flemming Breinholt, President and CEO of the company. Here in Stockholm, I have three more people. It is, as in previous earnings conference, our CFO, Dora Brink Clausen, our Head of Investor Relations, Mats Ödman, and our IR Specialist, Erik Berggren. Dora and I will present the outcome of the fourth quarter and full year using a few slides, and then we'll open up for questions. Those of you who have called in can ask questions verbally, while those of you who are participating via webcast can send questions in written form via the webcast. With that said, let's get to the presentation. Let's turn the page and go to the next slide.
Where we have the financial highlights during our first year as listed company, and where you see where we align with our expectations set out in the IPO almost a year ago. During 2019, we have been focusing on, first of all, being a listed company, secondly, the development and implementation of JUNO, and thirdly, integration of Norstedts Juridik. Despite all three heavy tasks, we have managed to grow organically by approximately 4% and improved our adjusted EBITDA margin from 2018. Following the IPO and new loan arrangements and thanks to strong cash flow, we do now also have a solid leverage of 2.7x. Presenting these results makes me confident that we are on track to deliver on the financial targets set up in connection with the IPO. Both in Danish and Swedish markets are growing strongly in online, while the trend, as expected, is a decline in offline.
We have invested in Karnov's digital offering for many years, and we should be able to harvest from these investments during many upcoming years. Next slide, please. I will now take the opportunity to talk about our operational highlights in Q4 2019. We've spoken a lot about JUNO, our new joint platform that has replaced individual platforms in Sweden of Karnov and Norstedts Juridik. During Q4 2019, the rollout of JUNO was completed, and all users are now onboarded. Further, the old platforms are closed. We are currently deploying enhancements to the platform using feedback from all our users, and we will continue doing so in first half 2020. That's part of meeting customer expectations and our continuous improvement strategy where we use lessons learned from a project or process to further enhance our value offering and other products and processes.
With the JUNO rollout in Sweden completed, the platform technology will be used to upgrade our Danish offering. Turning the page. Looking at the different markets, starting with Denmark, we achieved an organic growth of 3%, which is accordance with expectation. We are always focused on renewing customer contracts. As normal, we have had good outcomes during Q4. During the fourth quarter, we have actively decided to invest and take some costs for preparation of Karnov's new offensive steps in Denmark. These market offensive includes an upgrade of our Danish offering, collaboration with a law firm in promoting e-courses on the Danish market, as well as new investments in the legal tech startups, ProcurementLink and Ende. ProcurementLink is advanced legal research within procurement law.
Ende applies automated editorial processes and AI-based search technology to legal information, a solution that enables customers to perform case law search across internal and publicly available sources. Together with Karnov Group, Ende expects to continuously launch new practice area solutions over the coming years. The investments are part of Karnov Group's strategy of establishing a broad technology platform that creates increased relevance and efficiency for professionals working with legal information, something I will return to later. Turning the page. Getting to our Swedish market, which has had strong performance in Q4. Topline grew by 5%, just as expected, and by 6% for the fiscal year. We will continuously work closely with our users to further enhance our JUNO platform so the users will get the full benefit of this common new platform.
In January, the CEO of Norstedts Juridik gave notice that he has decided to step down, which will take place in April 2020. We have managed to find a new CEO in Alexandra Åquist, who has a proven track record leading a company to growth and with high satisfaction for both customers and employees and with relevant background. Currently, she's head of a business that offers legal counsel services, and she has a proven track record as country manager. Fortunately, she will be able to start as the new CEO already in May. In the end of Q4, our Swedish subsidiary, Notisum, in the environmental health and safety, launched an AI-based recommendation function which adds value to its users. Next slide, please.
Finally, after having completed the integration of Norstedts Juridik, I'd like to take some time speaking about the journey forward for Karnov Group. This integration work, including the JUNO platform, has had the priority absorbing more or less all resources for two years. Now we can also focus on other things and lift them higher up on the priority ladder. Karnov Group is on a journey to add more value to the platform, enabling decision-making better and faster for the professional using the platform. We want to grow in two dimensions. First, highly specific jurisdictional products, and secondly, general jurisdictional products. We are currently developing new data driven features and tools. We have invested in a few startups with exciting technologies, with both standalone potential and with potentials to bring more value to our existing digital platform.
Karnov also intends to leverage its position in home markets and pursue geographic expansion for future growth. Geographic expansion opportunities is based on delivering legal information services in additional countries, as well as international expansion of Karnov's jurisdictions independent services. An example of the latter is the growing EHS, E nvironmental, Health, and Safety market. We will now move on to our CFO, Dora Brink Clausen, who will tell us more about our financial performance in the fourth quarter and the full year. Next slide.
Thank you, Flemming Breinholt. I will now present and discuss the financial outcome. Let's start with an overview, which is slide nine. During Q4, our organic growth was 4.1%, and during the full year, 4.0%. This was in line with our expectation and our medium-term financial targets of 3%-5%. Next slide, please. Looking at the full year, we improved our adjusted EBITDA margin by 0.2 percentage point. We are happy about being in line with our expectations despite a margin dip in the fourth quarter. Karnov is a stable company, and we always recommend you to look at the last 12-month period for comparison. As to the dip in the fourth quarter, the strong Q2 and Q3 quarters made it possible for us to take the active step and take some cost in Q4 to prepare our new market offensive in Denmark.
Further, a significant trade in Q4 2018 on the Swedish market affect comparability. This explains the decline in margin in Q4. Next slide, please. Returning to the total sales, it increased by 6%. Currency effect were basically the same as before, 1.7% in Q4 and 1.8% in full year. Online sales continued its steady net sales growth of 9.2% in Q4, which was even a bit better than the 8.2% average growth rate for the full year. Both the Swedish and the Danish segments contributed to the increased sales. Next slide, please. Where we have the profit and margin performance and where you, from the graph, see the seasonality in our profit. In the fourth quarter, our year-over-year adjusted EBITDA declined slightly. However, on a full year basis, our adjusted EBITDA increased by 6.5%, and our adjusted EBITDA margin improved by 0.2 percentage points to 36.8%.
This is in line with our expectations. In Q4 2019, the adjusted EBITDA margin declined to 31.4%, and our adjusted EBITDA declined by SEK 2 million . The decline in adjusted EBITDA is due to our active decision to invest and take some cost for preparation of Karnov's new offensive steps in Denmark. Further, the significant trade in Q4 2018 affects comparability. Next slide, please. On slide 13, you see the net sales development with two different views, and that the long-term trend in our sales continued also in the fourth quarter as well as during the full year. First, to the left, you see that the online business increased its share of our group sales by 3 percentage points to 77%. Also, as you can see to the right, the trend of a growing share of subscription sales continued.
Here, in the increase was 2 percentage point from 84% in Q4 2018 to 86% in Q4 2019. Move on to the next slide. Thank you, where we have one of our two segments. Our segment, Denmark, increased its sales by 6%. A little more than half of the increase came from organic growth, and the rest from currency effect. Organic growth was driven by upselling to existing customers. Adjusted EBITDA declines due to the reason I mentioned before when we discussed slide 12. Next slide, please, which is the Swedish segment. Net sales in Sweden increased by 5.0%, which was in line with the full year growth of 5.6%. All of the net sales increases are organic growth since our reporting currency is SEK, and there are no acquisitions in Sweden.
Adjusted EBITDA in Sweden grew by 5.3%, despite a one-time trade in Q4 2018 with good margin that affects comparability. For the full year, the adjusted EBITDA improved by 8.6%, driven by higher net sales and good cost control, while higher depreciations and amortization had a negative impact. Next slide, please. We have our cash flow slide. As expected for the fourth quarter, which is our invoicing season, adjusted operating cash flow was strong and in line with expectations. In total, the cash conversion was 156% in Q4 compared to 177% in Q4 2018. The lower conversion rate for the quarterly mainly reflects a one-time change in processes and timing of invoicing following the acquisition of Norstedts Juridik, resulting in a significant positive effect on the cash generation in 2018.
On a full year basis, Karnov generated more than a quarter of a billion SEK in adjusted cash flow, corresponding to a cash conversion rate of 89% for the full year. As you can see from the graph, cash flow should continue to be strong in Q1 this year due to our normal invoicing seasonality. Now I'm handing over to Flemming again, who will present our last slides.
Thank you, Dora. Please switch to the next slide. As Dora just stated, Karnov generated more than SEK 250 million in adjusted cash flow for the full year 2019. We are a cash-generating company with recurring cash from many subscriptions. The board has decided to propose our company's first dividend, which they propose will be SEK 0.45 per share. The dividend proposal corresponds to approximately 30% of the PPA adjusted net profit since the listing, which is in line with our financial target, which is to pay an annual dividend in the range of 30%-50% of this net profit. When proposing the dividend, the board has taken not only Karnov's cash generation capabilities and unutilized credit lines into account, but also the stated objective to do additional investments and acquisitions. Next slide, please.
I just want to conclude this presentation by summarizing Karnov's first year as a listed company. First, the performance during the full year 2019 has followed plan, and we are in line with the expectations that we communicated at the listing. Secondly, we have developed and completed the rollout of a new platform, JUNO, for Norstedts Juridik, and Karnov will further enhance the platform using feedback that we have received. Thirdly, we have created a strong financial base to grow from and can now focus on making our growth strategy happen. Fourthly, the board has decided to propose a first dividend to the AGM. By this, I'll end our presentation and we are now ready to take questions. I'll hand over the conference again to the host.
Thank you very much. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. There will be a brief pause while questions are being registered. The first question is from Daniel Ovin at Nordea. Your line is now open.
Yes, good morning. I would like to start off with the extra investments that you're doing in Denmark. I wonder maybe you can give some kind of indication of how much that impacted the margin, and also if that margin would have been up if you exclude this. Also on that same topic, maybe you can talk about if there is more to come in terms of these investments, and also if this is in response to increased competition. For example, Schultz adding more services going forward. That's the first question.
Thank you. We have been working for, actually, the last 24 months in actually looking into what would we do in improving the offering in Denmark when we were finalizing all the work done in Sweden. Therefore, it's natural for us actually to put very much focus on this. This is also as we have explained during earnings conference along the year. What has actually been going on is that we have implemented new go-to-market strategies. We have been validating products and also thereby getting a good grab on what we actually want to offer extra in the Danish market. It is correct that there are also a tendency of a new competitive situation in the Danish market.
We also believe that with the position we have with the strong offered content build and offer for more than 150 years, that we still have a very competitive offering for the Danish market. For us, it's actually a matter of how to continuously improve this and thereby meet our customers in two aspects, giving them even more certainty in their research and also further efficiency. I hope this is actually answering your question.
Yeah. Okay. There was just two parts on that also. That was the question, would the margin in Denmark have been up, excluding these investments? Also, how much more is there to come over the next few quarters?
First of all, of course, margin would have been up if we hadn't taken these offensive steps. Secondly, going forward, I would say that we are still sticking to our financial targets, and therefore you could say that we are still in line and improving our margins in the midterm as we have also outlined at the IPO.
Okay, great. Thank you very much for that. Just turning over to Sweden and also trying to get a sense there. Can you give any flavor of how much that one-time trade, the positive one-time trade last year, how much that impacted the comparability? Maybe you can talk about now that you've done extra investments in Denmark, is there also on the agenda that you will do the same in Sweden? That's the second question.
I can start by saying that, as you know, trade comes and goes, and that is the main one-off thing that is really one-off. We can't control that one. In Q4 2018, there was a significant, that's why we are mentioning it, and that had a significant impact on the EBITDA margin. I would say in the range of between one and two percentage points.
That's perfect. Yep.
Concerning the last part of your question, it is our intention actually to be and be seen and take our responsibility as the leading company in both Denmark and Sweden. Therefore, we will continuously develop our position, we will develop our offering, and we will also be looking into how actually to develop to get into new segments and all. That is unchanged. With all the integration job behind us, we will also get more muscles in order to actually do so, also in the Swedish market going forward.
Great. That's perfect. Thank you very much. Just a final question from me, if I may. On this JUNO integration, now when we have onboarded, and that's more or less completed. Previously, you've been talking about SEK 7 million in synergies for 2019, SEK 19 million for 2020. If we just try to talk about how this phases. First of all, have we delivered on this guidance? The SEK 7 million, are they coming through already in Q1? How are the SEK 19 million for 2020, how are they playing out over the year 2020? That's my third and last question. Thank you.
For the first part about if we have actually finalized the synergy expectations, I would say yes. As mentioned earlier, it came a little later this year than we expected from set out back in 2017. We have finalized all part of the synergies within IT organization, living at one premises, and only harvest one set of sources. Yes, we have finalized that part, and therefore, of course, we expect to have the full effect of these synergies in 2020, coming in. With that said, of course, you are not supposed to just add the full synergies at the bottom line, because we also have to take into expectations that there are also costs coming in. We have also noticed that now we have the full picture of the cost and consequences of being a listed company, also with higher attention to us.
Therefore, we also have to have added cost to marketing, IT, security, et cetera. Therefore, you can't just take all the synergies and put them at the bottom line in the spreadsheet.
Okay. Excluding that, the SEK 19 million for 2020, if we try to isolate the extra cost. Just in terms of synergies, how do you expect those to play out over 2020? When are you realizing them and start seeing them in the numbers?
We expect them to be the full effect of actions taken in 2019. Therefore, they will be rather equal over the year.
Okay, perfect. That's all my questions. Thank you very much.
The next question is from Predrag Savinovic, Carnegie. Your line is now open.
Hi. Thank you very much. This is Predrag from Carnegie. Thank you for letting me on. Just following up on the previous discussion on the competitive landscape in Denmark. You did mention Schultz entering the market. You do not really believe they can take market share from you since your product is stronger. Could it potentially distort your plans on pricing increases going forward, which I assume you have some expectations of in the coming years?
First of all, it's important for me to outline that we, of course, always look carefully after what competitors are doing, and this we also do with this new attempt from Schultz, which has been in the market for many years. Secondly, we can say we still believe, and we have a very strong offering, and with the offensive steps we are taking, that we will also continuously be able to keep our position and thereby also still developing our market and also you could say our relationship with customers. Whether it will have any impact on possibilities of higher price increases, lower price increase, I think that is actually based on how much value are we able to bring forward to our clients and thereby seeing how much are they actually willing to pay for this.
That is a little too early to say what will be outcomes in years to come, but we are quite confident that our offering is still strong and with all the new extra elements that we are actually creating more value for our users.
Okay, super. One could say this slide is entirely in your hands pretty much on how well your product offering develops more than the market dynamic of them entering.
I think one also always have to have great respect of all new things happening from competitors, but on the other hand, also believe in what we are doing and all the info we are getting from market and so on. We have the confidence that we will still be able to develop our offer. It will not only be good, it will bring more value to our clients and thereby also live up to a very high Net Promoter Score in the Danish market.
Okay. Thank you very much. On product launch, as you did mention some earlier, are you more targeting to upsell on your existing client base or could you potentially even add a new client segment, say, grow your strength in the finance sector, et cetera? What are your ideas here?
We have a twofold approach. One is to put the necessary strength into existing offering and also thereby upselling and more sales of services to existing customers. Also look into what are new developments capable of. Mentioned in the new verticals in procurement law will also open up for new segments, which today is not part of Karnov's natural customer base. It is a combination of both doing more for existing and also looking into new segments. This is also something we will be reverting to during the year.
Okay, great. Again, a follow-up on Daniel's question earlier on the investments you take in Denmark and rightfully so. You did say that the margin would have been up in Denmark, can you quantify more so we just get a little more sense of what the difference would have been? Is it 39% adjusted or what are we looking at in terms of the figure?
I don't think we will step in actually giving further, you could say guidance on that. Even say that it is a matter of that we have used technological resources for actually preparing, and that means it has less capitalization in Denmark. We have, as I said, been out spending quite some energy and cost for actually preparing. All in all, you could say that it had an effect on the result, but I don't want to get into more details around that.
Okay, thank you. A final one for me, if we can get some more flavor. Maybe I missed it earlier in the conference, but on the write-down of the subsidiary you do in the quarter of the older subsidiary, what is the status of this acquisition now and going forward?
Legal Cross Border?
Yeah. That's a subsidiary we invested in in 2017. We have done this write-down due to accounting principles, but we have absolute faith in the revenue and the product to be delivered and the revenue to come. It has been delayed compared to our first expectations.
Okay, super. Thank you. Thank you very much for answering my questions.
Thank you.
There are no further questions. If you would like to ask a question, please press zero one at the telephone keypad. As there are no further questions, I would like to hand back to the speakers for some closing words.
Thank you. Thank you everyone for listening and your questions. We will report our Q1 on May 5th, and I hope to hear from you then, if not earlier. Thank you very much.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.