Welcome to Storytel's press conference. During the questions and answer session, participants are able to ask questions by dialing hash five on their telephone keypad. Now, I will hand the conference over to the CFO, Peter Messner. Please go ahead.
Thank you very much, and welcome to Storytel's market update today in relation to the press release that was sent out early in the morning on our sharpened focus on profitability, including a trading update for the final quarter of 2023. What is this market update about in a summary? What we announced to the market is that Storytel sharpens its focus on profitability, and with that, will improve the cash flow generation considerably in the timeframe that we also indicated in the Capital Markets Day, and by that, upgrades its guidance as compared to that previous guidance from the Capital Markets Day in June 2023. We do this out of our own choice because we see that we can do that, and still keep a very healthy growth momentum up until 2026.
We also announced an efficiency optimization initiative that will be implemented now in the first quarter of 2024, and that includes, in particular, a 13% reduction in our global workforce. As a result of that increased emphasis on the profitability, which also means reduced growth investments in certain markets, those assets in those markets will, as a consequence, not deliver that previously planned cash flow based on very old plans. And as a consequence of that, we have considered in the final quarter of 2023, a total non-cash write-down and partly impairment of SEK 632 million. I will come to the details with regard to that number later.
On the back of very strong final quarter earnings, we further provide a guidance which takes into consideration the efficiency optimization initiative for this year, 2024, and at the same time, also upgrade our 2026 midterm financial targets. Please note that all the numbers that I will talk about are still preliminary and unaudited, and can potentially and slightly change. We will publish, as planned, our year-end report on the fifteenth of February. Let me start with the highlights of the final quarter of 2023. Storytel saw a very good momentum and a strong quarter that ended with group net sales at almost SEK 950 million, or with a 9% increase year-on-year.
Most notably here, of course, is the good momentum that we have in the streaming sector, with streaming revenues increasing by 16% or 14% organically at the constant exchange rate. The Adjusted EBITDA in the final quarter on a group level was SEK 86 million, which is up 62% from SEK 53 million in the previous year's final quarter, and that represents a margin of 9.1% in the quarter. The operational cash flow, which is our measure for Adjusted EBITDA, less the operational capital expenditures, amounted to SEK 46 million. The Adjusted Operating Profit was -SEK 8 million and also considerably higher as, the negative amount in the final quarter 2022.
I'd also like to highlight that during that quarter, Storytel repaid SEK 100 million in bank debt, and by that, reduced the total outstanding financial debt to SEK 750 million, and at the same time had cash and cash equivalents of almost SEK 440 million. With these results, preliminary and unaudited, we have a view on the comparison to our previous guidance. What you see here is the guidance that we provided for 2023 in three different areas. It was the organic streaming revenue growth with an initial guidance of 11%, that we reinstated, after the Q3 report last year, where we now have a preliminary result of 12.5%, which is well above our guidance.
The Adjusted EBITDA margin was guided to be above the previous full year margin, which was 2.9%. We updated that guidance in our Q3 report to be well above 6.4% and will end the year at 7.1%. Finally, the operational cash flow, which was still negative during 2022, was guided initially to be break even or positive. We updated that guidance to above 80 million SEK and have a result now of 89 million SEK. What we also announced in the press release earlier today is certain write-downs that are part of a package of items that affect the comparability during the final quarter of 2023. Those are all a result of that further emphasis on the profitability and therefore on reduced growth investments in certain markets.
The biggest part of the write-downs are the non-cash impairment charges on goodwill that are attributed to our U.S.-facing Audiobooks.com asset, and those amount to SEK 465 million. I would like to highlight that that does not mean anything in relation to the attractiveness of the U.S. market and to the well-perceived asset that Audiobooks.com is. We have considerably, hopes and continuously use audiobooks in a very attractive way in that U.S. market, and it is a fantastic product out there. So this impairment charge has nothing to do with the product in itself. It is a change in the underlying plans based on the further emphasis on profitability in the entire group.
Other write-downs to the amount of SEK 166 million, non-cash in nature as well, are mainly concentrated on content assets, audiobook catalogs, that is, to the largest extent, for the various expansion markets where we do not focus so much anymore, based on the same principle of the further emphasis on profitability rather than on an extensive growth investment.
Then there is an amount of roughly SEK 40 million in the final quarter that relate to various restructuring charges in personnel and related other operational expenditures for adjustments in the staffing and in the overall organization that has already been done and is already completed during the final quarter of 2023. Again, these numbers are preliminary and unaudited, and there is a potential that they could likely change until we release our report on the 15th of February.
So this was the past in terms of the final quarter and the full year of 2023 and what we recognized there. What does that now mean going forward? And, finally, what did we also announce earlier today in the morning with regards to an efficiency optimization initiative? We have decided to reduce the workforce by 13%, which approximately is a number of 18 full-time employees. This will be implemented as of today and during the first quarter, and will mostly affect the first quarter, but there are certain effects that will only be fully completed in the second quarter. So a full run rate effect of these savings and cost improvements will be visible only in full effect in the second half of 2024.
There will be a related one-off cost, of course, in relation to this reduction in workforce, and that will be recognized in the first quarter. We will not provide any further information around this, with respect to the ongoing process that only starts as of today. We will update you and the market on the fifteenth of February with further details here. The reduction in workforce is one part. The other part is our continued focus on efficiencies throughout our organization, which affects, for instance, our marketing expenses and any other cost expenses, where we have shown already during the last couple of quarters, the improvements that we have been doing, and we will, of course, increase these efforts there.
That together, on the back of the strong results of the final quarter 2023, leads us to a guidance for this year, 2024, which you see summarized on the right-hand side of this slide. We ended the year with a 9% group revenue growth, and we will guide 2024 for a total group revenue growth of around 10%. We ended the year with an Adjusted EBITDA margin in 2023 of 7.1%, and we guide the market now to achieve a 2024 Adjusted EBITDA margin above 12%.
Finally, we ended the full year 2023 with an operational cash flow of 2.5% of revenue, and we are guiding the market to have such operational cash flow this year above 7%, which implicitly indicates that the CapEx, as a percentage of revenue, will be below 5%. What does that mean for our previously communicated midterm targets? And you find that in the press release earlier today as well. That means that we are updating and upgrading our midterm financial targets. Now, there are different elements that play into this. We previously said that we would expect group revenue of around SEK 5 billion by 2026, and we adjusted this now to a little bit lower at SEK 4.5 billion.
Again, this goes back into the entire chosen path, of profitability and not too many growth investments in such expansion markets, which is exactly that difference that you can see here. The growth is nevertheless primarily driven by the streaming revenue growth over that period, where we expect a compound annual growth rate over that period between 10% and 12%. We previously indicated 15% with the old plan from last year's Capital Markets Day. The EBITDA margin has been upgraded from the previous guidance of above 12%, which we will guide already for this year and achieve, to above 15%. And of course, we will put all efforts into place that both the streaming revenue growth and the EBITDA margin will be indeed above what you see here.
And finally, the operational cash flow, again, as an Adjusted EBITDA less the operational capital expenditures, is expected by 2026 to be above 10%, which again indicates to you that the capital expenditures in the normal way of operating our business will be below 5%. With that, I have summarized today's press release and hopefully gave enough context for understanding and will open up to your questions.
If you wish to ask a question, please dial hash five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial hash six on your telephone keypad. The next question comes from Derek Laliberté, from ABG Sundal Collier. Please go ahead.
Thank you for that, and hello, Peter. I was wondering if you could give some more details around the change to your 2026 targets, given that the prior targets were issued actually very recently at the CMD in June. I think it's great to see the improved margin and profit outlook, of course, but what is really driving the lower growth assumptions here, apart from the restructuring you're doing, et cetera? Is it a changed market outlook, et cetera, or changed priorities? Any additional color you could give that would be very helpful.
Hi, Derek. Thanks for your question, and yeah, absolutely. So as you rightfully say, the margin and the profitability targets have been adjusted, which even with a slightly lower group revenue target for the midterm for 2026, will create higher profitability, translating into higher cash flows by 2026 for the group. I think it's important to highlight that. The main difference really is the chosen path of having in our control environmental factors that may or may not arise out there in the environment. If I just give you an example, we had Israel as one of our expansion markets previously, always considered. We have, in the meantime, a war in that area.
So that just gives a little bit of a taste of there are, of course, certain factors out there where we do not want to be fully dependent on the environment and cannot control this in our own way. So the chosen path here on the profitability is very much what can we keep in our control? Where can we reduce certain dependencies, maybe on, on markets that we may or may not know by now, but would like to assure in the current macroeconomic environment? So the key difference really between the previous target on the group revenue by 2026, as compared to what we are targeting now, is the, the changed focus and the growth investments that are reduced in relation to such expansion markets.
Okay, great. And regarding the part of the write-down, the content asset write-down, should this write-down mainly be seen as a result of a general review, or do they come on the back of this more specific operational decisions, partly the ones you just highlighted relating to the expansion markets?
That's a very relevant question. They come really on the back of our chosen path here to reduce certain growth investments in exactly those markets, go for higher profitability, and then simply in absolute terms, over that time period, when you would do your discounted cash flow analysis for certain assets, you would come to the conclusion that, well, there is a write-down situation that we would like to do. So that is the obvious result of our chosen path of focusing more on the profitability and efficiently running that company with regards to these expansion markets, as compared to any other reasons there.
Okay, perfect. Thanks for the, the clarity. Those were all my questions right now.
Thank you, Derek.
As a reminder, if you wish to ask a question, please dial hash five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speaker for any closing comments.
Yeah, thank you very much for dialing and listening in to our market update. You find, as always, further information in our press release.
Sorry, Peter. Jonathan here. We got a question in this last second there.
All right. Then I was a little bit too early with that conclusion.
The next question comes from Stefan Wård from Pareto Securities. Please go ahead.
Excellent news today, very exciting. I have a few questions relating. One is to the intangible write-downs, if you could help me there with how that will impact depreciation. Is it fair to assume that depreciation will come down in the range of 30-35 per annum, or?
Yes, I can answer question after question, Stefan. Good to hear you. Hi. So in terms of the intangible write-downs, the impairment on the goodwill of Audiobooks.com obviously does not have any impact on our amortization charges, as that is a goodwill impact, and the write-down on the other assets, exactly as you estimate, is roughly in that area from a yearly savings perspective on the amortization charges.
Perfect. And then also on the net debt situation and with the guidance for first, your definition of operational cash flow is EBITDA minus CapEx, right?
Yes, the operational CapEx. So that excludes any M&A or other acquisition-related CapEx.
Yeah. And with that guidance, I get it too, that the company will go into net cash by end of this year or early in 2025. What's your view on that?
Yes, we would expect, following the guidance from this year, that we will be in a net cash position in 2025. That should be possible.
That should be possible. Okay, exciting. And, on the—when you talked about the adjustments to the goodwill for ABC or Audiobooks.com, so the way I read that is that operationally, you're happy with the company, it's developing as you expected, but you have dialed back your sort of growth ambitions, and that is reflected in the sort of DCF-derived fair value of the goodwill. Is that a fair way to put it?
I think that's a fair way to put it. We are extremely happy operationally with what we are doing with Audiobooks.com. That's a fantastic service, and we are also serving the needs in that market. As a reminder, we have been out there in the, and it's not only the U.S. market, it's generally the English-speaking market, but it is primarily the U.S. market or the U.S. and Canadian market, the North American market, that we are serving with this product. It's a fantastic product. It's a very stable product. We have decent growth rates, and it's in particular a strong contributor from a cash flow perspective and from a profitability perspective to the entire group.
What is compared here, of course, and that is also prior current management, a comparison to what was the price of that asset when it was acquired back in 2021 or the deal when it closed early in 2022, and consequently, what is that carrying value on the balance sheet from back in those days, which was, by the way, also a period of high or peak valuations out there in the market.
So that macroeconomic environment has changed since then, and also the assumptions in terms of the strategy that we put forward and how we continuously drive via Audiobooks.com, our presence in the U.S. has changed over these years. So the write-down or the impairment of the goodwill, now to be precise, is a consequence of that strategic choice and that plan that we have.
Okay. Then, just on your guidance, implications of guidance, if I get it right that you will have an EBITDA, you guide on EBITDA in this year of around SEK 450, something like that, and then towards SEK 700, SEK 675, SEK 700 for 2026. Would you agree with that picture?
Well, I don't want to agree or disagree with your mathematics, but of course, if you put into perspective a revenue growth around 10% from 2023 and the margin above 12%, then you would come to the respective numbers, and the same would be true for 2026.
Yeah, okay. So what I'm after here is the aggregate level of EBITDA over these three years looks to be quite, quite big. I get it towards SEK 1.6 billion-SEK 1.7 billion. Do you have any comment on that?
Yes, I do.
The aggregate for the combined for all three years.
Yeah, it, it should be a very attractive number if you aggregate this over the time period of these three years. I agree to that.
Yeah, and the CapEx spend that you're sort of bringing it down, not, you know, what the indication is that you bring down CapEx. Is that—can you describe how you can continue to—what the CapEx is and how you will continue to have a very competitive offering despite this adjustment to CapEx, basically, is what I'm after. Thanks.
Yes. Thank you for that question. That's, that's a highly relevant and very important question. So the, the CapEx, and I believe we had some details in the capital market slides that are in principle relevant and, and still valid. The operational CapEx that we have is to the largest extent, roughly 85% audiobook productions that we are doing.
We are capitalizing that, and we are amortizing that over the expected lifetime of that catalog. The remaining 15% is all other capital expenditures, which is primarily investments into the product and the technology, and the platform, and features that will drive future revenues or cost savings. The CapEx overall is obviously a function of the amount of markets that we would like to serve.
If you think of a single market like Sweden, irrespective of how many consumers we would like to attract, we will not necessarily produce more audiobooks in the Swedish market, and by that, we'll be able to attract more consumers. So the growth in the existing markets, and as we sharpen our focus on the profitability and our 10 core markets, which are the Nordics, the Netherlands, Bulgaria, Poland, Turkey, and the U.S., does not change necessarily the levels, roughly speaking, of CapEx that we have for our audiobook productions.
Where it will make a difference going forward, however, is the capital expenditures and the audiobook productions of the previous expansion markets, because we will lower further the investments into such markets. As a consequence, the absolute level of capital expenditures in relation to audiobook productions will of course lower, and therefore will be below 5% of total revenue.
Okay, that's clear. A little bit around the subscriber growth in the strategic core markets. It continues to be strong. While it looks implies that your sales and marketing is quite efficient. Can you describe a little bit about how the environment have been for subscribers? I would have assumed, to give some context, at the beginning of last year, that it would be difficult with subscriber growth because of the challenging economic environment, and then you have delivered a year with very strong growth in subscribers, both in the Nordics but also outside. What's your view on the environment for continued subscriber growth?
I will largely actually defer to our year-end presentation on the fifteenth of February. We will go into much more detail. What I can say now is, in the Nordics now in the final quarter, you see subscriber growth of 5%, and in the non-Nordic segment, we saw subscriber growth of 13%, which is very healthy, which is very strong.
We have not seen any major concerns or trends or whatsoever, where we would say, "No, this heavily would have slowed down or anything alike." So even with the macroeconomic environment that you referred to, consumer spending, probably generally, still the interest rates, and inflation numbers that we see, but also price increases that we did earlier last year and that we reported on in terms of the churn indication over the quarters, we haven't seen any negative impact, which just makes us very confident in the resiliency of our business model and the way how we serve these subscribers. But again, we will talk about this a little bit more on the fifteenth of February so that we have something to talk about on the fifteenth as well.
Yeah, of course. Thank you very much.
Thank you. My pleasure.
There are no more questions at this time, so I hand the conference back to the speaker for any closing comments.
So thank you. Coming back to what I already started saying before that, there was the market update in relation to today's announcement in the morning of our sharpened focus on profitability and the trading update for the final quarter of 2023. We will come out with our year-end report for the final quarter on the fifteenth of February, and I'm looking forward to speak then. Thank you.