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Alma Media Oyj
OMXH:ALMA
Alma Media Oyj
OMXH:ALMA
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good morning, everybody. Welcome to Alma Media First Quarter 2020 Interim Report Presentation. My name is Kai Telanne. I'm the CEO of the company. This time, we will do this fully remotely because of the corona pandemia. I have here with me our CFO, Juha Nuutinen. He will present you the financials and the balance sheet issues. We have also online Vesa-Pekka Kirsi, Head of our Marketplaces. If you have any questions for him, you can post them. And also, Elina Kukkonen, Head of our Communication on the line, assisting you with the questions for this presentation. As you have perhaps had time to already read the news, we had, like the headline says, we had a stable decent first quarter. But then as a note for the corona outbreak uncertainty cost, for the coming months, I have a few notes for that as well. I'm really happy with the performance of the company. We had the all-time high development during the first 2 months of this year. Until the corona outbreak, our revenues and profitability were on a record high level. Because of a good recent performance, we have a very solid financial position, very healthy balance sheet, almost net debt-free balance sheet and a very good liquidity. That's, of course, a good thing. Especially in these circumstances, we don't have any liquidity issues. We can continue with the strategy development and running the business as normal as possible in these challenges. As you can see, revenues and earnings stable, on par with last year. In different business segments, pretty similar situation, a decent slide on revenues and profitability. All the businesses went nicely and smoothly up during the first 2 months. And since the corona outbreak, the revenues have gone down as well as the profitability. This will have, of course, a severe impact on our forthcoming revenues and profitability, especially on the second quarter. We will come later to that. Our digital businesses are growing as expected or even better. We had a 4% growth. On digital, 54.2% of the revenues. At the moment, this figure will, of course change remarkably after the closing of the deal with Sanoma and after the divestment of our regional business by the end of this month. After that, our digital revenue share will be around 70% or almost 70%. First, I want to take a short deep dive into different business segments. And after my presentation of this, Juha will continue with the financials. I start from the Alma Market, which is the biggest contributor to our profitability and the shareholder value, of course, of the company. Like the headlines says, sales and profitability were stable during the first quarter, on the record [ height ] level on January, February and a clear slowdown in demand revenues, especially on recruitment advertising after the corona outbreak, which means 2 last weeks of March. Expenses were flat. And due to that, we had a good profitability level, 35% as expected. But I have to say that during the second quarter, the sales will drop remarkably because of the close down of many businesses and the lockdown of different countries and societies where we are doing our business. Secondly, Alma Talent, where the digital transformation continues smoothly nicely. At the moment, 42% of the business is digital. That is well according to our strategy. Here, we had a remarkably good development of digital content sales. The demand of financial news in this situation is, of course, high. And with the good work inside the company, our sales of digital subscriptions increased 34%. We had also a good development on our Pro digital sales, while expenses a little bit down with the cost cuts and the divestment of Affarsvarlden in Sweden, profitability stayed on a healthy level of [ 14.4%. ] Now thirdly, Alma Consumer, which is here, mostly the Iltalehti and the smallest digital services around that. Good development on digital. Declining, a slowing development on print advertising. The revenue went up 6.2% due to the loan comparison service at FI acquisition. Content sales, on previous year's level. And the single copy sales, as mentioned, went down due to the heavy restrictions and closed down outlets in Finland. Of course, due to the high demand of news during this corona crisis, the Iltalehti visitor base is at record high level. Page views grew 50% during the last 5 weeks. Adjusted expenses almost 10% up due to the ETA acquisition and personnel and marketing cost of Iltalehti. And then fourthly, the discontinued operations, which means the Alma Regions, more or less, in this part of the business, the print advertising is the main contributor, and that part of the business is declining due to the crisis heavily. The market is down around 30%. And due to that, the revenues of our regional businesses went down around 10%. There's also a good development in digital subscriptions. But that is not enough to mitigate the decline in print advertising, and due to that, the profitability is going down. There's also a income of EUR 8 million, which is the gain on the sale recognized in outsourcing the delivery operations to Finnish Post. So this is, of course, difficult for the print business in the whole country. All right. That was the first part of this interim report presentation. Now I give the microphone to Juha Nuutinen for financial issues. And then after that, I will continue with a few strategic initiatives. We decided this time to give space for the questions after the presentation. So please [indiscernible]
[indiscernible] [ therefore amounted to EUR 1 million ] at the end of March. We have interest-bearing liabilities, total at the moment, EUR 88 million. And those are fully or entirely of lease liabilities. We will do the sale of our Regional Media at the end of April. And in this connection, we will transfer pretty much half of our liabilities or interest-bearing liabilities to Sanoma. And that's why the amount of liabilities after that sale is around EUR 45 million. We have a strong equity ratio [ of 56% ] at the end of March. Of course, this equity ratio is now higher than usually because the dividend payout were transferred from the March and will happen in May. So that affects also with this quite big decrease in our net debt level. We had strong cash flow in the first quarter like we usually have. This is pretty typical in our business that the first quarter is the strongest. Last year, we have exceptionally good net working capital levels. That's why we have close to 3 [ annual ] operating cash level less than the last year. But still, the first quarter operating cash flow is a strong one. We had some investments. And especially acquisitions, we had 2. We have this Collective and Motomal acquisitions [ total ] EUR 6 million, which happened in January this year. And those businesses are related to Alma Market business segment. We will take a hit also from the cash flow point of view in the second quarter. Like Kai told, that our result will be decreased in the second quarter because of this coronavirus issue. And the effect to cash flow is even more stronger than in our profit and loss, because especially in the Alma Market segment, in recruitment, we have more decreases in invoicing amount than in the revenue. But we will have good cash resource to handle that in -- during the summer. [ I want ] special notice is also that at the end of April, we will receive our -- and our cash reserves will be increased by this sale of Regional Media business. Our earnings per share were also remarkably high in this first quarter, EUR 0.21. If you look at the earnings per share from continuing operations, we were pretty even with the last year figure, EUR 0.10. And there is also adjusted items with EUR 1 million positive which affects there. So we were pretty in line with the last year. But the increase -- remarkable increase comes from the discontinued operations. And here is the capital gain affecting a lot from delivery outsourcing which was realized in January this year. Also, in this discontinued operations, there is one thing which is affecting with EUR 1 million positive, and that's the fact that we are not making depreciations anymore in the discontinued operations because of the IFRS rules. Then the last slide concern our long-term financial targets. We have not changed those. We believe that after this financial crisis, this long-term financial targets are a pretty good level, and we have able to receive those after the crisis. But our digital business growth was 4%. This includes also discontinued operations. Our return on investments were exceptionally high, 29%. And that comes from the capital gains from delivery outsourcing arrangements, but also some capital gain from the Alma Market business segment. So this was in a nutshell the financial review, and now we will continue with the strategy questions.
Thank you very much, Juha. To conclude my part of the presentation, I will take out some issues of the strategy and, of course, give you some light to the measures taken due to the corona pandemia to mitigate the damages that we will face evidently during the second quarter and the rest of the year. I'll start with the smallest investments that we had. In the beginning of the year, as Juha told you, Kolektiv and Moto Myoma Investments, we became a major owner. And then the big one which is the divestment of the Alma Regions with the printing and delivery service. We got in March the approval of the competition authorities, and that leads to the closing of the deal on 30 April, which means 1/3 of the revenues of the company will be divested and the company will be more more than ever a digital company, with a heavy emphasis on marketplaces, business-to-business media and services, and digital consumer media. We'll get a capital gain of EUR 58 million on that sale in the second quarter figures. And then to the coronavirus. As other companies, societies and countries, we took a healthy first approach to secure the safety of our employees. As soon as we noticed that this will be a big [ rubber ] for us, from the third week of March, we've been working remotely, the whole company. In a couple of days, working fully remotely with no kind of interruptions in our services, which has been, of course, very important for the whole communities and the customers. There's a huge need of quality information around this corona pandemia and virus, and that will, of course, continue, I think, for the whole year. I'm really satisfied with the way that we went to this mode. Of course, some of the employees are enjoying a lot doing remote work, some don't. That's, of course, the case in any situation. We want to give you some light to the actions to mitigate the damages that will eventually be on the table due to the virus. As mentioned before, the last 2 weeks of March have been difficult. The demand has decreased heavily because of the lockdowns of societies and the businesses, especially the recruitment businesses in heavy pressure. Housing and car business and marketplaces are not that bad affected. The first week of -- or the third week of March was difficult, but now achieved they are picking up a little bit. We estimated that there was a impact of revenues in March around EUR 1.5 million in Alma Market segment. We have prepared and taken certain actions to mitigate these cuts. We have [ cutted ] marketing investments, external service purchasing. We have temporary layoffs fixed-term reductions in pay and so on in different countries, depending, of course, the local legislation and the possibilities that we can do there. We are scaling down some businesses like our Polish mobile service. We are contracting our recruitment. Consulting services in the Baltic countries, there's no demand at the moment, and we are closing down our Ocana business in Humar. And all together, these actions will [ end ] up, as expected, around EUR 3.6 million cost savings during the second quarter. And then to Alma Talent. Here, we have, of course, a decrease in demand in advertising in cars, which is a big segment -- customer segment in Alma Talent group and the recruitment, like in other places as well. Training events move to digital channels. And events businesses and events, we have to postpone to autumn. Estimated revenue impact of these during March, around EUR 0.4 million. And in Alma Consumer segment, advertising sales down heavily, especially on print side. Cars and travel businesses are impacted mostly. Single copy sales declined because of the outlets close downs, but then on the other hand, record high numbers of visitors at iltalehti.fi, as mentioned also before. Impact of revenues in March, around EUR 0.3 million, not very much, but the second quarter will be not as favorable. Here, we have in Finland possibilities to do temporary layoffs, especially in those areas where the business is more or less [ dead ] at the moment. Event and training businesses. We have recommended our employees for entire company in Finland to exchange a bonus holiday pays for time off. We are reducing external service purchasing. And of course, we have postponed noncritical development projects. We have decided not to postpone or cut any important strategic initiatives [indiscernible] more or less normalized after the corona crisis. The expected cost savings in Alma Talent and Alma Consumer, all together, EUR 2.4 million. And combined all these actions taken, will contribute about around EUR 6 million cost cuts during the second quarter. All right. As you noticed, we didn't give a new outlook for 2020 because of the uncertainty which has increased. Still, the visibility of -- or for the coming months, quarters and for the year is very poor, and that is the reason for not issuing guidance for the full year at this stage. Hopefully, we can do that later when the situation clears up a little bit more. So that's more or less what we wanted to say to you today. After the closing, of course, the company will be totally different. We have a more focus on digital businesses. Our strategy is to continue and grow marketplaces businesses in Finland and internationally, to leverage the professional media and especially the digital services, and then develop national multichannel consumer media and services around iltalehti.fi and the supporting digital services. Very good. Thank you very much. Now me, Juha, Vesa-Pekka, we are all ready to answer your questions if you have any. Please, Elina can help you.
Yes. Good morning also on my behalf. Hopefully, you can hear me. So we first start with the questions from the stream, and there is one question from Sebastian I'll try to split this in pieces because it's a quite long question. So first of all, is it fair to multiply the EUR 2 million revenue impact in March by 3 to get a fair assumption of the revenue impact in second quarter, which would be EUR 6 millions?
Well, at least you can double it. That would be fair.
Good. And do you expect to reach the 2019 levels in 2020 again? Also, regarding the balance sheet, is it fair to assume that you will have more than EUR 130 million net cash excluding IFRS 16 at the end of the second quarter?
Yes. Juha, you can answer that.
Yes. That's a pretty good estimate. Yes. We are close to that figure at the end of June. Of course, it's pretty much is the case what is our operating cash flow. But yes, it's pretty much close to our own estimates.
And maybe Juha can continue here about the cash flow. So is it also fair to assume that you will always stay positive in terms of free cash flow from every quarter this year?
We assume, yes, that we will have positive operating cash flow. The second quarter is the hardest. And like perhaps told you earlier, that the invoicing will be dropping faster than the revenue, so the biggest hit comes to the second quarter. So -- but still, yes, we believe that our operating cash flow still remains positive also in the second quarter.
Yes. Thank you. And then about the competition. So do you see any competitors currently running into the financial distress?
I don't have a clear picture on that. But I assume that some of the heavily print business -- it's heavily concentrated print businesses due to the high and rapid decrease of the print advertising will be in difficulties.
So if I can comment on the first question which concern the revenue decrease in March, which this EUR 2 million decrease was coming from the 2 weeks basically. And if this situation is pretty similar than the last 2 weeks in March, for the whole month, it means EUR 4 million revenue decrease in a one month. So we don't know how far this coronavirus will have the effect. But if it has the same effect that we had last 2 weeks in March, the effect is EUR 4 million in the one month in our revenue.
Yes. Exactly. Then Sebastian, my question regarding 2021 levels. Do you expect to reach 2019 numbers in 2020 again?
Well, that's a tough question. It depends very much on the speed of opening of the societies. But my estimate that like in in all European countries, the markets, the economies have to be opened by the end of May or June, latest. Otherwise, we are in a bankruptcy. And if that happens, then the situation will be different. But the second quarter will be quite difficult and the drop is quite significant. So it takes time to reach the last year's level. And different businesses and different business areas are in different situations. Like for recruitment, I assume that it takes more than a half year to recover. But for some other businesses, like for cars and houses, in our case, it's faster. So we are in a better situation there, but it's really difficult to estimate. It depends so much on the overall situation of the societies.
Yes. Thank you. So we don't have any other questions from the stream. So maybe we can move on to the operator. So operator, we are now ready to take questions from the teleconference lines.
So we have a first question from Sam Sarkamies.
I have 2 questions, both related to COVID-19 impact [indiscernible] or if the situation become even worse in the third quarter due to delay ...
Sorry. Excuse me, excuse me. We missed your first part of your question. Can you repeat it, please?
Yes. So I was asking about the COVID-19 impacts. Do you anticipate revenues to bottom out the second quarter or situation become even worse during the third quarter due to the IT impacts?
Very difficult to estimate. It depends so much on the opening of these lockdowns. Now it seems that we have to open the societies. And if that happens by the end of May, for example, we estimate that the third quarter and the fourth quarter will be better than the second quarter. But if that doesn't happen, the situation is, of course, difficult and worse. For now, we haven't now estimated or made any clear precise estimations for third or fourth quarter. It's too early.
Yes. And then my second question would be on the cost savings you're planning for Q2. These seem all temporary in nature and amount to EUR 6 million. Can you give us an estimate on how much you're planning to save on a full year level? So will some of these measures be such that they will also have an impact in the third and fourth quarter?
Well, I can start and Juha continue. So the view is that we can continue these kind of measures for the full year if we want. So this kind of temporary or marketing cost cuts or external purchases can be delayed or postponed or whatever. So this level can be reached. But then the question is that, if the situation gets worse, if the societies are not opening, we need to find new initiatives, and we are ready to do that. But we will very closely follow the overall situation and then decide if new initiatives are needed. We don't want to destroy any businesses right now, which means that we are -- we have not planned any big restructural things. We have -- as told before, we have -- we are closing down some [ smallest ] businesses like the Polish mobile or at least decreasing those businesses or closing down some smallest businesses like the Workana business in Hungary. But those decisions need to be taken later on when we are seeing what is really happening in different societies.
So the next question is from Pia Rosqvist.
It's Pia Rosqvist from Carnegie. So most of my questions have been answered. But specifically with regards to the actions taken in the markets, the scaling down of the Polish mobile service, et cetera, and closing down the business in Hungary. How fast do you assume you can scale up this again when the situation normalizes?
Quite quickly. Actually, the business, that's a question mark. Do we need to do? We want to scale up? That again remains to be seen, but the Polish business might be interesting one. It's quite easy to scale it up because we don't close down the technology or the processes there, just the personnel, which reflects, of course, the current demand in the market. And of course, the Polish business is really small still. In terms of revenues, it's quite small, small business.
We have another question from, from SEB.
So Veikko Kujala from SEB. A couple more from me, mostly relating to the Markets segment. Could you give some kind of like a update on what percentage in your Alma Markets revenues is coming from the SME segment, so small and medium-sized businesses?
Well, Vesa-Pekka Kirsi is online as well. Maybe that's the question for him. Can you, Vesa-Pekka?
Yes. I'm here. Thank you for the question. The SME part of the business has been growing steadily, especially in Czech Republic where we've been, you can say, targeting more the sales to the SME market. However, the share of the SME market is still not small, but it's not the major part. The major part of the business comes from the big and large companies. Out of the top of my head, I would say, 1/3 of our business in Czech comes from the SMEs and the rest from the large companies. The share is smaller in other markets. So in that sense, the SME is a smaller portion of our business in the recruitment sites.
Yes. All right. That's very helpful. And then I know Sami already kind of asked this question, but let me just see if I understood it correctly. So you were mentioning cost reductions in Q2, especially in the Markets segment, so that was EUR 3.6 million. So if the situation doesn't get better, did I understand correctly that you can maintain this level also for the rest of the year if need be?
You're asking that, can we keep the cost cut level of EUR 3.6 million for the forthcoming quarters as well?
Yes.
Is that the question? Yes. Yes. Yes.
Yes. Correct.
Yes. We can do that if needed. But then my question is, of course, and the worry is that, is the situation getting worse or better? The current estimate is that the societies need to be opened. And due to that, the demand will increase, which means that we have to accelerate and postpone those cost cuts for third and fourth quarter to speed up the recovery. But then the -- on the other hand, if the situation continues, the overall market will be more difficult and we need to fight new initiatives. So I'm quite confident with the current plan, and the execution is well on place. But then the big question is that, is this enough if the situation get worse.
Yes. Yes. And relating to this, have you -- in the Markets segment, have you done any layoffs already? Because I remember you integrated the Kolektiv business now in Q1. And I think that was something like 40, 40 employees or something, that your employee count in the segment didn't come up. So did -- have you done any layoffs already?
We have -- actually, Vesa-Pekka can continue from this.
Yes. The saving measures for the second quarter, so roughly half of that is personnel-related savings. Most of the savings we've done as a temporary measure, as Kai, you have been telling today, those are temporary layoffs in Finland or salary reductions or different kinds of measures that the country systems allow. However, in -- especially in the CV Online, meaning the Baltic countries, and then Tow Online within the Croatia and the neighboring areas, in those 2 operations, we have also done a permanent layoffs. These were due to businesses that we see at the moment, not recovering speedily in the situation. And therefore, the layoffs were necessary and meaningful in the situation. We are not planning at the moment for permanent layoffs widely across the organizer. As Kai was mentioning, we are prepared to bounce back to business if the situation recovers. However, if it doesn't, we also are then working on the longer-term savings planning, what then -- what measures we have to take then. But these plannings are undergoing at the moment.
Yes. Vesa-Pekka is referring like -- in Baltic countries, referring with the temporary permanent layoffs in those businesses in Baltic countries.
Further questions from the telephone conference. There is one more. Johan. Hello, maybe I missed your name. Johan from.
One more question relating to M&A pipeline. After the closure of the, you have quite good financial position. And how much you have actually headroom now currently? And where you see most promising opportunities regarding M&A?
Yes. We are investigating several cases. Of course, the eye is on Marketplaces businesses. On B2B digital services, more or less. So like you said, we have a good headroom for investments. We try to use this possibility. It seems that the new possibilities are arising also due to the current situation. There might be some pressures on some companies all over the Europe. So we are in a good position in that sense also. As I told you before, we haven't stopped the strategic development, which means that we are working on those initiatives all the time.
Now at the moment, we don't have any further questions from the telephone conference.
Okay. Thank you. Maybe I could take over here. There is one more question on stream that hasn't been answered yet. So Jonas from OP is asking about the advertising revenue. So the advertising revenue in second quarter in Talent and Consumer, do you think the decline will be similar than during the financial crisis? And then a follow-up question, Markets, do you think the decline in second revenue will be bigger than in Talent and Consumer?
No. Well, Vesa-Pekka can continue with the Markets. We haven't done any official estimate for the coming months. But my personal estimate for the print business is that it will be pretty much the same as we have seen during the last 2 weeks of the March [ by the boat. ] And that is, of course, a huge drop. On digital side, I think that we will see some good news also, which is based on the picking up of car sales and housing market picking up in Finland. But Vesa-Pekka, you can continue with the Marketplaces if you want.
Maybe just quickly to add. The question was whether the Markets decline will be bigger than Talent and Consumer in the second quarter. But just to take a look on the market itself, as Kai was saying, it's actually quite interesting to see how the car sales and the housing sales is bouncing already back. It's especially visible in the visitor ratio of the sites. As a first kind of a sign of a bounce back, the car sites as well as the housing side and the visitor rates are already back to pre-corona levels. This is, at least we hope, preempting the business recovery if the society opens, as Kai has been speaking. But those are quite positive size. 25% of Markets revenue comes from these businesses. The recruitment services bounced back most likely a bit lower. And as we've been hearing today, the second quarter, we estimate to be the darkest around the recruitment services as the companies and as whole societies try to know what to do. And we expect that the third and the fourth quarter already to be easier for societies as well as for our business in the recruitment. Therefore, in the second quarter most likely, we will see deeper declines in revenue for the Markets than we did see in the first quarter, if that was the question.
Yes. Thank you. So no more questions from the stream. And operator, if we don't have any other questions from the telecoms lines, then I think it's time.
Yes. We don't have any further questions. Sorry.
All right. Thank you. In that case, thank you very much. I hope you can follow our AGM on 28 April. We do this with a healthier safety approach remotely. And then the interim report for January-June on Friday, 17th of July. Hope we can see you and hear you then. We really hope that we are then in a normal or more normal situation than right now. Stay safe and healthy. Thank you very much from this end.