Solocal Group SA

PAR:LOCAL

Earnings Call Transcript

[Pierre Danon, CEO & Chairman]

Good morning, everybody. Welcome to our webcast today. Thank you for your time. We are going to make it short and to the point. And I'm going to hand over first to Olivier to tell us about the quarter numbers.

[Olivier Regnard, Chief Financial Officer]

Thanks, Pierre. Good morning, ladies and gentlemen. I am happy to share with you our third quarter revenue. So as you are now used to it, we will focus on the Digital business since 2020 is the last year of the Print business. As you remember, the Print business will be presented as a discontinued activity at the end of the year. Digital revenue for the third quarter account for EUR 106.8 million, a decrease by 13.6% compared to Q3 2019. This decrease derives mainly from the significant drop in order intake since the beginning of the COVID crisis and more especially during the lockdown period. Let me remind you that we lost approximately 55% of our bookings during the lockdown period. On a year-to-date basis, Digital revenue amounts to EUR 332 million, a decrease by 12.4% compared to last year. This decrease is perfectly in line with our expectations. As you remember, we indicated in our press release on the 18th of May that we were expecting a decrease by 15% of our Digital revenue on an annual basis. This was to be compared with an initial stable revenue in our guidance. As of September 2020, we secured EUR 419 million of Digital revenue. This means that all the bookings that we have already registered at the end of September have or will generate EUR 419 million of revenue during the year. This amount represent more than 95% of our expected Digital revenue for this year, and enable us to confirm our guidance for 2020 in terms of revenue and EBITDA. As you will have understood, we are now fully focused on 2021. The digital backlog amounts to EUR 293.4 million, and decreased compared to June 2020. As you remember, we have an unfavorable seasonality effect. Indeed, while revenue is recognized on a linear basis, the order intake are very low in August due to summer holidays. In a nutshell, we do confirm our guidance for 2020. And on top of this, we can tell you that we have already secured EUR 183 million of Digital revenue for 2021, and this is in line with our expectation and the BP that we presented that we gave you mid-May 2020. If you are now going to focus on products, you will observe that the Print contribution is getting lower and lower. Year-to-date, the Print business decreased -- or the Print business revenue decreased by more than 50%. And on the last quarter, the Print business only contributed to 5% of our total revenue. On the Digital side, as I already mentioned, our revenue decreased by 12.4%. As you remember, we already indicated that the COVID crisis implied a decrease in bookings by EUR 100 million compared to 2019 and a decrease by EUR 140 million compared to what we were expecting for 2020. This is really the main reason of the decrease in revenue compared to last year. Digital Presence and Digital Advertising account for a decrease of approximately 10%, while Websites have been decreasing by 20%. This decrease on Websites is mainly related to production issues that we have been suffering from since the end of 2019 and that we achieved to fix recently, as Pierre will comment later. I now leave the floor to Pierre.

[Pierre Danon, CEO & Chairman]

Thank you, Olivier. So as Olivier has said, our key challenge this year has been our, if you want, our factory of producing sales has stopped, mostly stopped during 2.5 months, and that has created the EUR 100 million effect. And we are roughly in line with what we thought it would be. We have a lot of questions on -- and now, now the lockdown is, let's say, at least partially over, what do you see in terms of the market? I had a lot of adviser telling me to not present this slide. I'm going to, nonetheless, disobey them and present it. But of course, you have to take it with a pinch of salt. Actually, very few people know exactly what's going to happen. And therefore, what I can tell you is very honestly, what we see today, it doesn't mean that it cannot get worse. It cannot mean -- it doesn't mean either that it cannot get better. That's what we see on a very factual base. The first point that we see is that we are pursuing 3 markets: very small enterprise, which we cover via telesales; small and medium business, which we cover mostly via field sales; and large accounts, which we cover by also field sales, a dedicated sales force. What we see on very small enterprise and small and medium business, we don't see a market issue today. Market is good. Of course, you have some effect of the COVID, of the lockdown, but you have also a much increased appetite for digital solution. Net-net, the market is not too bad for us. On very small enterprise with our telesales, we are doing very well. We are growing versus last year. And we are absolutely in line and actually beating our projection. On the small and medium business, it's more an internal issue challenge that we are resolving is we are lacking the right number of salespeople because now we are migrating from just farming our portfolio, which was our previous business model, and now we need to get to hunting new customers, go after acquisition, as we explained during our equity story and our rights issue. And that transition is in process. And for example, currently, we are recruiting 80 new sales hunters. We need those guys. I think we will have them at the beginning of 2021. That's, let's say, an internal challenge that we are facing on the SMBs, not a market issue. Where we have a market issue is on large accounts. We have spotted, I have spotted myself a number of cancellations of substantial advertising campaign. We have received cancellations for campaigns of 200,000, 300,000. This is very impactful. And the story was, well, we are worried about the future, and we are reducing advertising, which is something that the VSEs and the SMEs cannot do because they really need the business that we bring for existential reason. It is probably a little bit less the case for large accounts. So we see a large account market soft for the time being. Do we see bankruptcies at this stage? No. It's normal because today, you still have a lot of injection of cash in the economy via, for example, the PGE. And therefore, today, in our ID test is a number of rejects that we did when we go and collect the money from the customers, we don't see an issue. And that would be the first issue that we would see if there was a trend on bankruptcy. So let's be very clear. I'm not saying that there will not be bankruptcies. I'm saying that, for the time being, we don't see bankruptcies. Now what about if lockdown would come back? Or would be, let's say, in a way, partially installed? And we have that in France. Now we have hotel, restaurants, which are very much on the gate. We have to go back home at 9:00 in the evening. So there is something. The very good news is that when we started 2020, our level of subscription customers was 31%. So we still needed to go and renew 70% of our customer base, which, of course, during the lockdown was very difficult. Today, we have moved from 31% to 77% of subscription. This is really a very, very good performance. We are very pleased about it. And it means that if we face difficulties going forward, we will be better protected than we were at the beginning of the year. Again, let me be very clear. It doesn't mean that we will be fully protected. It means that we will be better protected, and that's a positive sign. Also, and I said that during the rights issue, a little bit positive is that, for the time being, the sectors which are heavily impacted by the measures around the crisis, health crisis, are hotel, entertainment, tourism, travel. And those sectors, as you can see on the pie chart, are not our main sectors. Our main sectors are maybe a little bit less potentially impacted. Again, let's be very cautious about that. Fundamentally, nobody really knows. And finally, something that we did not have at the beginning of the lockdown. We were not prepared to work in, what I would call hybrid mode. Hybrid mode is people work partly from home and partly in the field, in the office, for example, for the sales. Now we are organized. Everybody -- most of our people have equipment at home. They can work from home. And we are already using that, for example, in Paris, where it's alert zone, our telesales people go 1 week working from home, 1 week working from the office. And it doesn't have a substantial productivity negative impact. Same thing for our field sales. They do a lot of customer visits via teams, not to do any advertising, that it works very well. And again, they know how to limit the level of field, real field visit in front of the customer.So all of that would say, we are prepared, we are prepared. And we hope we can resist any new significant shock. But again, nobody knows, nobody can guarantee anything. Time will tell how we are facing the new months. Now I mentioned it is very important. It's really a very, very good result. You can see that now we are in quarter 3, we migrated 90% of our customers to the new offers. It's good. And 81% of those migrations were on a subscription mode. And that explains why, in terms of our overall customer base, we are at 77%. Remember that during the rights issue, we said that we would be at 90% at the end of 2021. It looks like that number is on track. What is also very important is that customers not only accept to subscribe with automatic renewal, but also are accepting to subscribe for more than a year. Actually, 35%, over 34% of our customers subscribe for 24 months. That's also very good results. And actually, on the very small enterprise, 75% of the customers accept to subscribe over 24 months. And that's very good because, again, it creates stability, it helps us on the [ share ] side, and this is really probably the #1 element of the Solocal transformation. Actually, we have really explained during the rights issue that our strategy was very simple. It's number of customers times ARPA equal revenue. So we are going to really with you follow every quarter those 2 fundamental KPIs. How many customers do we have? And what is the ARPA? I have to tell you that I have commissioned a lot of work in terms of audit to really ensure that those numbers are stable and absolutely auditable. We will present those results early next year. I'm not expecting any substantial surprises, but I don't want any surprises. I want those numbers who are becoming our key KPIs as a really reliable 100%. The ARPA that you can see is the ARPA of the sales. Be careful. It is the ARPA of the order taking. Next year, in February, we will show you the ARPA of the base. We will continue to show you the ARPA of the sale because it's very interesting, but we will show you also the ARPA of the base. So be careful. Here is the ARPA of the sales. And as you can see, and it is also a very encouraging trend, compared to last year, ARPA of the sales is very slowly growing from 1,460 to 1,520. Very positive because at a time where we are accelerating an acquisition, one could have said, you are going to lose on ARPA. Well, for the time being, this is not the case. And this is, of course, something that we are watching very, very cautiously. In terms of acquisition, you have seen that it is the green. We have acquired in quarter 3, 13,000 customers, which is where we're last year, we acquired only -- sorry, I can't read. We acquired only 8,000 customers. So 13,000 versus 8,000. It's in line with the strategies that we described to you. We want to do more acquisitions. And the trend is on track. Of course, it's not enough, 13,000 per quarter, but it is pointing to the right direction. We want also to reduce the churn. And to reduce the churn, last year, we did -- we lost 24,000 customers. And this year, we have lost 20,000 customers. I'm not proud at all about that number. It's still a bad number, but it's better than last year, and we will continue to work very hard to reduce the level of churn down to the levels that we have indicated during the rights issue, which is, at best, 50,000 customers lost per year. You can see that we are not yet where we wanted to be. But net-net, we started the quarter with 336,000 customers, and we are ending the quarter with 329,000 customers. We have lost customers. I'm not happy about that. It's 7,000. But 7,000 is better than the 16,000 that we did lose last year. So it is a little bit encouraging. Please take it with a pinch of salt. Again, we could still have a couple of bumps. So I'm not saying that the trend is going to stay like that forever. But let's say, it's pleasing to say that we have a quarter which is pointing to the right direction. The key point for us is to really work on the retention because if we continue to lose, you remember the numbers that I explained during the rights issue, 70,000 last year, net between retention and win backs. If we continue to lose 70,000 per year, it will be very difficult to create a gross model. So retention is really priority #1 of the company. As I explained, we have 4 lines of defense and improvement. The first line is that we have come into subscription mode at 77%. And that, we think, must have an impact, a strong impact on the churn. Now the good news is that we started the subscription model in July 2019. So in quarter 3, I saw the first cohort of customers which subscribe in quarter 3 2019 coming out of the subscription in time for the automatic renewal. So we have measured the impact on churn. I'm not going to communicate it because I really want stable numbers and auditable numbers. We will communicate the first numbers on February when we will communicate quarter 3 and quarter 4. But let's say, I would say that for the time being, our assumption that subscription mode would have a substantial positive impact on churn doesn't look stupid.The second point is that customers were churning and probably are still a little bit churning because they didn't see the value for money of the offers. Well, we have worked a lot. As Olivier said, our last work was on the Websites, but we have worked on the Presence. We have worked on the Websites. We have worked on Advertising. We think that we have really, really improved value for money. So we are quite hopeful that this is behind us, and that it will really start to bring churn reduction. We have worked really a lot on creating what we call our retention squad. You'll remember, I explained it, that Solocal was one of the higher companies that I have met where, when a customer was expressing what we call a churn intention, like, I would like to stop, I would like to leave, I'm not satisfied, I'm considering leaving, not much was happening, virtually 0 was happening. And the customer would kind of go away, and nobody would have really done a huge effort to retain that customer. Well, we have now created first floor, a team of 60 people in Bordeaux and in Boulogne, where those 60 people are our very good people. They are experts. And we have connected all the churn intentions to those people. Churn intention can come from Facebook. It can come from an e-mail. It can come from a phone call. It can come from a visit of the field sales. Wherever it comes from, it's now connected to that retention team. Nobody, except those 60 guys, can now tell this customer is lost. And those guys, those 60 guys are now processing the churn intentions. And their retention rate of last week is 39%, quite stable since 2 or 3 months. That's very positive on churn. It has to have a good impact. We will, of course, continue to nurture and progress. And by the way, even when those guys lose the customer, which is 60% of the case, we have now, after 2 or 3 months, we have what we call a win back effort, where we, again, get at the customers and try to get them back as customers. And our win back rate is 11%. So you see a huge effort on point number 3, which should really give us some results in 2021. And finally, we are -- we have embarked in a huge program across the company to seriously improve customer satisfaction. Customer satisfaction of Solocal is still not at the right level, but now we have a company which is fully mobilized. We are fundamentally redoing all the processes, all the touch points with the customers, and ensuring that each time, we are delivering good service and are appreciated. So those are the strategies you can see. There is a little bit of good news, let's say. For example, number of claims, we had 1,234 claims in stock in quarter 1 2020, which means that it could have taken, at that point, 3 months to progress a simple claim. You see that the number of claims in stock has been reduced drastically, which means that today, we process the claims in roughly 14 days. It's still not a very good number, but it's better than 3 months. And we are continuing our efforts to bring that down to levels that the customers will accept. We have also, as I said, really worked a lot on product performance. A good example is Booster. Booster Contact, it's our advertising campaign. We are the only one in the French market to commit to the number of leads that we can deliver to a customer. We really commit. The delivery of the commitment is today 88.3%. It is still not what we would really like. We would like to be more in the 95% delivery, but it's 9 points over 2000 -- first quarter of this year. Finally, as Olivier mentioned, we really had issues on production in Angoulême, our website production site, 400 people working for us there. We do French websites. And as you have seen, the delay of production now 6 days to produce the entry-level website; 22 days, the midrange; 67 days, the high end, which is much more sophisticated. We are getting to delays which are more acceptable to our customers. And of course, we'll continue to progress, especially the privileged one.So to wrap up the overview of the business, you know that our fuel is the PagesJaunes audience. This is where we get our contacts. This is where we get our lead mostly. And this is what is really at the base of the very good gross margin that we had at 90%. So the traffic is in PagesJaunes is absolutely fundamental. And it is the whole traffic. Remember that people can go into Google to look for something that's usually in Google, the PagesJaunes results are displayed with very good results. So they go to Google, they click on the PagesJaunes proposal and they come to PagesJaunes. So it's a traffic to PagesJaunes. And then we have direct traffic. The traffic, the overall traffic is stable, minus 2%. Our ideal focus was that the direct traffic to PagesJaunes, the people who come directly to PagesJaunes, was decreasing, as you can see, 15%, 15%, 12% . It is rather good news in quarter 3, it's minus 2%. So -- but I'm not claiming victory here. We have been helped by the COVID. There was a lot of search, and the traffic was boosted. So we have to be a little bit careful. The minus 2% is maybe not the new trend. We'll see quarter 4, and we'll have a better view, therefore, after quarter 4.Nonetheless, be sure that we are really working extremely hard on PagesJaunes to make it a good application. Just the NPS, the Net Promoter Score, which is when people do a search on PagesJaunes, we immediately ask them, how was it? Did you find what you wanted? Are you happy? NPS is plus 32, which is a very good NPS. And even during the COVID, it was plus 40. So people really found what they wanted to find in PagesJaunes during the COVID. So we are going to push. We have, for example, we are really pushing, with some good results, the update on PagesJaunes, because what we need is that the information, the content is extremely rich, and therefore, attractive. We have progressed. We are also really working on the search results optimization. Just to give you a hint. Until now, what we are doing, when people were looking something on PagesJaunes, we would give them the sponsored links first, people paying to be there. And then after that, the search would be random. So if you ask for a hairdresser in Bordeaux, you would have kind of a random approach of all the hairdresser, which in terms of customer satisfaction, users satisfaction, it's not great. So now we have qualified the search. It's not random anymore. It [ raises ] some criteria like, what are the feedback from the customer for this hairdresser? What is the popularity? Are there a lot of clicks? When did he last updated his information, because that's also a sign that it's kind of a live hairdresser, really keen to increase the business. Those are -- it's a revolution. Another revolution is that we want to make PagesJaunes furthermore local. We believe that, that's where we have a differentiator. And for example, now in the PagesJaunes app, it's the application, when you do a search, you immediately have a map and the place where PagesJaunes suggests you to go. It's not a revolution. Google does it also. But the problem is that we were not doing it, and it's a catch up. But it's a good catch up to have. So that's about the traffic and the audience of PagesJaunes. I'm now going to hand over to Olivier to be very clear on our guidance for this year and view on next year. Before I do that, I could almost hand over to Olivier, and I do it. Can you take the financial structure?

[Olivier Regnard, Chief Financial Officer]

Okay. Since -- well, since we -- you noticed that we have released a significant number of, let's say, press release or regulatory press release, we wanted to take the opportunity to highlight the main outcomes of the financial restructuring that we went to, and that was finalized early October. So just to remember you, the financial restructuring had 2 objectives. The first one was to raise the EUR 118 million of cash to close the liquidity gap that the company was facing due to the COVID and to get additional margins of renewal for 2021. The second one was clearly to reduce our debt. And so we achieved to divide our gross debt by 2. And so the debt has been decreased by EUR 260 million, to which EUR 256 million just after the operation. So the breakdown of the debt is illustrated in the piechart that you have. So it's EUR 168 million of the -- from the bond, EUR 50 million of RCF and EUR 32 million of additional financing that we raised. So this clearly does not take into account IFRS 16. And we have provided you with a bridge between the former gross debt and the new gross debt in appendix just to be clearer because we had received a number of questions on this topic. This deduction will enable us to reduce dramatically our financial expenses, which were, let's say, on a run rate basis, amounting to EUR 44 million in 2020, and that will be decreased to EUR 20 million on a run rate basis from 2021 onwards. So this is a significant change in our, let's say, liquidity profile and cash profile over the next years. In terms of shareholding structure, the main, let's say, the main new thing is that we now have GoldenTree as our main and anchor shareholder and which represents 26% of the capital of the group. I will just hand over to Pierre just to conclude this presentation.

[Pierre Danon, CEO & Chairman]

Okay. So in terms of guidance, as Olivier said, 2020 guidance is absolutely confirmed. So in terms of revenue, we have more than 95% of the revenue already secured. So we will deliver the guidance of revenue, which was 15% decrease compared to last year. We will be there, maybe even a little bit more, we'll see, but certainly more deliver the guidance. We will deliver the guidance of EBITDA of EUR 130 million. We will comfortably deliver that guidance. So that's a company that we want to be, a company that promise reasonably and delivers. That's what we want to be. 2021, so far, is on track. But it's, of course, too early to give you a guidance for 2021. We will probably do that on the 28th of February with the full year results. But so far, still on track. And of course, the fact that we are now underpinned by a much improved financial strength, give us more confidence, more serenity to run the business and deliver value for you.

[Operator]

[Operator Instructions] There are currently no questions coming via the audio line. [Operator Instructions] And we do have the first question in the queue. It comes from the line of Eric Blain from Finance Connect.

[Eric Blain]

Do you hear me?

[Pierre Danon, CEO & Chairman]

Yes.

[Eric Blain]

Okay. Just first of all, I am a little lost about the number of people working in the company now. You were speaking about 80 people hired for hunting strategy. Can you give us an idea of how many people there is now? And how it was evaluating in the past, in the last 12 months? And how do you see the future on this point? And my question is also, this hunting team, is it the cost you will have in 2019 -- 2021 because it's not giving always revenues immediately? So do we expect to have a decline in EBITDA in 2021?

[Pierre Danon, CEO & Chairman]

It's very good questions, 2 very good questions. Thank you. First of all, today, working for the company, 2,500 people. We have a little bit more on the payroll, but those are guys who are long-term sick. So long-term sick doesn't have an impact on the EBITDA. We don't pay them. It's taken by the social security. So people that we pay, 2,500. Of which, 950 salespeople. I said that during the rights issue, and it is still there. And out of the 950 people working on sales, we have exactly 437 field sales people, field sales people, 437. And out of those 437, what we are doing, and it's the answer to your other question, we are not increasing the number of salespeople working in the field. We will stay at 437. And 437 is what we have in the EBITDA for next year, but we are changing the mix. So today, we have 437 people who are all working on customer portfolio. All of them have customers. But because of the automatic renewal, we need less people to work on managing the portfolio. And we are switching to a mix where we have people working on acquisition only. And those are the 80 hunters. So it should not have an impact on the EBITDA as long as those guys produce in terms of hunting, and you're right on that. We have used data that we have from people in our company who are the portfolio guys, some of them are already have moved to acquisition mode, and they spend 40%, 50% of their time on acquisition already. And we have used that data to say, well, if a guy using 50% of his time generate that level of activity, a guy spending 100% of his time should generate something similar times 2. And we have used that for our business model. If this works, we are very, very comfortable about the payback of those hunters. Time will tell. Sometimes in terms of strategy, you need to innovate. We are innovating for the growth because now the agenda of the company is growth, and we need to increase the number of customers, which has decreased since 20 years. So now it's maybe the time to increase the number of customers. So we have done that. We are monitoring that really very, very carefully. But fundamentally, it doesn't carry a risk on the EBITDA because it's just redeploying resources that we had in our cost base from portfolio management to only acquisition mode. I hope this answers your question.

[Operator]

Thank you. There are currently no further questions in the queue. [Operator Instructions] Thank you.

[Pierre Danon, CEO & Chairman]

Okay.

[Operator]

There are no questions coming via the audio line.

[Pierre Danon, CEO & Chairman]

Okay. If there are no questions, we are going to close the call. Thank you very much for attending. And again, it will be posted on our solocal.com investor site. And you are welcome to ask any questions to Julie, Colin, who will be absolutely ready to answer you. Thank you, and have a great day.