Enento Group Oyj
OMXH:ENENTO
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Good afternoon all and welcome to Asiakastieto's first quarter 2019 results info. Welcome also all of you who are following this online through our webcast system.First, I would like to introduce our management present here: CEO Jukka Ruuska.
Hello.
Deputy CEO Anders Hugosson, CFO Antti Kauppila.
Hello.
And Head of Risk Decisions Heikki Koivula.
Hello.
My name is Pia Katila. I'm Asiakastieto's Investor Relations Manager.Today, agenda is as follows. Jukka will start with update of Asiakastieto Group today and the highlights of first quarter and then continue with the financials and our outlook. And after the presentation, we take, first, questions from our audience here in Kalasatama; then conference call line; and online questions. And for your information, all the material is available on our investor pages at asiakastieto.fi.Let's start with the presentation. Please, Jukka?
Thank you, Pia, and a very warm welcome to our information meeting on our results.And if I start with sort of brief historical reviews. So I think that, if I counted correctly, this is our[Audio Gap]after the IPO. And this is the third one after the acquisition of UC as this new combined entity. So time flies.I will put my emphasis very much on highlights and then discuss the financial development and less so in sort of basic Asiakastieto Group stuff this time.So we more or less sort of jump over to the -- that part and what we had to highlight during the first quarter for us.Well, clearly, from the employment point of view, I think that the most well-employing thing continued to be integration. So there -- we have been advancing with integration, but there is still plenty to be done, and that work will continue. Then I think that we have been doing quite cool things in business development side. Then we made a small acquisition. It's Solidinfo in Sweden. And then clearly, it's important to address sustainability. And sustainability for us is a bit bigger issue and big opportunity as I consider it.But let's start with integration work. As already mentioned, so integration work has been very intensive, and it has required a lot of resources. The good news are that we have been able to proceed according to our plan. So the deliveries from 2018, likewise from first quarter, has been according to our plan, and clearly so the emphasis during this period has been mostly or a lot to deliver cost synergies. But nevertheless, we have been working quite a bit also with services dimension, i.e., to cross-utilize our existing services from market to market. And clearly, we expect to start harvesting those benefits during this year. And based on this progress and our estimates, we can definitely renew our estimate that we are going to reach at least EUR 17 million synergy benefits by year 2021.Then on business development side. So first, one of the key KPIs is the share of new services from our entire revenue and having that on a level of 4.4% for first quarter definitely sits on a lower level that we are used to. And the reason for that is mostly related, surprise, surprise, to integration. So the integration work as such has required resources. And clearly, those resources are coming from our existing organization. Likewise, our sort of large Nordic programs, especially the platform programs, will -- or have required and will require resources also in the future. Obviously, we have sort of dealt with sort of the most intense periods of integration. So we are refocusing to customers. We are refocusing to the business development, but in terms of new services, it takes time to get sort of things coming out to the market. But nevertheless, the business development continued during the first quarter as well. And we launched -- we have launched a couple of cool things.Let me start first with a sort of overview on our housing-related services. So actually what we have done? So we have built a quite impressive suite covering all transactions and processes related to housing, starting from looking at what is the object, i.e., flat apartment or piece of real estate; what is the valuation of that, especially from the collateral point of view; then how the transaction process can be made more digital or even fully digital; how can we provide digital services on collateral management, on ownership, [indiscernible] on all those processes which have been almost entirely manual and analog until a few years. And then clearly, there is also a need to sort of monitor the entire loan portfolio as -- during the life cycle, including the collateral monitoring. And in order to be able to digitalize these processes, which are sort of very sizable processes from our customers' point of view, we have been developing quite a lot stuff.And if you start from Finnish end. So in terms of real estate information services, we started that business quite a while ago, but actually sort of the crucial step to speed up this offering was taken sort of 5 years ago. And now we are in a position where we can provide sort of, one can say, full service on real estate information. And those services can be also integrated to customers' systems. In Sweden, we are looking at respective opportunities as of now.Then what comes to the apartment information services. So I think that last year, we made a major breakthrough when we built up a digital form to deliver house or apartment information. So the housing company's manager certificate is awful expression in English. In Finnish, it's [Foreign Language]. And it is a sizable cost for all dealing with apartments or housing companies. And they are needed in all transactions related to housing company shares. Now we are sort of getting prepared to provide respective services as what we are providing on real estate information side, on apartments as well when a dematerialized shareholder register for apartments will be launched during this year.On Swedish side. So we are starting to provide financial information on housing companies. And clearly, we are looking at opportunities how could that be digitalized and also the shareholding material -- dematerialized in Sweden. Obviously, the dematerialization will not take place by us, but that would sort of trigger, create opportunities for us. In terms of housing valuation, so we have had in Sweden a service company running that service. It was acquired 2013, and now we have been utilizing the already existing algorithms for valuation in Sweden. And that service is going to be launched in Finland during this quarter. And that is clearly a sort of major step also in order to enable sort of full digitalization and automatization of lending and collateral decisions on mortgages.Then housing transaction services. So in Finnish side, we have digital trade service provided by Finnish land register, but then we have built sort of additional layers on top of that in order to improve the usability of that service. And then clearly, the same in Sweden. We have a service that has begun extremely popular. So it has sort of gained more than half of the all underlying transactions, all apartment sales or trades in Sweden within sort of 12 months. And that's called Tambur. And it enables that sort of apartment sale to take place on a fully digital basis. And clearly now we are studying very eagerly sort of to provide the respective service for Finnish market. That would enable sort of the full digitalized sale process, except the delivery of the sort of share certificate. The share certificate, until we have entered sort of all dematerialization, has to be still distributed in physical terms, obviously.And then finally, what comes to the collateral management. So in Finland, we have a property document drafting service. We have -- and we are going to sort of build a respective service for apartments. And then we have the valuation service.So very sort of large, very extensive service suite that covers almost all processes related to housing both from lending and collateral and transaction point of view.Another sort of cool thing is Income Intelligence. And actually, the [indiscernible] on the Income Intelligence is a method to convert all kinds of documents into structured data. And Income Intelligence is the first use case for that method. And it means that we are turning physical payslips into structured form of data by optical reading and, most importantly, having text analytics that gives this intelligence, where from the name also comes, i.e., it understands different type or formats. It can sort of conclude what is the income or what are sort of the benefits and so forth. And where this is needed is definitely lending for consumers. So one of the lacking features in Finnish consumer financing is that there is no availability on income information, and this is very crucial data to be collected to our customers. But obviously, for this system, there are multiple other use cases as well.Solidinfo. Solidinfo is one of the free-of-charge or freemium business information sites in Sweden. And as you might remember, so we have very strong franchise, very strong operation in the field of freemium sites with business information. With Allabolag in Sweden, we have sort of more than 2 million unique visitors per month. In Finland, with asiakastieto.fi/yritykset we have, I think, around 800,000 visitors per month. And with this Solidinfo, we can add another sort of 400,000 visitors per month, unique visitors per month, to our traffic. And clearly, with this sort of total traffic, so we have 3.2 million unique visitors per month on our sites. So it's a great asset.And clearly, we have a bit different ways to monitor such traffic. In Swedish site, it has been originally display advertising. And in Finnish site it has been very much e-commerce. And clearly, now we want to sort of develop these both monetization phase on these markets.Then on sustainability.So clearly, we want to be good corporate citizens. We want to enhance good social and societal values. We want to enhance good environment. And clearly, we are putting emphasis to look for this, our direct impact to our customers, to our employees, shareholders, but then as well we are looking at what is our direct impact to environment. We have our measures taken on that side. What is our sort of contribution to community? And over here we have 2 examples. So we are running in both countries that kind of youth education programs providing financial guidance, financial education, how to run your own sort of household, how to run your own economy. And these are important, and these are good. And especially, these sort of actions directly for youngsters is utmost important. But nevertheless, to create opportunity to also make an impact is our indirect impact, i.e., when we are helping our customers to act in a responsible, in a sustainable manner. And over there, we have these 2 examples: the corporate responsibility or ESG report we have been able to provide on all companies in Finland, which is a unique thing in the world; and then sort of the as good, positive data as possible we can provide both in Sweden and Finland, which is clearly also helping a lot to fight overindebtedness of consumers.Then if we move on for the financials. And once again, so the blue figures are the actual figures, and then the brown figures are the pro forma figures. Fortunately enough, we don't have to speak about black and red figures but blue and brown figures. And let's concentrate on brown figures because they are much more interesting since they are comparable. And the first quarter was a decent quarter. And in order to have as good comparability as possible, so I'm going to discuss mostly numbers with comparable ForEx rates.So growth-wise, we grew a bit more than 5%. And this sort of ForEx comparable figure is 7.7%, which is decent top line growth, definitely so. On EBITDA side, so we reached EUR 11.7 million. And the growth on a comparable basis, once again, was 22.4%.The growth on EBITDA is driven by 3 main factors, by 3 main drivers. First of all, top line growth. And since we have high operational leverage, so clearly top line growth goes to our margin. And now with UC part of Asiakastieto Group, so it has actually even more -- or it has provided us even higher operational leverage since especially when the growth takes place in the area of consumer financing. So in Sweden, we have that necessary database. And we don't have to sort of buy it every time when our customer is using related service, for example, from a population register, as in Finland. Then clearly -- then the synergy benefits, the cost synergies have been contributing to our EBITDA growth. And then finally, there was also a contribution from open positions, unusually high number of open positions. Clearly, the 2 first drivers are -- or that characteristics, they will remain. They are sort of -- they will sustain. What comes to the open positions? So we have naturally ambition to fill those positions. So clearly, that impact will vanish over time.Let's discuss a bit more in depth our growth drivers.Clearly, Risk Decisions provided very good growth during the first quarter. And that growth is coming very much from our consumer-related services, so there was a good organic growth, simply. There was a contribution, good contribution, from new services as well with Risk Decisions, but clearly, sort of nice growth. For the first time, we saw also some growth coming from business information side, which contributed to this overall growth as such.On SMEC, as this SME and Consumers is abbreviated. So flat growth. On Customer Data Management, the discontinuation of our Swedish B2C business is very visible. And then with Digital Processes, handsome growth coming from Tambur, the housing transaction processing service in Sweden; and from real estate services in Finland. It's worthwhile to mention that the Tambur growth -- or Tambur was actually launched 1 year ago. So from April 2018 onwards, there is going to be sort of a revenue component for Tambur that will sort of flatten the growth for Digital Processes onwards.New services, we are already discussing.In terms of EBITDA creation and sort of the waterfall from 2018 EBITDA to '19 EBITDA. So there is not too much to be commented. So almost all cost parts being flat. And clearly, over here we have sort of the double impact, so the impact from synergies plus the impact from open positions. In other operating expenses, so what we see is sort of synergy cost benefits coming from decreased number of consultants. And what comes to the material and services, so the even high operational leverage is very visible over here as well.In terms of cash flow, EUR 7.3 million, EUR 0.6 million as sort of one-off type of items in terms of free cash flow. In the end of first quarter, the net debt in relation to adjusted EBITDA, 3x, which shows the strong cash flow characteristics our business has. Obviously then in April, we paid our dividend, which will reflect to our net debt. And in the end of this quarter, it will be somewhat higher than in the end of first quarter.Gross investments sort of following our guidance, they are going to be somewhat high.And then sort of repeating our guidance. So what we are saying is that we are, roughly speaking, in the middle or somewhat lower in terms of top line growth than what is our long-term target. And long-term target is from 5% to 10%. And then what comes to EBITDA. So we expect the EBITDA to grow faster than top line.So those are the key messages for that part. Now I think that it will be time for questions.Pia?
Thank you, Jukka.And we will continue with the questions, and we will start from our audience here in Helsinki, Kalasatama.
Matti Ahokas, Danske Bank. 2 questions, please. Firstly, on the synergies. How much would you say that -- during the almost year that now when you announced the merger, how much of the EUR 17 million has been achieved? I'll let you answer, and then I'll ask the second question.
Yes, good. That's great. And then -- and better chances to remember the other question as well. So as we have stated, roughly speaking, we expect sort of quite a linear contribution from our synergies. And that is how it looks -- going to be as well. So roughly speaking, linear, looking at the period from now to the end of 2021.
From -- yes, but how much of that has been achieved now from when you announced the merger to today?
Well, I don't want to sort of go to the sort of detailed figures, but as to sort of speed, so if you think that now we have been living a bit less than a year since we finalized when this deal closed, so it means that roughly speaking then we are speaking a sort of neighborhood of 1/3 of...
Great. And then on the sales growth and, obviously, you kept the guidance. The sales growth in euro terms, obviously, has been impacted by the weak Swedish krona. It's quite close to the lower end of the range now or it was in Q1. And now in Q2, the krona has weakened even further. So how should one look at it? Do you expect that the -- basically the underlying growth will speed up in the going quarters and offset the negative FX impact? Or how should one look at this?
Well, I think that sort of it's good to assume that we have sort of considered a bit sort of fixed FX rates, i.e., that sort of mentally, when we are looking at our figures, we are sort of looking very much at figures which are comparable. And also, it means that clearly it is the figures with comparable ForEx rate. It is sort of compatible with our guidance in that respect. And clearly, that is something that we have been discussing a bit, that how to react to that question. However, you never know what's going to happen with FX rates even though the Swedish krona seems to be getting cheaper and cheaper. And clearly, if that continues, so it puts sort of pressure on our top line growth on actual ForEx rates.
But the guidance is in euro, not in comparable terms. Or did I understand you correctly?
Well, we didn't consider it like that. So we considered it with sort of fixed rates, and we didn't anticipate sort of fluctuation in terms of ForEx rates.
May I still have a third one? It looks like the growth mainly is coming from the consumer finance area, which is quite impressive. Can you describe a bit more that is this new clients or is this old clients using the services more than previously?
It's a combination of both. Clearly, it's -- I think that it's more the sort of old customers using services more, so -- and it has been a very positive development. And clearly, we definitely hope that it will continue. However, it's important to mention that what comes to the Finnish consumer market. We are going to get this new regulation, a capping on interest rate concerning consumer lending or consumer -- sort of short consumer loans. And most likely, it will have no negative impact to our Finnish consumer business until an earlier than this kind of additional regulations have been coming. So you have seen a drop, and then it has been starting to grow again. And the operators are finding new business models and ways to conduct business.
And was this growth in Risk Decisions mainly in Sweden or Finland?
That's Finland.
It's Matti Riikonen, Carnegie. If I continue with 2 product-related questions first. You talked about the housing-related services and the fact that you are going to introduce the Tambur service or something similar in the Finnish market. So when is that going to happen? And should we expect it during this year at some point or fairly soon? And the second one is that -- now when you discuss about the apartment information services and the new data, is there something in those services where you require or where you need actually either permission or help from the associations themselves or the management companies so that you would get the data? Or is it freely available to you and then you are practically competing with the housing management companies in basically providing the certificate?
Good. In terms of Tambur type of service and launch to Finland. So now we are in a very intense discussion with our main customers. And clearly, that it what sort of dictates the timetable. In best case, so technically we can get it sort of established during this year, but definitely there's no revenue -- we don't have time to generate revenue from that service during this year. But I -- sort of my gut feeling is that either it comes fairly soon or it doesn't come. So those are those alternatives. So what we are speaking is a next year as a sort of serious, serious year for the Tambur service.Then on data and sort of the competition in terms of this digital housing manager certificates with actual housing managers. So obviously, we have recognized that the housing managers is sort of key constituency, key stakeholder group for this service. And this service has been sort of developed in tight cooperation with a number of housing managers. And housing managers, to a large extent, do consider that they want to get rid of that kind of manual processes, but sort of writing producing these certificates do require. And also, we have wanted to sort of highlight the benefits for the housing managers also so that the first launch -- or actually the second launch was a service. The housing managers can use this service in order to automate and make easier loan application on behalf of a housing company for banks. So it is making life easier for housing managers also in that respect. So generally speaking, I think that sort of housing managers are welcoming this type of digitalization, and they do consider that this type of digitalization is necessary.
All right, good. Then moving to financials. On Slide 29, you showed the comparison between pro forma, basically, numbers. And I was just wondering one thing, which is related to your capitalization of product development. I see that it was EUR 1.5 million higher this year than last year. And if I just look at the adjusted EBIT line for Q1, so EUR 9.8 million, last year EUR 8.3 million, if I take the EUR 1.5 million away from this quarter's number, it would be flat while you are growing the top line. So is there something in the comparison which is kind of -- which is not reflected in these numbers so that actually you would be increasing your profit or EBIT from last year?
Yes. And clearly, so the capitalization that is sort of considered as [ all in one ] was flat compared to the sort of last year. But Antti, I think that you are the person to respond.
Yes, absolutely. I may take this. So if you look at our investments in the first quarter, on a pro forma basis, we're basically sort of flat still on a year-on-year basis...
Capitalized...
Yes, capitalized development. That's correct.
Okay. So it's only the reported capitalization which is higher...
Yes, it's the reported, which is higher right now, but as we sort of state in our guidance, it's certainly the one you will see towards the end of the year is our investments being higher than previous year pro forma basis.
Okay. Is then -- is there any difference in the depreciation line related to new product capitalization? So are you kind of already in the process of depreciating some of earlier capitalizations more than you have done in the previous year?
Yes. So absolutely, it's -- when we kind of look at it from the pro forma basis and also how it's reported now is that within this acquisition, UC adopted IFRS, which kind of went back to 2017 where these capitalizations kind of historically then run on the balance sheet. And now we're getting more and more sort of, let's say, burden from the amortizations of those IFRS capitalized development expenses. So certainly, that amortizations are growing from that.
Yes. And it means that the current sort of amortization will grow until '21. And then we are sort of on par.
Right. Okay. Are they -- are these kind of additional amortization a part of your guidance at the moment? Or is it -- it's not in any way related to your synergy estimates, no?
No, no. They are coming -- sort of mainly, they are coming from our historical CapEx. And clearly, it is what it is. And clearly, our guidance is emphasizing EBITDA partially due to the sort of the characteristics of EBIT for the time being until we have sort of normalized level on EBIT. And then it will be sort of equally easy to communicate on EBIT as on EBITDA.
Will you have some step changes in the IFRS 16 related amortization when it comes to the kind of purchase price allocation? So typically, in the first quarters or so, you tend to amortize a bit more than what is then left after the first, let's say, payables or receivables, et cetera. So will there be some step change related to the amortization number that we saw in Q1? Or is it going to remain about the same level of going in the next -- in the coming quarters?
Right. So are you referring to now also to the PPA amortization levels going forward?
Yes...
Yes. So for sort of in the near future, you do not see a step change in them. So those would be some years forward when those take a step down in the amortization schedule. For IFRS 16, obviously, there's an impact on the depreciations since adopting IFRS 16. That you will see sort of remaining relatively, let's say, on a flat basis going forward in the near future as well.
My name is [ Evelena Kivinam ]. I come from [ SEB ]. When considering about your new products and services of net sales, it was quite a lot this year -- at this quarter, which was explained with the UC and Asiakastieto's service expenses. For how long time do you consider that these lower levels are going to remain? And when are you probably going to need to create totally new services?
As I mentioned, so the 2 key reasons is, first of all, the general integration work that has been going through the entire organization. And then the other one is this work with our sort of large Nordic projects. They should sort of translate to revenue in due course, but since they are sort of large projects, so there is a time to deliver. And then the -- our platform projects or programs or actually something what we are calling as platform transformation programs. And these large ones, the platform transformation programs. They are sort of multiyear programs. And in terms of synergy benefits, the contribution, the full contribution from platform transformation programs is going to take longer than what we have sort of communicated in terms of our sort of 2021 goals. So we didn't exclude the benefits from those programs to this '21 synergy estimate.And clearly then sort of the first one, sort of this general integration hassle, if I may call it like that, that will settle, and it will sort of free resources to reenergize the business development, our Nordic programs. And they will be running for a number of quarters. And these platform transformation programs, they are running for years. So there will be sort of gradual rebound, but clearly it will take time.
Any more questions? If not, then we will continue with the questions over the telephone conference line. Please, operator?
[Operator Instructions]
And that was all. We have not any more questions.
Thank you very much for attention, and thanks for good questions and good discussion. Thank you.
Thank you.