Enento Group Oyj

OMXH:ENENTO

Earnings Call Transcript 2021-Q1

[Pia Katila, Investor Relations Manager]

Good afternoon, all, and welcome to Enento Group's First Quarter 2021 Earnings Webcast and Conference Call. My name is Pia Katila. I'm Enento's, Investor Relations Manager, and I'm joined by, as usual, CEO, Jukka Ruuska; CFO, Elina Straumann; Antti Kauppila, Head of Planning and Analysis. We will open this news conference with our Q1 presentation. And after the presentation, there is Q&A session. And for your information, all the presentation material is available on our investor pages. At this point, I will hand over to Jukka Ruuska. Please, Jukka.

[Jukka Ruuska, Chief Executive Officer]

Thank you, Pia. Very warm welcome to Enento Group first quarter result briefly. And actually, we were counting with Pia, how many quarterly presentations we have had since the IPO to the listing of Enento Group and the result was 24. So this is now the 24th presentation as a public company. And on behalf of myself, so there are not going to be that many more, which I'm going to present. So actually max, 2, I would say, since I'm going to leave the company as was announced last week. But let's start with the summary of first quarter. And I would consider first quarter decent or actually good. So we managed to grow despite the very tough comparison figures coming from pre-COVID period, i.e., from the first quarter of 2020. And clearly, this market has been challenging for many companies, including us. Our top line grew 5.4% on actual numbers and 2.4% with comparable ForEx rates. And that was the case despite the fact that our volume component was still decreasing. And that decline was mitigated by good results from new services development, but also good development in digital processes and also a little bit with our smaller business areas, CDM and SME and consumers. Our margin was expanding as a result of cost savings and synergy benefits coming from our acquisitions. And therefore, I think that one can be quite pleased with the quarter. But let's start looking morning in detail. So it's always good to mention that our mission is to build trust in the everyday. And we are building trust by providing transparency, and transparency and trust is making life easier. It is making the business transactions easier. It enables the growth in our societies. And then if I just highlight a couple of things I was [indiscernible]. So we have been discussing strategy in earlier quarter result presentations, but the things to be remembered is that we want to be the leading and retain and further strengthen our position in credit information services. We want to be the choice for those who want to digitalize and automate their data-intensive business processes. And then we want to be a big leader in Nordic business information. And in order to be that, it means that we have to have a future-fit and innovative organization, it is the people that makes a difference. And then we have to renew our platforms, and we are in the process to build our Nordic future platform. Then jumping over to a recent change in our organization structure. So we changed our structure from 4 business areas into 3 business areas. And those business areas are now business insight, consumer insight and digital processes. And actually, the names, our business areas are very much telling what these business areas are doing. The key thing with this change is really to make the implementation of the strategies fast and smooth. Another change we made was that we established a unit -- centralized unit called data and acquisition -- Data and Analytics. And data acquisition and data sourcing has been one of the very fundamental things, one of the core things in our business all the time, and the same goes for analytics, analytics is giving the intelligence to our services. With this change, we want to highlight the importance of these functions and also, we want to safeguard that there is a sufficient focus on these functionalities, respectively. Then briefly on Nordic integration and business development. So in terms of our synergic work, so we have been proceeding. And now we have passed the 90% milestone concerning our communicated goal concerning the synergies coming from UC and Proff, acquisitions, i.e. it's a bit more than 17% -- EUR 17 million. Then if you look at our business development and start from the growth components. So as already mentioned, so the volume component has been declining. And as a function of the common economic activity level, i.e., that with COVID-19, pandemic, the economic activity level has been simply declined, and respectively, our volume component has been declining. But as actually it should be also. So that decline and more has been compensated by new services component. So new services development has been successful and the share of new services from our revenue was 6.9% during the first quarter. We launched 11 new services. The quantity is secondary, but it tells something anyway. So very good development concerning the new services. And I would like to highlight a couple of good examples of our recent launches during the first quarter. The first is Business Loan Information System, i.e., business information data sharing platform. Another good example is Forest and Farmland Valuation Report or process. And the third is Nordic Growth Certificate. And let's discuss this a bit more in detail. So Business Loan Information System is aiming or provides for our customers up to date, real-time data on our current liabilities of corporate lenders. And it is a data sharing platform where those corporate lenders who have joined can share their current exposures on the company who's applying for credit. And this has been now launched in Finland. I think that it is really [ aspiring ] for great demand for lenders to know what is the current situation with the company. And we have already 8 companies connected to this system. Then if we go for the valuation service, so now we are extending our valuation -- automated valuation service from housing to Forest and Farmland. And the benefit for customers is that with this service, both the credit decisioning and credit monitoring processes can be automated. So very significant efficiency and accuracy improvement for banks and finance companies. Then the third example is Nordic Growth Certificates. And we have found out that companies want to tell that they are belonging to the group of growth companies. And we have built -- our analytics has established a growth company scoring and based on this scoring, we are providing Nordic Growth Certificates. For those companies who want to manifest them growing and belonging in this growth company segment. And the benefit for a company to show that they belong to this group is that clearly, they are much more interesting from a recruitment point of view, when it comes to employer branding, I think that growing companies are much more interesting as customers, not only for finance, but also for other service providers and subcontractors and so forth. So there are benefits to be gained, then you can show that you are a growth company. And that is what Nordic Growth Certificate enables. We have launched the Nordic Growth Certificate so far only in Sweden, but it will be a truly Nordic service or product. So those are the [ best ] pieces of our new services. And then if you jump over to the key ratios. So how did we do financially? And as already, I was explaining in the summary in the very beginning, so we grow by 5.4% on actual and 2.4% on comparable ForEx basis. And let's discuss the growth dynamics more closely in connection with different business areas. And then we were able to grow our EBITDA faster than the top line, so that on a comparable ForEx basis, EBITDA was growing 9.9%, and on an actual basis, a bit more than 12%. And EBIT was expanding -- EBIT margin was expanding as well, but somewhat less because our depreciations are growing since we have been invested a bit more. Then if we go and look at our growth history, so it is very easy to recognize the COVID-19 impact to our growth. So it is this valley, and COVID-19 crisis has been actually quite extraordinary crisis. 1 year ago, last spring, so we were anticipating, at least I was anticipating much great financial turbulence and difficulties. I was expecting high unemployment. I was expecting great number of defaults, both in terms of consumers and companies that never materialized. And I think that the outcome from COVID crisis eventually has been much less severe than generally was expected. And it has also meant that in terms of volume. So the economic activity level has been decreasing. But there hasn't been that kind of sense of crisis, sense of urgency that usually comes under the financial crisis, which triggers larger usage of risk management services. And that is the pattern in what we have seen earlier in connection with severe financial crisis. And that is very visible in our growth rates. Then going to business area, specific growth numbers. And if we start the Risk Decision. Risk Decisions, so we see a small decline, and that is a reflection of the declining volume component. However, mitigated by good growth in new services. And there has been a clear difference between the consumer-related services and company-related services. So the consumer part has been struggling and the volumes have been declining. With consumers because what has happened is that those who have been employed have been actually not able to consume and the savings rates have been going up. And respectively, it has meant that the demand for consumer loans has been decreasing quite heavily. And that impact has been actually supported or strengthened in Finland by the extension of the temporary interest rate cap at 10%. This has been sort of decreasing the Finnish consumer loan market even further. And with Risk Decision, also the impact of one banking day less is the most visible. Then on company information side, company services side. So we have seen steady growth, and it has been, for its part, also mitigating the declining consumer services volumes. Then if you go further to SME and consumers. So in a SME area, we have seen good growth in direct-to-consumer services, both in Sweden and Finland. We have seen good development in Proff's services in Norway. And also, what we have seen is this, this is a growth in advertisement activities in our sites. So that's good. Digital Processes has been enjoying actually as the only one with a growing volume component. So what we have seen in housing market markets in the Nordics and real estate markets in Nordics is a [ stable ]. And clearly, the activity has been very high, which is visible in the figures. And that is combined with very successful new services, launches, for example, the housing valuation service and the new features. In Tambur, this [ digital ] housing transaction service. So the result has been very handsome growth. And then on customer data management, decent growth despite this environment. And the growth champion has been the B2C services in Finland. Let's then have a look at the EBITDA. So as already mentioned, so the EBITDA grew faster than the top line. And if you look at the key components in the EBITDA. So clearly, we had the positive input and impact coming from net sales, but then both materials and services and personnel expenses were growing a bit faster than our top line. And when it comes to materials and services, the reasons for the cost increases is that our sales mix during the first quarter has changed a bit. And for example, the Finnish B2C business within CDM, customer data management,, area is something that variable data cost is significant. In terms of our personnel costs, so it is reflecting the big decline in other operational expenses -- operating expenses. And it means that we have been in-sourcing consultants. This is much more cost-efficient way to get that work done. In other operating expenses, there are also savings coming from our savings efforts, but also some automatic savings coming from COVID-19 situation, for example, in the figure of traveling and events. Capitalized own development has been growing as a function of increased investment to development and platform development. Then let's look at the free cash flow. So the free cash flow was a bit less than EUR 6 million. And if that is expressed in the terms of cash conversion, so cash conversion was roughly speaking, 40% which is lower than usual. And the reason for this lower level is, first of all, that the net working capital has been increasing due to subcontractors and service providers. The tax bill has been larger than previously, and also the high level of CapEx reflected to this. However, we expect it to normalize to our normal ballpark area, roughly speaking, around 60%. The other indicators related to our balance sheet. Our net debt ratio in relation to EBITDA was 2.5. And the gross investment as such, they are EUR 4 million, and once again, showing the higher investment level what we have currently. In terms of guidance, we are feeling confident. So in the end of reporting period, we saw some pickup in the volumes, and that development continued during April. And therefore, we believe that our expectations and guidance concerning the much stronger second half is valid. And then as I was already referring, so after almost 10 years period as a CEO for Enento Group. So I have decided to go for new adventures. And as such, it doesn't include any dramatics. So this is a great industry, and Enento Group is a great company, and the group has a great team, great people and a great team and also the management team is very solid. So there is nothing unusual. And as a shareholder, I wouldn't be worried about this. Very good. That was the review of the first quarter. And Pia, do we have some questions?

[Pia Katila, Investor Relations Manager]

Yes. Now we are ready for the questions, and we start with the questions over the telephone conference line. Please, operator.

[Operator]

[Operator Instructions]it appears that there are no questions at this time.

[Pia Katila, Investor Relations Manager]

And then we wait a little bit to -- now we have received there's one question from Nordea, Felix Henriksson, how did the operating environment change in Q1 versus Q4? And how do you expect it to develop in Q2?

[Jukka Ruuska, Chief Executive Officer]

Operating environment, I think that has changed in that respect. During the first quarter, so it became more evident that that the vaccinations are proceeding, and there is light in the end of COVID-19 tunnel, which has been strengthening the confidence in business and among consumers. And I think that, that has created much more optimistic sentiment to the economic as a whole. And for us, clearly, the best environment is: A, an economy which is growing steadily; and then the second is that we have a really serious crisis. But rather, we are definitely going for this steady alternative. And actually now during March and April, the voices, for example, from economists are getting strong and strong that there is a true expectation for strong recovery or rebound, and that is already something that we have seen in the United States. So in that respect, the economic operating environment is good. In terms of regulatory environment, so no major changes. And otherwise, I would say that it is very much business as usual.

[Pia Katila, Investor Relations Manager]

And then the next one, Daniel Lepistö, Danske Bank. In digital processes, the last year's good trend of quarter-on-quarter growth ended now in Q1. Do you see the growth coming back? Or is it the current sustainable sales level for this segment?

[Jukka Ruuska, Chief Executive Officer]

Well, I think that it would be unrealistic to expect Digital Processes to continue to grow at the level it did, for example, grew during the first quarter, i.e., 33%. So in due course, it will get to more normal space. But then clearly, the future growth is very much subject to how successful we are in the future service development. So we have a highly interesting initiatives and actually already launched services, which hasn't ramped up due to COVID situations. So for example, in Finland, we have the digital housing information that is effectively digitalizing and automating the housing [ managers ] certificate is [indiscernible] process. And that is still something that we haven't been able to ramp up. And the other very good service, we haven't been able to ramp up due to the COVID-19 situation, has been our housing transaction service. And clearly, those both are very significant services if and when we can ramp them up. In Sweden, we are investing and looking very eagerly at opportunities to digitalize the housing association related processes further. And clearly, that's another big area and promises significant growth, future growth if and when we are successful in that. So just to summarize. So clearly, with the current services, the growth will level off, but we have a good pipeline to generate further growth.

[Pia Katila, Investor Relations Manager]

And then there is a follow-up question from Daniel Lepisto. How is the competitive landscape in Finland, in the real estate information services? How are you competing against DIAS?

[Jukka Ruuska, Chief Executive Officer]

Yes. Clearly, DIAS, the first provider of housing transaction services, has done a great work and really increased the acknowledgment and knowledge of possibilities to do, for example, flat trade or apartment sale in a digital process. And clearly with that position, DIAS has been going ahead, and it has some advances compared to us. Do you think that we have a very good service, and we are highly competitive with DIAS? So time will show how the competition will go. But I think that the key thing is really to make those processes digital. And clearly, in Finland, we have additional products and services concerning the digitalization of housing processes and real estate related processes. So clearly, we don't just sit and see what's going to happen.

[Pia Katila, Investor Relations Manager]

And then Daniel's question regarding Risk Decisions business. Do you see the vaccinations and reopening subsequently improving the transaction volumes in the Risk Decision business?

[Jukka Ruuska, Chief Executive Officer]

Well, we expect that with vaccinations. And clearly, assuming that we are not going to get that kind of new mutations of the virus that the vaccinations wouldn't be valid against. So it is going to normalize the economy. And in normalized economy, the transactions, the number of transactions in finance, in trade finance, in car insurances, all kind of transactions of that kind, which are actually the driver for our volume growth in Risk Decisions, they are going to get normalized, i.e., they are growing. And when that happens then the volume component of Risk Decision will be positive. And we are going to have not only the new services component that positive, but also the volume component positive.

[Pia Katila, Investor Relations Manager]

And then the last one from Felix Henriksson, Nordea. Is it so that the temporary interest rate cap will not be a constraining factor for you after Q3? If so, are you expecting to see pent-up demand from consumer lending for Q4 onwards?

[Jukka Ruuska, Chief Executive Officer]

Yes. So if you look at the Finnish consumer lending market, so there has been 2 factors impacting the volume. The first one is the same what we have in Sweden, i.e., that those consumers who have retained their job, who have remained employed as the most have been. So happy and actually earning money and being able to make savings. And if you look at the statistics from Bank of Finland and Riksbanken in Sweden, so that's very visible. So unusual increase in the rate of savings. And then the things are getting normalized or more normal. And these households, these consumers are getting back to the normal consumption. And then they have this surplus to be consumed. It will definitely trigger the economy. And in due course will also drive for organic growth in terms of consumer lending volumes. Then in Finland, we have this temporary interest rate cap, and which is due till the end of September. And at 10% interest rate cap there are that kind of customer segments that are not actually getting any loans. So definitely, if -- and then the temporary interest rate cap is removed or when it comes to the end, so it will have impact to consumer lending volumes in Finland, absolutely.

[Pia Katila, Investor Relations Manager]

And that was all regarding the questions.

[Jukka Ruuska, Chief Executive Officer]

Thank you, Pia, and thanks for good questions. And thank you very much for following this briefing on Enento Group's first quarter results. Thank you.

[Operator]

That concludes today's call. Thank you for your participation. You may now disconnect.