Enento Group Oyj
OMXH:ENENTO
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Good afternoon, all, and welcome to Enento Group's Third Quarter 2021 Earnings Webcast and Conference Call. My name is Pia Katila. I'm Enento's Investor Relations Manager. And today, I'm joined by CEO, Jukka Ruuska; CFO, Elina Stråhlman; Antti Kauppila, Head of Planning and Analysis. We will open this news conference with our Q3 presentation, followed by Q&A session. And for your information, all the presentation material is now available on our investor pages enento.com. And at this point, I will hand over this to CEO, Jukka Ruuska. Please, Jukka.
So thank you, Pia, and good afternoon. A very warm welcome to discuss Enento Group's interim report from the third quarter and how did it look and what is also the outlook for the future. So I will jump immediately to very topical pages on a presentation. So I think that in terms of the integration efforts, we have been doing with UCA transaction and with Proff transaction, they have been proceeding very well indeed. And now I'm very glad to tell that we have reached, practically speaking, the goal we set, i.e., EUR 17.8 million as soon as it benefits from these transactions. And I think that it is truly good and great that we have reached this and most probably, this will be the last time we are going to discuss this goal. However -- and this doesn't mean that there wouldn't be further benefits available from these transactions and combinations. So for example, this EUR 18 million doesn't, practically speaking, include anything from the IT consolidation and indications. So there is still remarkable potential left.Then if we start looking at the revenue development. So once again, from our growth formula, the most important component was new services. And new services contributed a significant share of the revenue for third quarter, i.e., 7.6%. And we have now managed to keep that number growing from to quarter to quarter for quite a while. And it reflects that really, we have been able to get the entire group to accelerate business development efforts. And despite the fact that now we are spending resources to our platform transformation work. So this has been still possible.There are 6 new services launched during the third quarter, and those are mentioned in the slide. Then if I continue to key ratios and once again, let's start with sales. So sales growth was moderate for the third quarter. And it is that kind of moderation of a spurt, that kind of acceleration that we saw during the second quarter, which was obviously coming from the low COVID-19 levels.On profitability side, so EBITDA decreased by 2.2% on a ForEx comparable basis 3.1%. And the key reason for that is, on the other hand, on a cost development, on the other hand, on the comparison figures. So last year, on the third quarter, we had unusually high margin, above 40%, reflecting that COVID impact to the cost base, i.e. that kind of usual activity level was very low, which was reflecting also the costs. And so that is one thing affecting. Then the other one that has impacted that, clearly, in terms of our costs, so we have been investing a lot of the investment for the future, both in terms of business development and IT platform development what we are calling as platform transformation program.Then if you discussed the top line development on a business area level, where you can get a better grip on the drivers and key reasons. So business insight on a comparable ForEx rate basis grew a bit less than 4%. And that growth came mostly from the premium segment that was growing well, especially in Sweden and Norway as well as part of that advertisement volume started to grow as well. Then we didn't see that type of growth in enterprise solutions, i.e., that part of the business inside, which is serving large customers. And that is a reflection of the relatively speaking low investment activity in our markets. So that the companies are not really investing that much. Neither and partially do that also the corporate lending activity is not growing that fast. And that is visible in our numbers. And that is despite the good growth from new services.On consumer insight, the growth was roughly speaking at the same level as on [ BI ] and in consumer insight, we saw quite a different market development in Sweden and Finland. And the growth in Sweden was lame simply. In Finland, we started to see the market picking up and the temporary interest rate cap of 10% was removed now or it ended in the end of September. And that has been definitely good for the volumes in that respect.And then one underlying factor that is impacting both consumer inside and digital processes is the housing market. And the hottest times at the housing market are now behind us. So we have seen that kind of normalization at both volumes at the housing market as well on the price levels. However, the Swedish housing market continued to grow and contributing to good growth, especially within digital processes. In Finland, the volume was leveling off. So it was roughly speaking at the same level as last year. In Finland, however, compliance services where we have growing nicely. And if I take the same round, a bit outlook emphasis, so in terms of business insight, we see that the same type of trends to continue. So premium to grow, but as of now, we don't see that kind of strong evidence that the underlying investment and lending activity at the enterprise segment would have been starting to increase.In terms of consumer insights, so with Swedish volumes. So it is a bit same thing as such with enterprise segment. So now, we don't see that kind of -- sort of major drivers. So those -- so that would enhance the volume growth in the Swedish market, in the Finnish markets. So obviously, we expect that removal will normalize volumes, at least to some extent, so that should be bringing that kind of growth component to us.In terms of digital processes. So our expectations are that there are that kind of normalized volume growth inside and that compliance services will continue to grow nicely.Then if you jump over to the EBITDA. And on the EBITDA, so clearly, the first thing is that the net sales component, the EBITDA increase from growth was moderate. And materials and personal services, they are growing somewhat fast. Those costs are growing somewhat faster -- a bit faster than our top line. And then clearly, the major increase is there in other operating expenses, that is partially normalization, i.e. that already during the third quarter, the sort of normal activity level was increasing. So there was some traveling, some events, that kind of things that are generating costs, but also a significant part coming from our IT operations, which is a function of increased maintenance cost. Now when we start to have things that are ready from platform transformation part. So they are requiring their own maintenance, and it includes the cost. So it is impacting. And then we had some consultancy costs that are not recurring related to our development initiatives and items.Then a line that is reflecting partially in this growth in personnel is production for own use. So the reason why the personnel expenses are growing is that we need good people, talented people to build the future to enhance business development and platform development. But clearly, sort of significant part of that work is capitalizable. And therefore, also the production for own use was growing 85,000 during the third quarter. And that is how we end up with adjusted EBITDA from the third quarter.Then if you continue the cash flow, so the cash conversion was 67% or actually 68%, if you're rounding it correctly, the cash flow was impacted by our higher investment level and for the whole year, so also the tax bill is impacting the cash flow. And then if you look at the balance sheet ratios, so the net debt in relation to adjusted EBITDA was 2.6. When comparing to the last year, it's good to remember that last year, we paid the dividend in 2 parts. And the latter part was paid during the fourth quarter. So it is impacting these ratios.Gross investments were 3.4%, it growth a bit more than EUR 1 million compared to last year. In terms of our outlook and guidance. So we are feeling comfortable with our guidance and if you convert it with the actual numbers, we have already for 3 quarters. So it means that we are expecting a top line growth that is pretty close to the third quarter, maybe a bit higher.Then looking at the changes coming -- so this is my last interim report presentation. This is as well my last day or actually at least last banking day. So I'm afraid that I will be doing some packing during the week and still had the office, but this is a sort of last official day. And clearly, I will -- my successor is Jeanette Jager and she will start 1st of January. And Jeanette has a very strong experience from ICT and the last year, she has been being CEO for Bankgirot in Sweden.There are other important changes as well. So Enento will be in good hands. So now as interim CEO, Elina [ Phil actives ] and our CFO, Elina will be in that position for the coming 2 months. And today, 2 other important appointments were that, i.e. that we have new business area heads or they are not really that new. So new old ones, i.e., Siri Hane that was previously Business Area director for consumer Insight. He will take over business inside area 1st of January when Heikki Koivula is leaving. And then Gabriella Goransson, who has been now acting Head for our Director for Consumer Insight when the Siri has been on parental leave. So she will continue in that floor. So this slide really shows that Enento is in good hands.And on my behalf, so this has been a great journey. I want to thank great people at Enento, so it has been great to work with such colleagues. I want to thank our customers having sort of very open constructed dialogue with customers is one of the best things you can have. And then, of course, owners and owners' representatives, analysts and portfolio managers. So it has been great to have that kind of discussions there. Also things are rationalized. So that has been great.But now it's time for Q&A. And may I ask Elina, you to join me over here, so then you will be visible.
Yes. And now we are ready for the questions, and we start with the questions over the telephone conference line. Please, operator.
[Operator Instructions] I reach out our first question.
Okay. It's Felix Henriksson from Nordea. I have 3 questions. So I'll go one by one. Firstly, regarding the Q3 moderation in organic growth, you explained some of the factors behind these 4 different business areas, mainly relating to external market development. But do you feel like there was something internally that you could have done better in Q3, i.e., are you satisfied with your own performance when it comes to top line growth, especially?
Well, I think that you have to always think that you could do better, and there's always potential for improvements. So definitely, yes. Then whether I'm blaming myself that we missed something. No. So I think that -- and the key contributor that we have such a direct impact is related to new services development. And I think that on that field, we have been successful all the way -- well, always, you could do better. But I think I'm pleased with that. In terms of our customers, so our customer has been extremely active. If something, I would say that we are winning market share, at least not losing market share. So in that respect, there's always potential for improvement, but nothing specific that I could sort of pinpoint that up to the third quarter.
Okay. That's clear. Well, then in terms of Q4, how do you see the cost base developing, especially if we think of the comparison period from last year? Should we again be looking at a year-over-year margin decline or lower profitability for the last quarter of the year?
And since Elina is the person to warding us to the future. So Elina, please take that.
Yes. So in terms of Q4, we are expecting a rather flattish margin development on a year-on-year basis. We will see, compared to previous year, cost increases related to increased level of our own activity as well as increased IT related, let's say, double cost type of elements, which will then impact the margin also in Q4.
Okay. That's very helpful. Maybe lastly, continuing on the IT topic and the platform renewal progress. Could you perhaps provide an update on the recent development in the renewal of the Nordic IT platform, has everything sort of developed according to your expectations when we think of the pace of the renewal?
Yes. More or less, obviously, these kind of programs are always iterative. So you are going -- so that you are defining your next steps based on the last springs and the last developments, but more or less, according to the expectations. And the concrete things, what has been done is that now we have our Nordic platform for our premium market ready. So it is about to be taken you for use. We have been building and actually, we have now the very significant amount of the Swedish consumer data already on a new platform, which is now enabling us to launch our new e-com service in near future and build that kind of new services, which are also addressing to some extent, new customer segments. So important things has been already finalized and that continues.
[Operator Instructions] We will reach out for our next question.
This is Matti Riikonen from Carnegie. A couple of questions from my side. First, maybe a reiteration of the previously asked question, but just wanted to make sure that when you think about the volume development coming from your large customers in the business inside business. Was it kind of according to your plan or expectations or was it weak because that's obviously the main source of the slight softness in the top line growth related -- compared to previous quarter?
Yes. In terms of all volume components. So obviously, we are not capable to plan, but we are doing sophisticated, guesstimating on that. And I think that, especially in terms of the business information and enterprise solutions, so we would have rather seen higher volumes. So it was a disappointment not to see that the expected activity level increase didn't materialize in volume numbers on that side. And then the Swedish consumer market, it is a bit sort of question mark. So it is still so that the series consumers are unloading their savings. So as we all know, so the savings level increased very significant during the COVID times. And is that -- so clearly, the crazy days of housing markets are not there, and they are not there during the third quarter. That is having its impact. But as a whole, so there are a couple of things that didn't meet our hopes.
Then about the digital processes, sales traction, you already mentioned in the previous quarters that you would probably see a deceleration of the very fast growth that you have seen in earlier quarters. So is this level around where you think it should be kind of landing short-term also in the coming quarters? Any specific triggers or seasonality issues, which could kind of change the picture?
And let's follow the division of labor. So Elina takes the forward-looking questions.
Yes. So obviously, the high-growth in previous quarters has been very much related to record high-volume levels. And obviously, now, we are starting to compare against these very high-volume levels already. So the future growth is very much then dependent on whether and how fast the housing markets and transaction levels continue to develop. We expect to see modest growth levels going forward as well, but whether it's exactly this level that remains to be seen and is very much dependent on the volumes.
Then on the interest rate cut on consumer loans, which now was increased from the beginning of October in Finland. What kind of impact do you think that, that will have on your business? So is there really difference behavior from loan takers based on that? Or do you expect that it will be roughly the same as it would has been with the more strict cap? I mean, I'm talking the different -- talking about difference between 10% and 20% interest rate cap in Finland.
Yes. It makes a difference. So if you take into account that the vast majority of the consumption loans, loans for consuming purposes are short. And in a short loan, in order to make it feasible for the borrower, the interest rate cannot be low because you are generating so much costs related to the actual lending process. And it has meant that a significant part of the Finnish consumers during this interest rate cut period there outside lending market. And now they are back with this sort of normalized 20% interest rate gap. So definitely for that market segment, it is a significant thing.
And then finally about the new services that you mentioned in the report, can you highlight some of the services that you consider to be the most interesting and which are more kind of normal? Or can you make that kind of difference between those products expand, of course, exports, you will have the knowledge, but do you have kind of anticipation ex ante of what would be the most interesting ones?
Yes. And I think that the services launched during the third quarter, they are not the sexiest ones in all fairness. But what was important was the Nordic growth certificate. So it is a product that has been growing very well in Sweden. And there are all reasons to expect it to grow in Finland as well. And then the consumer credit inquiry system mortgages, which means that we are running in Finland. The positive data is not possible to be provided because positive credit history is not acceptable based on Finnish law. So what we are doing instead of positive credit is that we are operating that kind of data sharing platform for consumer loans. And now we are adding also mortgages to this data sharing platform. And once we get the major players to participate, it will increase the data amount and the benefit of that service significantly. So it is truly important service. And those are the ones I would like to highlight from this third quarter vintage.
Our next question.
It's Daniel Lepisto from Danske Bank, and I have a couple of questions. So in regards to the business insight, so what would be like the catalyst to boost the enterprise services transaction volumes? And I guess, the overall lending activity in the economy for the near term and do you see like this difficult situation prevailing for longer term? Or do you see this as temporary issue?
It's a very good question. So we have thought that there is that kind of risk returns between the overall communication and information flow concerning the economic activity and what we see in our aggregated data and the usage of our services. But when you speak with large lenders, so it's completely clear that the investment level is low and companies, especially the large companies, but it goes to some extent also to SME, are actually over liquid now. So all companies pumped the storage is full low cash, meaning that they extended the credit lines and the liquidity situation is very good. No investments are of low level of investments. All this creates an environment where the -- for lending use case, the volume growth isn't there. Then business insight services are used for multiple other purposes. And those have been sort of a bit sluggish as well. And then, there is this very same discrepancy. We have great difficulties to explain. And maybe it's only delayed, but who knows?
Then my second question is about the digital processes. And basically, that -- are there any new markets available for you for the business segment? And if you are very active in Sweden, and as I have understood that in Finland the Alma's DIAS is you know the prominent service, but what about Norway and Denmark in terms of geographical new areas. Are these interesting for you?
Yes. So first of all, it is within the digital processes. So there's remarkable growth headroom, for example, in the compliance services. And that is something that we definitely want to accelerate. Then in terms of the real estate and housing-related services. So we have a very strong business in Finland concerning the housing transaction service -- digital housing transaction services. So DIAS has done a great job, and they have managed to build a good position. But we are definitely going to give them sort of tough -- provide tough competition. So our service on our very objective judgment is a very good service, and we can provide extremely competitive pricing because the way we have built the service, so it's extremely cost efficient. So we haven't given up that competition. However, it will take some time. And then we have that kind of services in Finland that we haven't managed to ramp up fully like the digital apartment data or digital apartment information. So there are growth opportunities fit in those chosen areas. And then there are new areas. What comes to geographies, so we are looking at actively at Norway and Denmark from this point of view as well.
Thank you. Speakers, at this time, there are no further questions in the queue.
And that was all regarding the questions for this time.
Okay. Thank you. It was a great pleasure and have a nice afternoon.
Thank you.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.