Enento Group Oyj
OMXH:ENENTO
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Good afternoon, all, and welcome to Enento Group's Fourth Quarter 2020 Earnings Webcast and Conference Call. My name is Pia Katila. I'm Enento's Investor Relations Manager, and I'm joined today here by CEO, Jukka Ruuska; CFO, Elina Stråhlman; and Antti Kauppila, Head of Planning and Analysis. We will open this news conference with our Q4 presentation, followed by Q&A session. And at this point, I will hand over to CEO, Jukka Ruuska. Please.
Thank you, Pia, and very warm welcome to discuss Enento Group's fourth quarter and obviously, also the entire year 2020. And the thing we are going to remember last year is definitely COVID-19 pandemic. And as a whole, I can say that that we managed to get through this challenging year very well. So we have been able to show top line growth. We have been able to improve our margin. And most importantly, we have been able to take good care of our people and good care of our customers. The business has continued smoothly. And we have also been able to continue our development work. But let's discuss the year more in detail. And I will go -- actually to this. And this is something I'm very fond of. We are building trust in it every day. And we are building trust by increasing transparency, providing data inside and increasing transparency, and, with that, creating trust. And trust enables higher economic activities, it enables better the decisions, the faster processes. And we have the luxury of being in an industry with great opportunities. And in this picture, there are some examples of those changes which are creating opportunities, also some threats to us. But I think that, mostly, they are opportunities. And our offering is always based on data. And what we want to bring is intelligence to do our data so that the data can be used and utilized in a clever manner. And with that, our key competitive advantages are that, first of all, we have extremely good data sourcing. We can use our brand, very well-known brand or brands actually, in our markets to collect data. And with that brand, we have been able to build that kind of data sources, it's our unique and that we have de facto proprietary data. Our database is very granular, which enables us to build all kind of services or data. Our production has created reliability which is extremely important to our customers, which you having our services quite often as part of the mission-critical processes. And service development is in our DNA. So we have been able to develop great services, unique services, and most importantly, services that are very relevant to our customers. And finally, we have strong connections to our customers. On our business freemium sites, we have more than 6 million unique visitors per month. We have been integrating our services to larger customers, to a large extent, which is a very efficient way to use our services, from customers' point of view. And the fundamental growth drivers for us is our customers need -- constant need to make better decisions. And in order to make better decisions, you have to get new data, better data, you have to have better algorithms, better analytic -- analytical tools in order to make that happen. And that drives growth to us. And the other growth driver is digitalization of data-intensive processes. All data-intensive business processes are to be digitalized. And that way provides a lot of growth opportunities to us. And those areas, what we have been focusing now, decisioning real estate and housing-related processes, compliance, but there are still many more to be exploited. One important change we are in the process to do is to change our organization. So instead of having 4 business areas, we are entering a model with 3 business areas. And those business areas are business insight, providing company information based services to businesses which are interested on companies and other businesses, and for all other stakeholders, customers needing information on businesses. Consumer insight concentrates on consumer data and refining consumer data. And digital processes is, as it has been, i.e., providing services, it can be used to digitalize data-intensive business processes. And another change we are doing is that we are establishing a new function called data analytics. And already previously, data sourcing, data management has been one of the key functions to us. And the very same goes for analytics. But with this change, we want to highlight the importance of data in all aspects, and, respectively, the importance of analytics. These both are fundamental blocks in our business model. There is no our business without data or analytics. And clearly, this also shows that we want to focus and put more effort to these topics in the future even more. One of the key themes during the last 2, 3 years has been integration, the Nordic integration. And the goal for integration benefits was set and communicated to be EUR 17.8 million by the end of this year. And these are connected to UC acquisition and Proff companies acquisitions. And we have been building and executing these synergy opportunities in a systematic manner. And now we have reached the level where we are over 80% ready with this goal. And clearly, we are feeling very comfortable that we are going to reach the communicated goal, EUR 17.8 million during this year. Then looking briefly at the growth components, where from the growth came during the fourth quarter. The area that was declining or the growth component that was declining was volume. So as a result of COVID-19 pandemic, the economic activity level has been significantly lower than it was a year before. And respectively, our volume component declined compared to the previous year. Then the growth came to large extent from new services, and I'm going to discuss with the new services development and activity later; but clearly, that was extremely important part of our growth formula, as always. So another important aspect and looking at the volume component is the resilience of our business model. And I think that the results from the last year show -- is showing again that our business model is very resilient. And we have used this type of graph to show the resilience of our business model, i.e., when the things are coming difficult enough, when the economy is in a deep trouble, then actually, what we see is that the usage and demand for our risk management services starts growing very fast. And it compensates for the loss of other volume components. And it results a good growth for us as a whole. However, now it's important to note that during COVID-19 crisis, actually, the sentiment didn't come that severe. That kind of sense of crisis, sense of urgency didn't appear, which would have been sort of leading to high activity on a risk management level. And therefore, we haven't seen that kind of peaking, increasing demand for our risk management services, as we have seen, for example, during the Lehman crisis, the financial crisis. But as a whole, I think that the entire economic development was less bad than at least what I was forecasting during the last spring. But fortunately enough, our new services development activities were successful and we have been launching a number of good and relevant services: as a whole, 54 new services during the year '20. And the share of new services of our revenue increased. And during the fourth quarter, it was 6.8%, and 5.6% for the entire year. So we are on a positive trend, and that is something we want to continue. However, we recognize that since what we recognize as new services revenue is counted from those services that are launched during the last 2 years. And that is, relatively speaking, short period of time, and it can result in some volatility, quarter-by-quarter basis. And the key initiatives we are working with as of now is the Nordic sustainability offering. So we want to be the company providing help and advice to our customers to make sustainable decisions. Then the digitalization of housing processes, housing-related processes continues to be in our focus, as well the further development of our business information offering. And then jumping over to the numbers part. On the top line, and on comparable ForEx rates, we grew a bit less than 1% during the fourth quarter. And I think that, however, we were growing despite the declining volume components, so forth, that it is good under these circumstances. And our EBITDA margin improved somewhat, and the EBITDA was growing faster than the top line. That is thanks to our synergic benefits realization and those cost savings that we decided and have taken actions on in connection with our financial contingency plan when the COVID-19 pandemic started last spring. And then discussing briefly business areas and growth. So with -- in Risk Decisions, this is area. Net sales, you can really see the impact coming from the volume, lagging volume growth. And it has been especially the case with the consumer financing related services. And the temporary interest rate cap in Finland, it didn't help on the situation. So clearly, there has been a significant decline in that part of our business. On the positive side, so what we have seen is this is growth in business information services. And clearly, the new services have been supporting the growth in Risk Decisions. With SME and consumers business area, so the off-line products were declining, [ so that the ] print products. And that was something that we have been expecting. And on the positive side, we saw good growth in direct-to-consumer services, both in Sweden and Finland. And we saw also growth in our SME online sales. Then Digital Processes had a handsome growth number. And behind that growth is clearly very active housing market, but also our new services. And clearly, the Tambur service in Sweden is a very important part of this growth. But also our housing and real estate-related services in Finland, we are growing. As well our compliance services in Finland, they are growing. And then finally, Customer Data Management and within that business area, it was the Finnish B2C offering that was leading the growth. In terms of EBITDA and the margin expansion. So the key contributor was other operating expenses. Our materials and services was growing somewhat faster than top line. Our personal expenses were growing to a large extent because we were filling open positions, but in other operating services saw significant decline. And our capitalized work was increasing as a function of our higher intensity and higher activity in our new services development. Free cash flow during the fourth quarter was strong. And I think that it's important to highlight the EUR 2.4 million one-off item that is mostly consisting of additional payment for Proff acquisition. And our leverage was under control, so the ratio between the net debt and adjusted EBITDA was 2.6. So, clearly below the 3 that we have set as maximum. And cash conversion was on a very good level, and for the whole year, above 66%. So that shows the cash flow generation capabilities of our business model. And reflecting the strong cash flow. So we decided to keep the same dividend as previous year, EUR 0.95 per share. And then finally, we enter the guidance for this year. So how does it look for this year. In terms of top line or top line environment, so what we are expecting is more or less similar type of first half for this year. So modest growth, and then during the second half, and once the pandemic starts to ease and the economic activity starts to grow sort of better growth, and then when we sort of integrate that as our growth. So we are expecting to grow within our long-term range from 5% to 10%. But that the growth is somewhat below the midpoint of that range. We expect the margin improve somewhat, so -- and the words somewhat comes from the fact that we are in the middle of our platform transformation program, and it means that we have to run sort of -- in a growing sense, double systems, and that is increasing to IT maintenance cost, and it has its toll on our margin expansion. And actually with this, now I give the word to Pia, and if you start the question part.
Yes. We are now ready for the questions, and we start with the questions over the telephone conference line. Please, operator.
[Operator Instructions]. [ Technical Difficulty]There are no further questions in the queue on the audio.
All right. I think this was, in that time, all about the questions. Is it so that we -- do we have any online at the moment? No, no. No conference call questions, neither online questions. But we still have a little bit time. And if during that, we receive questions, so we, of course, will answer. And to the end, I would like to remind you -- remind you of our upcoming events. But before that, we have now received one online question. And this is from Sami Sarkamies, Nordea Markets. You did open up rationale for the new organization, can you please explain timing for the change? Why now and not earlier, as you did refine the strategic ambition already last year? This was the first one.
Yes. Thank you. So concerning the organization change. So the purpose for the change is to simplify the organization and with that accelerated speed of implementation of the strategy. And just to give you one example of the rationale. So our sustainability offering development, which we consider as a major opportunity, fell, in our current organization, to several business areas. Now it's on ownership and the responsibility of business insight. So it's easier to take it further and really make things happen when it's under one business area. And the plan is that it will be in force from the beginning of April, April 1. And why not to do it earlier? Well, it's always good questions, so why don't you do clever things earlier, and I think that that simply time was matching to do this change now.
And the second question from Sami Sarkamies, Nordea Markets. You were quite reluctant to give any forward-looking comments on volume outlook for Risk Decisions after Q3. How has visibility developed? And how do you expect the year to play out from demand perspective?
Well, on a Risk Decisions side. So clearly, the growth is coming from volume component and new services component. And on the volume side, so as a result of the pandemic, so we have been seeing a lower level of economic activity and respect to the lower volume growth component or actually declining. And now what we are expecting is that clearly, and during the first half, it will be still challenging. And it remains to be seen that what is the balance between the vaccinations and the versions of the virus and what level the lockdown measures are needed in the society. And that has its impact to Risk Decisions volumes. But then clearly, in due course, when sufficient population has been vaccinated, then there will be some level of rebound. And that rebound is coming from the fact that currently, the consumers have been saving quite a bit more since there hasn't been possibilities to spend that much. And once consumers start to spend more, it creates that kind of economic certainty and it reflects also to the B2B side. So in that respect, so we are definitely expecting much more positive second half for Risk Decisions. And also, it means that the demand and supply for consumer credits should be much more active than what it has been. And then we have this Finnish peculiarity, this temporary interest rate cap at 10%, and it will continue until September. And definitely, we expect once that is not in place, or we are getting back to the normal 20% interest rate cap, so it should be releasing activity in that segment as well. So in that respect, it is a bit twofold, what we are expecting. From comparison figures point of view, so clearly, the first quarter is more challenging because it is sort of pre-corona quarter. And after that, the comparison numbers will be much easier.
And before Nordea Markets' third questions, it seems that we have faced technical challenges with the conference call line. So if you have the possibility, please use the online channel. And the third question from Nordea Markets is Alma Media recently acquired DIAS, a Finnish player within digital housing transactions. I believe you are also targeting this market. Can you elaborate on the competitive landscape and [ assess ] the opportunity from your perspective? Could this become winner-takes-all type of market? Or do you see a role for multiple players in the long run?
Yes, a very relevant question. So for the housing transaction, digitalization, there are currently 2 services available in Finland: the DIAS that was acquired by Alma Media, and our housing transaction service. And not surprisingly, we think that our service is highly competitive. But clearly, the DIAS has been on the market some 2 years earlier than we; and definitely, DIAS has done a good job in order to build visibility and also the existing interfaces towards banks. And we have been tracking with corona situations, but we definitely believe that there is room and need for competing systems and services in this field. And as such, so we have very high regards on our own service and think that it is highly competitive.
Then we have received question from SEB, Pete-Veikko Kujala: on sustainability services, do you already see demand for these services? Is demand larger than we can currently be offered, or do you see these services more as future services -- service where you expect demand to gradually shift to?
Actually, our existing sustainability services and the ESG report, what we are providing on all active Finnish companies is doing well and it is a sizable business already as it is. And the area what we are tracing, i.e., mostly the unlisted universal companies is actually fiercely underserved domain. And that is what we consider as our sweet spot, i.e., we are experts on this big number of unlisted companies. And this already existing unique service gives us excellent position to develop these services further, and also, at the first stage, launch respective ESG report on Swedish companies and then to start taking it ahead and we are going to make significant investments in the field of our sustainability offering during this year. And we expect it to be one of the major growth areas to us in the future. And it's not in a too long future. So there is a very real and concrete need and demand from our customers.
Yes. And that was all, regarding the questions. And if you still have questions, please send to me by e-mail, so you will be answered. And finally, we would like to remind you of our upcoming Investor Relation events. In week 10, we will publish our Annual Report and financial statements for 2020. On 29th of March, we will have our Annual General Meeting. And 29th of April, we will publish our Q1 interim report. And that was all for this time. We thank you for your participation and wish you a great weekend.