Focus on Internet growth
CEO’s comments in Annual Report 2007
Eniro’s position as the leading search company in the Nordic region was strengthened during 2007. Our strong growth in Internet continued with increased usage figures as well as increased Internet revenues in all markets. The acquisition of Krak in Denmark resulted in a leading online position in the Danish market. Our directory assistance was proven to be successful and we strengthened our position in Finland and maintained our positions in the other markets.
Throughout the year we continued with our ambition to stabilize revenues from print and we have made significant progress in most markets although the Norwegian directory market remains a challenge. Through continued strict cost controls and leveraging of synergies, margins were maintained during the year. Strong market
positions and favourable cash flows also mean that we will be able to continue to provide high returns for our shareholders.
Eniro – an online company with a print heritage
New technology is continuously changing the dynamics in the search industry, offering users more and more advanced search possibilities whenever and wherever. However, new technology also means new possibilities for the search industry. With the ease of use and the never ending accessibility online search channels increase the overall number of searches every year and provide a fast growing market for search companies.
As the Nordic market leader in search, Eniro is and must remain at the forefront of this development. Our overall challenge is to master a fast growing business within online and at the same time master a declining business within print.
Eniro is very well positioned to handle this challenge. Over the last years we have organically and by acquisitions created excellent local search positions and we have the leading local search sites in all Nordic countries. Our dependency on the print business has declined from 64 percent of total revenues in 2005 to 54 percent in 2007, and over the same period our online businesshas grown from SEK 1,346 M to SEK 2,004 M1).
During this period we have been able to grow our operational EBITDA-margins from 32 percent to 34 percent2). Our ability to maintain and improve margins in the changing revenue mix from print to online is based on the fact that a leading online position with critical mass has all the prerequisites for delivering margins in line with margins for print. Within Eniro today we have two markets close to that critical mass, Norway and Sweden. Runner up is Denmark after our acquisition of Krak, which gave us the number one local search position in the Danish market. Our positions in Finland and Poland need to be developed further in order to reach the right fundamentals for print alike margins also on the online side.
Going forward we believe that the development we have seen during the last years will continue and Eniro will be an online company with a print heritage, but with continued high margins.
Our ambition
Eniro’s ambition is to achieve revenue growth of 3–5 percent per year with a sustained EBITDA margin exceeding 30 percent over a medium to long-term period. The balance sheet will be continuously optimized with consideration taken to financial flexibility and stability. The goal is an efficient capital structure with a net debt in relation to EBITDA of up to 5 times. Eniro’s business generates high cash flows, while investment requirements are limited, thus permitting a high return to shareholders. Eniro’s dividend policy is a dividend corresponding to 75 percent of net income.
With an overall organic revenue increase of 2 percent in 2007 we were outside the ambition range regarding revenue growth, but we see no reasons to change the growth target since we strongly believe that growth in online will take us within that range even with a significant decline in print revenues. On our objectives on margin and efficient capital structure the ambitions were met, and with the proposed dividend of SEK 5.20 we also deliver on our dividend policy.
Eniro’s business developed well during 2007
We started out 2007 with launches of new versions of our websites in all countries with new design and improved functionalities such as aerial photographs and video search. The new sites were well received and resulted in a healthy two digit traffic increase on most of our sites compared with 2006.
An organizational split of our online and print business was implemented in Sweden during the first quarter and in Finland and Denmark during the third quarter, resulting in increased sales focus and aiming at shortening the time to market within product development. We expanded the sales forces in most markets in order to increase market penetration, especially within online. The enlargement of the sales force is resulting in increased order intake necessary to grow our revenues going forward.
In order to strengthen our position as the leading Nordic online search company, the leading online directory company in Denmark, Krak, was acquired. Through this acquisition we now have the leading online position in Denmark and the combination of Eniro and Krak will create a very strong platform for accelerated online growth in Denmark. By combining Eniro’s strong sales force with Krak’s leading traffic position, we will create an excellent position in the fast growing Danish online market. With the acquisition of Krak we have very strong online positions in Sweden, Norway and Denmark, and a good position in Finland.
We continued to work in all our markets with our sponsored links offering, which makes it possible for us to broaden our customer offering and use more sophisticated price models. Sponsored links offerings have been launched in all our markets during the year. The acquisitions of leta.se and 48 percent of bubblare.se during the first half of 2007 were also made in order to strengthen our traffic network and extend our traffic network reach.
In 2007, 1.8 billion searches were performed in Eniro’s Internet networks and traffic to Eniro sites in the various countries continued to increase. Internet revenues continued to show strong growth in all markets. The share of Internet revenues, as a proportion of total revenues increased to 31 percent compared to 25 percent in 2006.
Within the directory assistance, our new service concept introduced in 2006 with broader services continued to develop positively and we succeded in increasing our directory assistance market share in Finland. With the demand for a higher level of service and the increased use of mobile phones, we foresee stable development of directory assistance. The introduction of new concepts and services contributes to increasing revenues from this type of services.
Concerning our printed products, we are constantly working with product development to stimulate usage while increasing the effect of the advertising. We continued the work on demonstrating the value of advertising in our directories to advertisers. In 2007, the revenues from Eniro’s printed directories continued to decrease and the print development in Norway is still demanding. At the same time, our dependency on print revenues is declining as the revenue shares from Internet advertising is growing. However, we are convinced that printed directories will continue to fill a great need for both users and advertisers for a long time. Our challenge lies in increasing usability as far as possible while enhancing the offer to advertisers and stimulating demand for printed directories.
We work actively to minimize Eniro’s environmental impact. In 2007, Eniro AB and Eniro Gula Sidorna AB were environmentally certified, and the objective is to certify all Group companies. Toward the end of the year, Eniro Norway conducted an environmental audit to identify the environmental impact of its directories and to assess their benefit to society. The same analysis will be performed in Sweden during the spring of 2008.
In line with our strategy to focus on the Nordic markets, our German business Wer liefert Was? was divested during the period. In conjunction with the divestment a loan agreement was signed, replacing Eniro’s previous loan agreement with the purpose of financing the current operations and enabled the cash distribution to our shareholders of approximately SEK 2,000 M that took place in December 2007. At December 31, 2007 Eniro had a net debt in relation to EBITDA of 4.8 excluding capital gains.
Operating income before depreciation (EBITDA) for the year increased by 2 percent to SEK 2,266 M (2,220), including capital gains of SEK 140 M. Our market outlook for the year was achieved and the operational EBITDA-margin was 34 percent. Net income from continuing operations amounted to SEK 1,123 M and the dividend proposal to the Annual General Meeting means that 75 percent of net income from continuing operations will be returned to the shareholders.
Future
Eniro will continue to strengthen its position as an online company, with a print heritage and continued strong performance in Internet will more than offset the decline in print revenues. With a strong organization based on skilled and loyal employees to whom I wish to extend my warmest thanks, I am convinced that the company’s ambition will be reached in a mid term period and that Eniro will be able to increase shareholder value over the coming years.
Stockholm, February 2008
Tomas Franzén
President and CEO
1) Eniro proforma including Findexa and excluding Wer liefert Was? (WLW).
2) EBITDA excluding capital gains and restructuring.
Last updated: 2008-04-25