Annual report 2008
CEO Jesper Kärrbrink's comments on the Annual report 2008
From print dependency to online opportunities
Dear Shareholders,
From games to directories, from print dependency to online opportunities. Sometimes the world is full of surprises. Although I have always been a frequent user of Eniro’s products, I had no idea what an exciting company was behind all the fast and accurate answers I obtained when dialing 118 118, searching the directories with their characteristically soft, yellow paper, or browsing the relevant search results on eniro.se. I was just like nine out of ten Swedes, a regular user of Eniro’s products.
Now I am one of almost 5,000 employees and know considerably more about Eniro, including the fact that our presence is equally strong in Norway, Denmark, Finland and Poland. We are the market leader in local search. We have over 500,000 customers and millions of end users. We print over 25,000,000 directories and generate more than 4,000,000,000 online searches. We generate over SEK 300,000,000,000 in transaction value for our customers. We have a sales force of more than 2,000 sales representatives, who make over 3,000,000 sales contacts each year. Last but not least, we distribute a printed product that has the same environmental impact as approximately 3 dl of skimmed milk. So I was humble before the task and very proud to accept the position of CEO at Eniro on June 1, 2008.
The new strategy – from print dependency to online opportunities
Like all companies, Eniro faces challenges – the most obvious being the transformation from analog to digital distribution. We are at a historic point in time. We are witnessing the end of paper’s thousand-year era as the dominant form of distribution. The more basic the information, the faster the transition to the Internet. For us, it is clear – paper will continue to have a strong position over the next five to ten years, but we cannot be dependent on it; From print dependency! At the same time, it is not sufficient to simply publish the directory on the Internet. We need to go further and make searches more relevant; To online opportunities!
Yet paper, as well as the telephone and the Internet, are only distribution channels – our main business is bringing people together and connecting buyers to sellers. We do this through our database. The database is what generates a transaction value of SEK 300 billion per year. The directories and voice services, Internet and mobile services are only distribution channels. However, they are important – our product development, business models and customer relations are based on our distribution channels and will remain so for many years to come. The future split of revenues between distribution channels will change over time, but the key to Eniro’s future success is in the development of new products and distribution channels that will leverage its key assets, the database and the sales force.
Using this as a starting point, an extensive internal and external review was conducted over the summer and autumn to chart the way forward for Eniro. The new strategy for Eniro was presented at a Capital Market Day in Copenhagen in November. The strategy is straightforward. We will use our strong position to improve Eniro’s growth opportunities over the long term and transform Eniro from its print dependency by taking advantage of all online opportunities.
Transformation [going from one physical form to another] is the key word in our new strategy, but it must be based on our core business: local search. In other words, our business concept is to connect people to people and buyers to sellers through a rich, unique, relevant and qualitative database. We will expand by taking advantage of our business concept, our strong position, strong cost structure, and strong local presence. In order to truly succeed, we have decided to approach this transformation as a project; a task to solve, with a clearly defined starting point and an equally clear end point. The transformation will take place over a sevenyear period, including an initial investment phase during the next two to three years.
The strategy rests on the following:
- A market leading sales force and strong customer base
- A unique, rich, qualified and transaction-generating content database
- One directory business with a channel-driven organization
- Strong local presence
- Future-oriented consumer and customer-driven product development
- An organization and people aligned with the mission
- Enhanced strong brands
- Organic growth, strategic mergers and acquisitions and co-operations
- Operational efficiency
This can also be expressed in another way. Within seven years, our ambition is to increase profitability while growing from 40 to 80 percent online revenues, from searching for basic information to transaction-driven searches, from the customer perception that the company must be in the directory to exist to a conviction that it must be in Eniro’s database, if it does not want to loose business. Eniro wants to move from having what is today a good database to the best and most relevant database in the world in terms of local searches, and from what is perceived as a traditional, sometimes boring yellow pages company into an exciting, future-oriented media company.
New organization will deliver results
In order to be able to deliver according to our new strategy, Eniro needs a different organizational structure; Eniro was thus transformed from a holding company structure to a corporate structure with a clear combination of both increased centralization and decentralization. The seven-year mission, which is my responsibility to realize, is broken down into individual tasks for all managers and employees within the Group. This allows us to achieve two things: an expanded operational mandate and increased responsibility. This ensures that everyone is heading in the same direction and creates strong momentum. The new organization is designed to capture the product development as well as the geographical dimensions of the business.
Eniro is also divided into three strategic business areas with profit responsibility: Online, Offline Media and Voice.
There will be a continued strong focus on the national markets, where local implementation will take place. A matrix organization has been created in order to be able to focus on both the opportunities within each of the segments, as well as on the local markets. The business areas will be responsible for the segmentation strategy for the entire Group and will have ownership and development responsibility for products and concepts. The organization within each country is responsible for implementing the strategies, sales, marketing, business operations, co-operations and content aggregation, as well as local support functions IT, HR and Finance. The Swedish subsidiaries, Din Del and 118 118, will be part of the Swedish organization. As part of the new strategy and the new organization, areas for potential synergies and increased efficiency have been identified. An overall review of the Group’s cost structure was initiated at the end of 2008. The Group-wide review will be completed by the end of June 2009, and it expects to result in substantial cost savings over the coming three years.
New financial targets
Eniro is in a period of transformation, and our new strategy focuses on strengthening our position over the long term. New financial targets – long-term and shortterm – have been established to deliver shareholder value and lower the financial risk. By investing over the next three years in the development of online opportunities, Eniro expects that revenue growth in online will offset declining revenues from print, resulting in a strong online position with top-line growth of 3–5 percent over the long term. The target for the operating margin before depreciation is above 30 percent, with continued strong cash generation. To lower the financial risk, the target for net debt in relation to EBITDA is revised to 3–3.5. Eniro’s revised dividend policy states that up to 50 percent of the year’s net income may be distributed to shareholders. Medium-term financial expectations Over the medium term during this investment period, Eniro expects annual online growth of 12–15 percent and a controlled print decline, resulting in top-line growth of 0–2 percent each year. Annual investments to capture opportunities in online operations of up to SEK 250 million are expected to reduce the EBITDA margin to around 27 percent in the medium term. During this period, reduction of net debt will be given priority over dividends.
In 2008, we entered one of the worst financial crises ever. Historically, Eniro has been more resilient to fluctuations in economic cycles than many other companies, but we are not immune. In the current economic environment, we see no reason for changing our financial targets for the medium term. However, due to better visibility of our online projects, we have lowered our online investments estimates for 2009 – from up to SEK 250 M to approximately SEK 180 M.
Dividend proposal
The revised dividend policy states that up to 50 percent of the year’s net income may be distributed to shareholders. The Board of Directors will propose no dividend for 2008 as a consequence of the negative full-year net income followed by write-downs and the financial target of a lower net debt.
Summary
Eniro is a solid company with great people who have done terrific work during the year. We have launched a new transformation strategy to move from print dependency to online opportunities, from a holding structure to a Group structure to find synergies and cost savings – all to create long-term growth. 2008 has been an exceptional year, which in many respects has been characterized by one of the deepest financial crises ever. The media sector has experienced a sharp slowdown and further declines in total advertising expenditure are to be expected during 2009. So far, the crisis has only marginally affected our core business, but in this uncertain macro-economic environment we need to be prepared for any potential changes that may impact our business. We will pursue Eniro’s new strategy for transformation with a clear view of where we are heading, but while having one foot on the gas pedal, we will also have one foot ready to hit the brakes if needed. In 2009 we will continue to focus on developing and improving our core business, implementing synergies and achieving cost savings to continue our offline-to-online transformation. I wish to thank all Eniro employees. I am very proud of what we have accomplished so far and I am tremendously excited to take the next step forward in transforming Eniro.
Stockholm, February 2009
Jesper Kärrbrink
President and CEO
Last updated:2009-04-14