Rating action

Scope Ratings GmbH (Scope) has today affirmed Norway-based media company Schibsted ASA’s issuer rating of BBB/Stable. Scope has also affirmed Schibsted’s short-term debt rating at S-2 and senior unsecured debt rating at BBB, in line with the issuer rating.

Rating rationale

The affirmation is driven by continued strong market positions, particularly in Nordic Marketplaces, which continue to shape profitability and cash flows. It is also driven by good financial flexibility and a lower-than-expected year-end 2022 leverage, following Schibsted’s 5% divestment of Adevinta shares in H2 2022, generating NOK 4.5bn in total proceeds.

The company’s business risk profile (assessed at BBB) continues to reflect Schibsted’s strong market positions in news media and digital marketplaces in the Nordics. Schibsted’s portfolio continues to include some of the best-known newspapers like VG (NO), Aftenposten (NO), E24 (NO), Aftonbladet (SE) and SVD (SE). Further, it includes strong online-marketplace brands like Finn (NO), Blocket (SE), DBA (DK) and Tori (FI). The online-marketplace brands hold leading positions in their respective verticals like mobility, jobs, real estate, and e-commerce. This means that Schibsted is a part of Nordic inhabitants’ daily life, from reading the news to finding new jobs or going on holiday. That generates strong brand awareness, and the company has an estimated 3.3m daily logged-in users and 1bn monthly site visits. In Sweden and Norway an estimated 80% of the population is reached every week. The leading position online is reflected in strong and stable historical EBITDA margins of around 40% from Schibsted’s Nordic Marketplaces segment. In contrast, the News Media division is trying to combat the declining demand for traditional print media by increasing its digital sales. This decline was further exacerbated by 2022’s energy crisis which led to increased costs for printed media and lower demand from cost-conscious consumers opting for freemium¹ online news. Consequently, Schibsted’s News Media segment reported a 1% top-line increase in 2022, despite a strong 20% YoY growth in digital subscribers. Lastly, the company’s Nordic focus continue to limit its geographical diversification which continues to be the weakest aspect of the business risk assessment. That is in part mitigated by the financial robustness of the Nordic economies and the technological savviness of the Nordic consumer.

Schibsted increased its top line by 4% in 2022, primarily driven by 16% top-line growth in Nordic Marketplaces which experienced satisfactory momentum across verticals, whilst the remaining segments reported flat, or negative, top-line development. Nordic Marketplaces also continued to shape Schibsted’s performance, with an EBITDA margin of 39% (vs. 43% in 2021) which significantly dampened the effects of heightened energy prices and inflationary pressure across segments. Consolidated, Schibsted reported a lower EBITDA margin of 15.8% for the year, below the 17.7% projected during Scope’s previous review. As 2022 progressed, Schibsted decided to refocus its efforts from non-organic growth towards building its Nordic core portfolio. It also achieved several milestones, like the implementation of a vertical-based operating model (as opposed to geographical) and a new pricing model within real estate in its Norwegian marketplace, Finn. In addition, towards year end Schibsted divested 5% of its stake in publicly listed Adevinta, with the remaining 28.2% stake valued at NOK 25.2bn as of May 2023. This led to total proceeds of NOK 4.5bn, most of which was held as cash reserves at year-end 2022.

Consequently, Schibsted’s financial risk profile (assessed at BBB) ended the year slightly stronger than projected during Scope’s previous review, as exemplified by a Scope-adjusted debt/EBITDA ratio of 2.2x (vs. 2.8x projected). Scope favourably notes the financial flexibility provided by Schibsted’s Adevinta stake, and the now-proven willingness to divest those shares if needed.

Going forward, Scope expects leverage to gradually increase but remain below the higher end of Schibsted’s stated NIBD/EBITDA (ex. lease) range of 1.0x-3.0x (1.3x at YE 2022). The increase will be driven by continued capital expenditures, gradually increasing dividends and an announced NOK 1.7bn share buyback programme. Similarly, Scope expects EBITDA margins to remain below historical averages for 2023 and parts of 2024, driven by cost inflation, lower advertising revenues and a shift towards lower profitability products as cost-conscious consumers face inflation and rising interest rates.

Positively impacting the profitability is Schibsted’s increased presence within mobility. The Mobility vertical is margin accretive with EBITDA margins ranging from 48%-50% and will continue to help the company’s EBITDA margins. Scope also expects the vertical-based operating model to create synergy gains over time, but as it went live in January 2023, there will not be immediate short-term gains. In sum, although below historic averages, Scope projects continued good EBITDA margins, slightly below last year’s projections, ranging from 15.9% in 2023E to 19.1% in 2025E. Scope also expects continued good financial flexibility, with Scope-adjusted debt/EBITDA ranging from 2.8x in 2023E to 2.1x in 2025E. Lastly, the agency expects Scope-adjusted free operating cash flows (FOCF) to remain the weakest element of Schibsted’s financial risk profile assessment, as exemplified by Scope-adjusted free operating cash flow/debt ranging from 9% in 2023E to 14% in 2025E.

Liquidity is adequate, with cash balances of NOK 2.7bn available end-March 2023, further enhanced by over NOK 3bn in unutilised, committed credit lines and projected positive operating free cash flows. Moreover, Schibsted continues to benefit from further potential liquidity derived from its substantial Adevinta shareholding. At year-end 2022, total gross debt could theoretically be repaid by selling off parts of Schibsted’s holdings, even at arguably low share prices.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that: i) Schibsted will continue its consolidation of the Nordic market but at a slower pace than in recent years; ii) that Nordic Marketplaces will continue to shape Schibsted’s performance and cash flows; iii) that profitability in 2023 will be below historical averages and gradually recover towards 18% in the medium term; and iv) that Schibsted will continue to grow its digital media offering to combat the decline in traditional media. Scope also expects that the company will continue its prudent financial policy and maintain credit metrics consistent with the rating category and its own financial targets.

A positive rating action could be triggered by an improving financial risk profile, exemplified by Scope-adjusted debt/EBITDA at or below 2.0x, sustained.

A negative rating action could be triggered by a weaker financial risk profile, exemplified by Scope-adjusted debt/EBITDA at or above 3.0x, sustained.

Long-term and short-term debt ratings

All debt is issued by Schibsted ASA.

The senior unsecured debt rating has been affirmed at BBB, in line with the issuer rating. This is based on the company’s standard bond documentation, which includes a pari passu and negative pledge.

The S-2 short-term debt rating has been affirmed, reflecting the issuer rating, as well as the company’s strong short-term debt coverage and continued access to bank and capital markets.

1. A sales strategy, especially on the internet, in which the basic product or service is free, but customers are charged for additional features and content.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (General Corporate Rating Methodology, 15 July 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Michael-Marco Simonsen, Associate Director
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 23 August 2021. The Credit Ratings/Outlooks were last updated on 16 June 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
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