Solocal : One new card to play?

Financial results in 2017 were, unsurprisingly, in line with those in previous years: there is still no operating recovery. - Eric Boustouller, recently appointed CEO of the group, has unveiled a new strategic plan for the period 2018-2020 that is more aggressive than previous ones, both on technical/marketing subjects (redefinition of the client offer, optimisation of technological platforms and client follow-up processes, etc.) and on job cuts (22% of the workforce). The objectives are to slash costs (target of € 120m of annual savings in 2020 vs. 2017 for a total cost of € 180m over the period), to restore growth and to boost profitability now that the balance sheet is healthier (leverage cut to 1.7x following the debt restructuring finalised in March 2017). - These measures are a step in the right direction, but there is some execution risk given that employee relations are likely to be strained in the months ahead. 2018 will be a transition year and we do not foresee the first signs of an operating upturn until 2019, followed by a more marked improvement in 2020, when we expect FCF generation to turn positive again after two years in negative territory. - - >Support factors - - Very strong and constantly improving audience figures. The group is ranked in the Top 10 Web destinations.- Dynamic growth in digital marketing (sales up 18% in 2017). - Presentation of a more convincing new strategic plan than previous ones.- The debt restructuring has eased the balance sheet (only one € 400m bond coming due on 15 March, 2022).Points to watch - - Results weakened further in 2017. Sales continue to fall (steady drop in client numbers and pressure on ARPA), as does EBITDA (-15% after -15% in 2016 and -10% in 2015).- Pressure on ratings following the weakness of 2017 results. - Execution risk on the new strategic plan (in particular, the risk of industrial disputes and its impact on the business, should not be overlooked in SoLocal’s case).- Structural decline in the print & voice division, raising questions about its future within the group’s business scope. SoLocal has said a decision will be taken at the end of 2018