Good day, and welcome to the Schibsted Group Q4 2017 Q&A conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jo Christian Steigedal. Please go ahead.
Good afternoon. My name is Jo Christian Steigedal. I'm the Head of IR in Schibsted. A warm welcome to you from snowy and icy Oslo, to this Q&A session in connection with the presentation of our Q4 report for 2017. Thank you very much for joining. Together with me, are our CEO, Rolv Erik Ryssdal, CFO, Trond Berger, and Espen Vestheim from the IR team. Let me also briefly remind you that we have the webcast presentation in Oslo this morning, and the recording is available on schibsted.com/ir. Now I'd like to hand the word over to Rolv Erik Ryssdal for a short introduction.
Thank you, Jo Christian, and welcome to all of you. Together with the team here, I'm looking forward to discussing our Q4 report with you. Let me first give you some introductory remarks. Q4 represents the conclusion of a strong 2017 for the group. We've delivered a profit improvement throughout the year, and in Q4, our EBITDA increased to 39%. Looking at online classifieds specifically, which represents most of our earnings, the profit improvement was even better. The encouraging thing and the important thing is that the growth is also in the verticals. The growth is in the verticals cars, real estate, and jobs, and this goes for all our main markets, France, Norway, Spain, and Sweden. We are constantly focusing on product development in our live sites, and one of the most potential objective is to better serve the needs of our professional customers.
Here we see a significant potential also going forward, which should lead to increased monetization and our strong traffic position. Margins in our developed markets improved in Q4. There are always some fluctuations in the margin picture from quarter- to- quarter. France, for example, had a drop in EBITDA margin in Q4 as a result of some large marketing campaigns in the quarter, resulting in improved traffic development. Spain, on the other hand, had a significant margin improvement. Our investment-phase assets are developing well, and as we guided for, the trend of reduced losses continue. This will be the case in 2018 as well. We're happy to see that several of the sites are very close to break even.
One example is Brazil, where the core business in OLX was positive in Q4, whereas some minor investments in a supplementing real estate site called Historia Imóveis just tipped the total over to the negative side. In 2018, Brazil and a few of the other investment-phase sites will deliver profits. We expect to continue to invest in the Native App Shpock. The development is positive, especially in the UK, and we're eager to see the results from the experiments they are doing on monetization right now. Our publishing operations delivered good results once again. The growth in digital subscribers continued, and our product focus within digital advertising is bearing fruit, leading to a solid digital revenue growth in publishing. We're developing our publishing operations towards long-term viable digital businesses, and we need to further strengthen the two revenue sources, at the same time adapt the cost base.
The very foundation of this is our high-quality independent journalism. Before wrapping up these introductory remarks, just to say a few words about Schibsted Growth. This is a group of online companies that has developed very well over the last few years and lives very much up to its name. The star performer is Lendo, which continues its profitable growth. As of Q1, we will start reporting Schibsted Growth as a separate segment with the goal of creating some more transparency regarding these exciting assets. Now I'd like to hand the word over to our operator who will organize the Q&A session. Operator, please go ahead.
Thank you. If you would like to ask a question.
Operator.
Yes.
Yeah, sorry. I just was informed by some other dialers that they were still on hold. Please could you double-check that and make sure that everybody is on the line?
Yes. We do have additional operators trying to answer the phone lines.
Yeah, because there's a lot of people on hold now. If that's the case, I suggest we wait for a minute before we proceed.
Yes, we can definitely wait. Okay, thank you for your patience. We do have all of our participants in the call now.
All right.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star one if you would like to ask a question. We will take our first question from Silvia Cuneo with Deutsche Bank. Please go ahead.
Hi, everyone. I have a few questions. First, on Shpock. Here in the UK, we're seeing good traction and increased brand awareness. Are you seeing a similar improvement in other countries? Can you also please give us an update on competition from Facebook Marketplace and letgo? Second, on Brazil. This morning, you mentioned you are developing a new brand in the real estate vertical. Can you please explain what's the rationale for that and why you're still confident about profitability in 2018? On the professional verticals for the whole online portfolio, can you comment on the revenue growth? Have the new premium features driven an acceleration compared to the previous quarters? Finally, the last one, on the acquisitions pipeline.
Can you please talk about which type of opportunities you are exploring in existing markets or new ones? Is that in the aim of taking full control or maybe signing joint ventures? Thanks.
Right. Okay. Let me start then. I think I'll start actually in reverse order, if that's okay with you. On the acquisition pipeline, I would say that we are constantly surveying the markets we operate in and look at what could be good fit to our existing operations. That means that our top priority is to do acquisitions in markets that we're already in and that are adjacent or that fits nicely with our existing businesses. Sometimes we also look at things in neighboring countries, but it's really the footprints we already have that we're looking to expand and build stronger positions in markets that we are. You mentioned the vertical products. I think I'd like to comment on that because that's really the very core of our strategy.
Most of our product efforts and technology efforts goes into strengthening our vertical products. You've seen it last year when we introduced in France a number of things on such dealer dashboards, performance dashboards for real estate brokers, messaging notifications, et cetera. That is the most important part of the development work we're doing. I don't think we released specific figures for what could for what one new feature leads to, but the way it goes is as you have discussions and negotiations with the car dealers, with the real estate brokers, of course, when we can offer a broader package, a better package, there's also room for a better price improvement.
This will continue to be at the core of our strategy to develop better tools for the professional customers in order to help them more efficiently get leads. When it comes to Brazil, I'm very happy with what we've seen in development of Brazil and the growth we saw last year. We did advise in the beginning of last year that in order to strengthen the offer we have in the real estate sector, we would develop a new site called Historia Imóveis, as mentioned. What we've done there is to do a separate site there, but we bundle the products together so that the real estate brokers will be able to then buy packages, which includes both the new sites and also OLX.
We believe that in a huge market like Brazil, it's good to have a separate real estate product as well. We believe that that is a very good investment. When it comes to the Shpock, I would say it's the market we're focusing most on is UK, as you mentioned, and that's where we're seeing also the most positive development. We're seeing also a good development in the other markets, our focus market is really UK. That is where we're investing most in marketing, also giving the best results. So far we haven't in any of our larger markets, we haven't seen any impacts of Facebook. What we're seeing is that what they're doing in general seem to expand the total market size.
They've been pretty big in Norway for a number of years with their Facebook groups. It seems to us that they're expanding the total market, so we haven't seen any negative effects on traffic or revenue there. I think you specifically mentioned also letgo. I think that, you know, we saw more of a competition from letgo in the Norwegian market one year back than we're seeing today. We don't meet that native app in too many markets. I believe they're also focusing a lot of their efforts in the U.S., the market we're not in. I hope this is the answer to your question.
Yes, thanks. Maybe just a follow-up on the professional verticals. In Q3, you gave a useful number showing 20% growth overall. Do you have an update on that for Q4?
You said 20%? I'm sorry, I missed, I missed exactly what you said. You said 20% growth in what?
In the verticals.
Oh, yeah. Okay. Sorry. That was the growth rate for the verticals, revenue growth rate in the classified. That was 22% in Q4.
Okay. Is the accreditation coming from any verticals in particular, like car or jobs?
I think we're seeing a positive development in France in all of the verticals, and it's also going well in the other big markets. I would say that in Sweden, we see cars and also real estate, no, sorry, not real estate, but jobs, growing quite rapidly. In Spain, we've had a very positive development in motors and jobs. In Norway, we've seen it a little bit all over the verticals.
It's also fair to say that the flattish development that you see in Sweden, that's due to, of course, the weak display market, and also Service find it is driving a bit the figures there. The underlying growth is very healthy, important to point out.
Okay, thanks.
We will take our next question from Lisa Yang with Goldman Sachs. Please go ahead.
Good afternoon. I have a few questions, please. Firstly, on leboncoin, clearly the margin decline, you know, of 500 basis points in Q4 was a bit of surprise, even if you have guided to lower margins. Just wondering, you know, what should we expect then for 2018? You know, could margins, you know, stay around flat? Also, I was wondering how much was the contribution or the dilution from M&A that was in the number Q4, and what should we expect for 2018? That's the first question. Secondly is on your CapEx. It has increased a lot in the last three years. I think it's about 5% of sales today.
How should we think about your capital intensity going to 2018 and afterwards? What whether it's the normalized level. Related to that question, given you have invested a lot in new products, when could we start to see more meaningful boost to your revenue growth in 2018 from the rollout of these new products? Which particular market should see the most benefit? My last question is on your investment phase losses. I appreciate you say will further come down in 2018. I'm just wondering, if I look at the run rate of the improvement was about EUR 20 million in H2 versus H1 in 2017. I was wondering if we could see the similar run rate in 2018, so EUR 40 million lower investment phase losses. Thank you.
Okay. Start with the first question, leboncoin margin. Fair to say that this question we get frequently, and we don't guide on the margin going forward in leboncoin. If you look at the Q4 , it was of course affected as Erik told in the presentation also that Q3 we would have some extra marketing activities in Q4, and that exactly also which you see the effect of in the Q4 figure. I think that what is important for us is that the underlying growth in the verticals is very healthy in leboncoin, and we also see a continuous growth both in traffic in Q4 and also a promising development in the start of 2018.
If we go to your question about M&A activity, I think we have limited effect of that. Fair to say that they have a slight effect of AL and Kudos in leboncoin in Q4, which has a minor, obviously very minor effect on the dilutive effect on margin. Other than that, in our figure, it is fairly comparable figures all over. Going to the CapEx. The CapEx has increased somewhat as first of all, the result of increased activity, and also we have stepped up some of the product and tech as we have communicated. What we have said going forward is that, first of all, the pure maintenance CapEx really is at lower levels and continue to be that.
The product and tech, we have said that in 2018, that will be at the same level or slightly down in 2018. That's been the situation. Going to new products and new revenue growth as a result of the product and tech, I mean, we have actually implemented a lot of new functionalities on some of our verticals, like dashboard, like messaging system in leboncoin. The latter is something that we have really seen a quite good boost of effect peer-to-peer. We have other in our pipeline. I think you will typically see this in the revenue growth in the verticals and some in advertising.
Because advertising is structure shift in the market, as you know. Going to the losses in 2018. We have said to the market that that will go continue to go down. We are hesitant to be precise on guidance due to competitive situation. I think that we are fairly also happy with what we see as market consensus in this context.
It will go markedly down. I'll also say, although we don't give exact guidance on the bottom line and so forth, I mean, we're happy with the developments we're seeing in the big sites. It's also the law of the big numbers. When we develop new vertical initiatives, many of those will be centered on the big sites, and that's also where you then will expect to see revenues effects, mainly coming from new tools.
Thank you. Can I follow up on one of the questions that was asked earlier on M&A? I mean, clearly, you know, you raised $200 million recently, you might get more cash from the potential sale of Lendo. Just wondering, you know, is it because you have, you know, in mind, like, a larger deal in the short term, or you're just seeing a series of, you know, bolt-ons, and you want to continue to do that? In terms of, you know, the in-market consolidation, do you see more opportunity in the developed market, in the developed markets, or in the investment phase, markets? Thank you.
To answer that last question, it's more in the developed markets we're looking for opportunities. Your first question on the acquisition targets, I expect there to be a number of consolidation opportunities in the time to come. We want to be positioned in order to take part of that. We're looking at, I would say, a series of different opportunities. We're constantly reviewing those markets. Of course, we will also want to be in a position where we can take a larger bite if that is if that fits well into our strategy. We want to be well-positioned to be a leading player in that market consolidation, which we expect to continue.
Great. Thank you.
We will take our next question from Catherine O'Neill with Citi. Please go ahead.
Yeah. Hi, I've got a few questions, sorry. Firstly, I think in each of the markets, there was comments about display advertising continuing to be soft. I just wondered with the GDPR coming in from May, whether you expect display advertising markets more broadly and for your own sites to worsen or to be impacted by that specifically? The other question I have is on sites that may break even. You've talked about some sites that are close to break even or expected to be close to break even in 2018. Could you give us a bit more detail on that, which markets or which sites those are? Mexico, I don't think you've talked much about Mexico, but it's also one of the markets where there's the losses continue.
Could you just talk about the competitive landscape in Mexico and how long you expect that country to take to reach break-even levels?
Right. When it comes to your first question, of course, we're, we are working hard on our sites in order to be compliant with the GDPR that comes into effect in towards the end of May here. We believe that our sites are prepared to do that. I think, I think that, it's important for us then to have the opportunities for consumers to opt out, et cetera, and control their data. I think we will be able to do that. We don't expect any big revenue impacts in the short term as on this. I think it might also present some new opportunities going forward.
We're also working hard to be compliant on the ePrivacy Regulation that we expect to come in 2019. I think that we're in good shape there. Otherwise, you mentioned the countries that will be more break even. We're looking at Brazil is already mentioned, and then we got a few some sites in Europe or the smaller sites that Finland, for instance, and Hungary, that we expect to be able to break even. In Mexico, it's a big market. It's not very well developed, and we're seeing it taking time. It's taking a longer time than what we expected a few years' time. We believe it's important to have some resilience there.
We can see that Mercado Libre is strengthening their position. We've also noticed that I said that we have not been impacted by Facebook in any of our bigger markets, but we're seeing in Mexico that Facebook is having a positive development. We're watching that closely. We believe that we have to be resilient, and we see actually some traction there now among professional customers.
I had one more question, actually. I mean, you've obviously got opportunities for M&A, but are there any markets or verticals within markets that you are planning to sort of de-emphasize or sell off, I'm thinking sort of Servicefinder in Sweden that's obviously been a drag for some time?
Yes, I think, you know, I think we've said, we've proven historically that we are interested in having a good portfolio of number one players. Our sites need to have a clear path to that position. I think Servicefinder has been a huge disappointment the last couple of years, and I think it will, of course, we'll need to see a clear path to improvements, and to get a clear number one position for that site if we're going to continue to invest in it.
Okay, thank you.
As a reminder, it is star one if you would like to ask a question. Our next question comes from Preeti Sukha with Standard Bank. Please go ahead.
Hi, sorry. I just wanted to find out, in terms of OLX Brazil, were they EBITDA breakeven in Q4 2017? Well, not profitability. Are they expected to be EBITDA positive in FY 2018 as well?
The short answer to both questions would be yes. To be a bit more nuanced, we definitely expect it to be positive in 2018. When it comes to the last quarter of 2017, the OLX site was in a breakeven, whereas we have also invested in a new real estate site in Brazil called Estoril Imóveis. The combination of the two led to a slight negative result. We expect them to be positive in the year to come.
Okay. That's not bottom line, it's just EBITDA, right?
That's the EBITDA is what we're referring to. Right.
Okay. How would you be able to disclose the financial performance numbers in terms of OLX Brazil in terms of revenue and EBITDA?
Well, we, not for 17 of course, only that we have said breakeven. That is something that we may consider, now we're coming into Q1, as we will also give some new segment information. That's actually not finally decided, but it may be this, the case, yes.
Okay. All right. Thank you.
As a reminder, it is star one if you would like to ask a question. We have no additional phone questions at this time, so I would like to turn the call back to our speakers for any additional or closing remarks.
Yeah, well, please, if you have any questions, take the chance now. Otherwise, we thank you very much for participating. We are of course both in the IR team and management also, we are available for further discussions, please let us know. Are there any final questions?
As a reminder, it is star one if you would like to ask a question. We do have a follow-up question from Preeti Suka with Standard Bank. Please go ahead.
Hi. Sorry. I have one last question. In terms of the markets that will be breakeven in 2018, are any of them JVs with Naspers?
Now, the markets that Per mentioned, OLX is well, certainly Brazil is a JV with Naspers, 50/50. Finland and Hungary is 100% owned. Also we have Chile that also may be in that breakeven position, but that's also 100% owned by Schibsted.
Okay. All right. Thank you.
We have no additional questions at this time.
Okay. We say very thank you very much from Oslo, and we'll be in touch later. Thanks. Bye.