Good day, and welcome to the Schibsted Media Group Q3 2015 Q&A conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jo Christian Steigedal. Please go ahead, sir.
Good afternoon and welcome to this Q&A session in connection with the presentation of Schibsted's fourth quarter report for 2015. Thank you very much for joining us today. My name is Jo Christian Steigedal. I'm the Head of IR in Schibsted Media Group. Together with me here in Oslo are our CEO, Mr. Rolv Erik Ryssdal , our CFO, Mr. Trond Berger, and IRO, Anders Rønning. I'd now like to hand the word over to Rolv Erik Ryssdal for a short introduction.
Thank you, and welcome everyone to this Schibsted Media Group Q4 conference call. I'll soon open up for questions, first I would like to make a short introduction to our results. Schibsted delivered a good quarter. The growth in both revenues and users is strong for our online classified operations. The reported numbers are to some extent helped by currency tailwind, even underlying numbers are good. We are particularly pleased to see another quarter with 20% growth in two very important countries for Schibsted, France and Spain. In France, we experienced a very good end of 2015, with high activity in the display advertising segment, as well as great performance by our sales team in real estate. At the same time, we're seeing that their product development on mobile is well received in the market.
There are positive signs with respect to the number of mobile users who choose to pay for premium features. In real estate, more than 70% of the customers of Puissance Trois, the P3, the former [Plon product Sphere], more than 70% have now become direct leboncoin customers. This bodes well for the revenue development in 2016. During Q4, we signed the agreement to acquire 80% of Swedish real estate Hemnet. This is an important event for us, and the transaction is now being looked at by Swedish competition authorities. We'll seek to continue our value-enhancing M&A strategy, and with the strong financial positions we have, we'll be able to move swiftly if the right opportunities arise. We'll also continue to seek online classified growth through organic initiatives and partnerships, both in established markets and earlier stage markets.
During Q4, we've seen continued good development in several emerging markets like Brazil and Mexico. We also see that our native app, Shpock, has great traction in U.K., Germany and Austria. The Shpock concept is attracting new users and a range of items, and hence expanding the online classifieds potential. We believe it makes sense to establish Shpock also in some of our existing markets, and in Q4, Shpock has seen a great pickup among young consumers in Italy. Our media houses, they operate in challenging markets where there is structural decline in print and significant changes in the digital advertising market. Focus is on continued product development, at the same time adapting the cost base. We're succeeding with this. One pleasant observation is that the sale of online subscriptions is growing very nicely.
This means that we're able to keep the circulation revenue stable in the morning newspapers. We have during 2015 ramped up our efforts within central product and technology capabilities. We see that this is more important than ever. We'll continue to strengthen this part during 2016. This will help us preserving our competitive positions and create new revenues in market segments that attract more money every year. Well, with that, I'll conclude this brief introduction. Full presentation recorded on video this morning is available on our website. Now I'd like to hand the word over to our operator so we can get started with Q&A. Please, operator, go ahead.
Thank you. If you would like to ask a question at this time, please press the star followed by the digit one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, please press star one to ask a question. We will now take our first question from Sami Sarkamies from Nordea. Please go ahead, your line is open.
Thank you. I have three questions. Firstly on leboncoin. It seems that growth exceeded your expectations in the fourth quarter. Can you please elaborate on the various factors that drove the speed and their sustainability going into 2016? Secondly, also on leboncoin, you did provide some guidance for the operation after the third quarter report. Do you still think that growth will slow down in the early part of 2016 and then pick up again towards the year-end? Third question related to group technology investments. How should we think about these in the longer run? Should we assume that they continue to increase in 2017 from the level you have provided for this year? Thanks.
Well, thank you. Concerning leboncoin, there were a number of factors that played to our advantage towards the end of the year. In particular, two things stand out. One was that there was a high activity among some of the big French advertisers, specifically within the telecom sector, who actually benefited the big sites, and especially so leboncoin. The other one was that our sales team did a great job and were able to sell out, sell the leboncoin package to more customers than actually had been expected. When it comes to looking ahead, I think it's fair to say that we're sticking to the guidance that we had previously for the full year between 15% and 20%.
I think that's the wisest thing to do without getting into any specifics about how the quarters may differ. The 15%-20%, I think will be a good guidance for the whole year. When it comes to the group technology, I expect there to be a high level in 2016 and then also in 2017. I think in the medium term, actually that, as we're able to develop more platforms, centrally, it will not continue to increase. Trond, do you want to-
No, I think, yeah, I think that what we, of course, are looking at when it comes to the group tech is that we're rolling out then products during 2016, starting now with the self-serve example in that we have in the presentation in leboncoin, and then also products later during 2016 and of course into 2017. In the medium term, we do expect that this should be of course revenues covering the costs. When it comes to the cost isolated, it's fair to say that we should expect 2017 to be higher of course than 2015, and maybe more comparable with 2016. It is still a work to be done because we have also a transfer of internal resources. We have prioritization. It's a little bit too early to be give any good guidance, I would say, more than that.
I think we'll move to next question.
Our next question comes from Alex Balakhnin from Goldman Sachs. Please go ahead. Your line is open.
Yes, good afternoon. Two questions from me. One is on France. I was just wondering as you updated us on the sign-up of the real estate agents, I was just trying to understand, like, are they paying in full already or they're on sort of different promotional pricing still? Is it reasonable to expect, like, the full effect of the addition to be more visible throughout 2016? Probably on the same point, I guess as probably more of those real estate agents contributed towards the end of the year, is it reasonable to expect more contribution of that sign-up from the first quarter onwards?
My second question is on Spain. As your remedies in Milanuncios are to expire in the end of 2016, I wanted to ask you, what have you started to do to make sure that you have a good head start as those remedies expire people-wise, IT-wise, basically to start generating revenues from Milanuncios on professional side? Thank you.
Well, when it comes to leboncoin real estate, we are happy of course with the 70% of the P3 customers that we stated in the report. I think that it went at least as well as we expected when it comes to, so to say the pricing. I think we have some lower pricing than our main competitor, SeLoger, in the markets. It's the same system with yearly contracts and subscription based. And it's also good that during 2015 however, SeLoger raised their prices, so there is no real fierce price competition here, I would say. It is, when it comes to the development during 16, I think that this typically yearly contract starting from the autumn, there is also of course somebody continue to sign during the year, you should see a slight effect during 2016, fair to say.
You're right. When it comes to Spain, I think, you know, I think we got a big sales force and the professional sales force in place. I think we also got a very, you know, good IT department and system. I think that we're well prepared to both for the things we're doing this year and also next year when the agreement you mentioned expires.
Right. Just wanted to follow up on France. Did you have any skew towards the end of the fourth quarter? Like as those subscription revenues are booked, more of that were booked because that's like more months is when those customers are signed up, or it was sort of skewed to the beginning of the first quarter?
Yeah. As I said, the largest portion of these customers was signed during Q4 and towards the end of Q4. Of course, it could be overhang of a few into January, and there will be also some slight additions hopefully during 2016. That's what we can say.
Just very lastly, with your third quarter update, you mentioned that the fourth quarter and first quarter performance, like the growth performance in France would be somewhat lower. With what we now know about the fourth quarter, can you sort of update your guidance on the first quarter as well? It doesn't seem to be decelerating that much as you expected.
As Rolv Erik said, I think we are careful being too precise on the quarterly basis when it comes to guidance because there is always swing factors like it was in fourth quarter, some telcos that run some campaign that actually performed sort of a quarter performed better than we actually foresaw when we had the Q3. You could also see some of this fluctuation in— during 2016. I would say that we are pleased with the development in leboncoin and excited about some of the products that they're launching now, both on the new native app and also the self-service system. Things go well.
Okay, thanks so much.
We will now take our next question from Chris Collett from Deutsche Bank. Please go ahead, your line is open.
Hi, it's Chris Collett from Deutsche. Thanks for taking my questions. First question was just on the investments that you're making, both the consolidators and the JV investments for 2016. I think you talked about some of the investments that you're making in Shpock as well as in Subito. Just wondering where else is the money going? Given that the Shpock and Subito are both fully consolidated, should we expect the joint venture losses to start coming down this year? Then I just had a second question, which was could you just tell us what the fourth quarter growth, you said what it was excluding currency for online, for the online classifieds business that was up 16%. That does include some acquisitions. What was the growth rate excluding acquisitions? Thanks.
When it comes to the investments in 2016, we have guided the market that it will be broadly on the level that we saw in 2015. However, it will be skewed, of course, more towards then somewhat more into Shpock as we said that we are investing in U.K. and Germany. Other countries is that we are sort of not in new units. We continue to invest in Mexico, doing well on traffic. We think it's right to continue to invest in Italy and also some few other markets. All in all, I think we are not really breaking it down further than that. Generally, we can say that we are very happy with the traffic development that we see in all our sites.
When it comes to the growth, it's fair to say, I mean, the 16% ex-currency, and most of that is organically, but there are some effect of the some minor acquisition, fair to say.
Okay, thanks. It was the growth was 13% in the third quarter. Is it similar rates of growth?
No, I think we, because we have some additions, and also we have some that we have. There have been some changes. I don't think we go specifically into a precise number.
Okay, thanks.
Our next question comes from Markus Iwar from Bodenholm. Please go ahead, your line is open.
Hi. Thanks for taking my question. It's on the tech spend. I just want to understand, before you had a lot of the tech investments at the different businesses. Leboncoin had its own tech development and same with Blocket and so on. When this is being centralized, what should one expect kind of all else equal margin to actually go up then out in the different businesses? Is this NOK 250 million-NOK 300 million tech spend, is that net of kind of reducing it by the savings out in the business? Thank you.
Well, the tech spend that we have guided is first of all 2016 level. We are developing against a more centralized product and tech. Certainly, we will do internal transfers. We are just in the process of setting, I mean, doing streamlining of the product and tech organization. I would say that you will see benefits of this going into 2017, 2018. In 2016, this is really the guidance that we have on the cost side. I said earlier that you should see benefits from revenues ramping up some in 2016, also of course more in 2017, 2018, that we maybe are able to cover these costs with the new revenues coming from.
It's a good question. We're centralizing and thereby we're increasing our cost base with the central product and tech. For this year and partly next year, we have to expect that this is kind of that we're actually have some costs both centrally and also in the subsidiaries in order not to lose speed. Eventually after that, it should go down again in the subsidiaries. It's not translating directly this year.
Thank you.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We have here another question. It comes from Rasmus Engberg from Handelsbanken. Please go ahead. Your line is open.
Yes. Hi. Just coming back to the tech costs. Will they be allocated out or should we put them in sort of central costs? Or how should we sort of try and model that?
Oh, it will be central, product and tech, and that's actually what it is. It is centralizing, product and tech, so that's the right way to put it.
Okay, good. Secondly, the cost base in leboncoin is up some 50% in the last three quarters of the year. Can you give us some sort of understanding of where that comes from? Is it marketing, technology, or is it staff relating to the real estate? What is the big part of that increase?
I think we don't really break that down, when it comes to the margin level that you saw in Q4, 56% on, in leboncoin. I think that it will fluctuate from quarter- to- quarter. The fluctuation, first of all, come from I would say, marketing activities. We had marketing push, of course, on the real estate in Q4. We also had a little bit back in Q1 and Q2. So I think that's a normal. It will fluctuate depending on market activity. Of course, no, I don't think we give the breakdown and we won't do that on headcount and et cetera in leboncoin.
Okay. Then another question. Just FINN, the number of real estate ads in FINN was up massively in the fourth quarter because obviously the market slowed down, so the ad stayed longer. How does that impact your numbers?
Well, I wouldn't say massively actually, when it comes to volume. Actually, in Q4, the volume in job was down. But we have some positive price effect on the job, just to take that part first. Real estate actually was also about fairly flat. It shows slightly down in Q4. What we actually have seen in volume in the beginning of 2016 is that it is still somewhat challenging job market, the volume. Actually, the real estate market in— especially in central part of Norway is quite doing well. Few objects being listed beginning, but in general, market is fairly well on real estate.
Okay. I thought there was a... The number of new ads was down, but existing ads stayed longer. I was just trying to understand how that would impact?
No, actually it was slightly up, but I wouldn't call that effect any significant.
Okay.
I think the important part there is that, you know, the real estate market is slowing down, right? People are then keeping them on longer. What we've seen now in the first quarter is that the volume's actually gone down in a couple of parts of Norway, the west coast and the Greater Oslo area. This was a natural consequence of the slowdown you saw last quarter.
Yeah. Can I ask a question which we almost never talk about anymore, but somebody asked me to ask it. What's your take on paper prices this year?
Well, I think that the paper prices is fairly same level as we saw in 2015, right to say.
All right. Thank you.
Which is in a way, bear in mind that you have a substantial currency effects that we have been able to, in a way, compensate for because. Generally the same levels.
All right. Thank you.
Our next question comes from Chris Collett, Deutsche Bank. Please go ahead. Your line is open.
Oh, hi. Thanks for taking the follow-up question. It was just about margins. You had a great margin improvement within Spain. Just wondering if you'd like to give any guidance about what sort of margin improvement you expect for this year and also for France. Obviously, the margin has kind of ranged from the sort of mid-50s up to 70%. What sort of margin should we expect just over the next— over the course of 2016?
Well, we normally don't give guidance on a country level going forward. What I can be a little bit more general on this. What we have said on Spain is that, I mean, you should over time see some margin enhancement in Spain as a result of the revenue picking up. There will be some marketing campaign. Typically, we have rebranded the Vibbo. Start of 2016 may, of course, be some impact to that. In general, going forward, it should enhance in Spain. When it comes to France, I would be hesitant to give too much guidance on that because we are also ramping up, of course, on the job part during 2016, especially towards, during 2016. There are many factors affecting that we need to see [how it goes].
Otherwise, on a general note, I wouldn't put too much, read too much into one single quarter. Either if you look at Blocket or FINN, for instance, the last margins were a bit respectively lower and higher, but I wouldn't read the normal. I wouldn't read too much into one single quarter.
Okay, thanks.
Our next question comes from Alex Balakhnin from Goldman Sachs. Please go ahead. Your line is open.
Yes. Hi again. A short question on Italy. I've been looking at different metrics on the engagement and the traffic and market shares and so on, and overall listings. It looks like your mobile dominance over Kijiji is building up. Also the number of listings is fairly solid as a proportion of the population. It seems like the country is quite well engaged with Subito. I was wondering, like, at similar level, I would probably expect a greater monetization and introduction of more aggressive visibility tools and like progress towards the profitability. What I'm taking wrong here, and what stage are you at in Italy? Thank you.
Well, I think Italy has been a longer journey, obviously, than France. Part of the reason has been that there has been competition from Kijiji. I think we're now more and more comfortable with their relative position towards them. I think the next thing is really to move into the verticals. There we have done quite well on private cars. There's still quite some work to be done in the real estate market where we barely done much so far and also in the— on the professional car side. I think in the next year or two, we'll be much better positioned to move into those verticals. I don't consider the competition from other generalists to hamper us much from that.
Just a quick follow-up here. What do you think were the main drawbacks? Why you didn't develop the professional car tools? If you can elaborate on that, and then you sound like you have quite a good roadmap for the introduction of those. Is that what you're saying?
I think what Erik said is that we have a roadmap for that during 2016, going into the professional car segment, the B2C. Also, I think in Italy, we were somewhat disappointed, especially on the display ads during Q4. That has been a little bit difficult market. We hope, of course, that our products now have more targeting, et cetera, will improve that going forward. I think we are well-positioned, but little bit disappointed about the little slow down in growth rate in the second half due to personal display.
Thanks so much.
Our next question comes from Catherine O'Neill from Citi. Please go ahead. Your line is open.
Thank you. I missed the start of the call, apologies if you have already answered these, actually. I've got three main questions. One is on the media houses where you've obviously had restructuring costs going through. I notice you don't provide margin guidance there anymore. I just wanted to understand what your plan is on cost savings, and if that's all being reinvested and if you're still comfortable with that original margin guidance. Secondly, on the central sort of investment in new technology and products, just want to understand, to what extent is this investment really to sort of protect, I guess, defend that existing display advertising revenue that you have, or to what extent will it drive sort of incremental revenue beyond that?
Finally, I just wanted to get your thoughts on ad blocking and if you're seeing any particular issues being created by sort of the rise in ad blocking.
Okay. Jo Christian here. I can answer your first question on the media houses. You're right that we are reducing, the number of employees somewhat. We're in the middle of the process now. We had some restructuring charges related to that in Q4. We're not really communicating any specific number for savings, but it's a few tens of people in each of these newspapers that are being downsized at the moment. Regarding timing of this, we are in the middle of the process of identifying, where to do the savings. I think the savings will be somewhat back-end- loaded during this year.
Your question about technology is whether it's protecting old revenues or creating new ones. I would say, it's yes to both those questions. What we're seeing is that in order to be relevant in the display market, we have to develop more products. By the way, approximately 25% of our total revenues, and I think it's the same for classifieds, comes from the display ads. What we're seeing is there's a need to develop better products there. We have several products in the pipeline. Geo-targeting is being launched in Norway, self-service being launched in France. I think that will also create new revenue opportunities for us. You're seeing actually quite some changes in the value chains when it comes to display ads.
We believe it's important to have those products and be able to deliver targeted audiences to the advertisers. I think that the investments we're doing will position us well to do so. When you ask specifically about ad blocking, we're seeing that, you know, it's growing, but it's not growing at a very rapid pace. Especially in mobile, it doesn't seem to be a big problem for us.
I think it's first of all, if it's in desktop and mobile, it's actually quite modest for use.
Yeah.
Okay, thank you.
We have no further questions in the queue.
We thank you very much for that. Anyone signing up at the moment so we can give you a last chance. [crosstalk]
No, we have still no one queuing for questions.
Okay, very well. I will thank you all for good and interesting questions, and thank you for participating. I would just like to wish you a very good afternoon. Bye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.