Good day and welcome to the Schibsted Q4 2012 question and answer 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 2012. Thank you very much for joining us today. My name is Jo Christian Steigedal. I'm the IRO of Schibsted. Together with me here in Oslo, are our CEO, Rolv Erik Ryssdal, and our CFO, Mr. Trond Berger. Today, Schibsted presented the results for Q4 2012. We reported a group EBITDA of NOK 497 million. We had increased earnings beyond our classifieds and a decline in the media houses. The online classifieds reported 28% EBITDA margin and 42% EBITDA margin excluding investment phase. We'll go straight to Q&A. This will be a Q&A session only.
For a complete presentation of the results, please refer to the video webcast that is available on our website, www.schibsted.com/ir. I'll hand the word over to the operator, please follow her instructions. Thanks.
Thank you. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit one on your telephone. 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. Again, please press star one to ask a question. Our first question today comes from Catherine O'Neill from Citi. Please go ahead.
Hey. Hi. Hi. I've got actually quite a few questions. I apologize now. Firstly, I want to check, I mean, you talked about the margins in the media houses are gonna be softer. I just wondered if you could give us any clarity on how much softer and when you expect these to improve, because I think you've also commented on margins in digital within the media houses being higher than print. Secondly, I wanted to double-check on the headquarters cost in media houses international, whether you expect that to go back to the normal level and that fourth quarter uplift was just a one-off and won't recur. Do you want me to ask all my questions or and you answer them?
No, just go ahead.
Go ahead. Okay. Thirdly, you're not giving guidance on investments. I just wondered why you don't want to sort of be more specific, and what reassurance you can give that you're gonna remain disciplined, and that it's not gonna increase exponentially because of sort of the competition in Brazil. On the growth in Blocket in Sweden more broadly and sort of Sweden online, do you expect it to continue at a single-digit percentage rate through 2013? Finally, just more broadly on Jobs side, obviously LinkedIn was quite strong. Monster is sort of obviously struggling. Are you seeing any pressure that's structural within your sort of Jobs side verticals across any of your markets? That's all my questions.
Okay. If we start with the first one, the margins in the media houses. I think it's fair to say that if you look, you have to distinguish between if you take the Aftonbladet, the evening newspapers. They see a benefit of the increased amount in the online and growth in that, and also online advertising revenues are higher than for the print. At the same time, we also see more scope maybe on the price side for those two papers. They have, I would say, good positions and also been able to maintain healthy margins and stable margins in that challenging environment. I think we expect those to perform well in the future, at least over the next two, three years.
If you look at the morning newspapers, we are doing substantial cost-cutting programs. We are satisfied with the digital payment for subscription that we are testing out. However, it's also fair to say that the structural shift, especially from some of the print advertising revenues, is more exposed in the shorter term. Even if we are doing measures to offset that, I think it's fair to say that we expect the migration to continue and that could certainly dilute some of the margins in the morning newspapers.
Going to the headquarter, I assume you mean in the SCM, the construction projects cost, and there we have NOK 2 million-NOK 3 million extra in project costs that has burdened the fourth quarter results.
Yeah.
Guidance of investments. I mean, we don't give guidance of investments, first of all, due to the fact that it's a very competitive market in some of the key markets vary. This will vary from quarter to quarter. If you take Brazil as one example, we have despite that our competitor has substantial more spending in marketing, we're able to keep the position and see very good traffic growth for our side in Brazil. I'm sure that we will keep a certain discipline when it comes to going forward also in this.
Of course, it will be increased spending levels, but we won't give any more guidance, first of all, due to the competitive situation. Blocket, I mean, softer, first of all, as a result of car volume in Sweden, they have more or less 100% of the market. When the cycle slows little bit down and impacting the car market in Sweden, that also impacts the volume in Blocket. Of course they keep the market position and also they're investing in new verticals and that also should have some marketing and building up development costs in Blocket. They have good potential in as we see it, both in job and in real estate. Lastly, the job classifieds.
I mean, we don't see any structure shift yet. I mean, InfoJobs in Spain keeping its position, healthy margins despite of a very harsh environment. InfoJobs Brazil are doing well, and we are very satisfied with the development we're seeing there. Also, the competitive situation is so that we believe that we have a good edge into the job market in Brazil.
Okay. Sorry, on the project costs you talked about, did you say that they're not recurring when you're looking at HQ line?
Yes.
Yeah.
Yes. Yeah, yeah.
Thank you.
Our next question comes from Rasmus Engberg from Handelsbanken. Please go ahead.
Yes, hi guys. Can you give us some sense of the margin pressure you have in Leboncoin and in Blocket coming from ramping up and expanding to new segments? Is that sequentially stable or do you foresee further pressure on the margin in Q1 compared to Q4? That's the first question. The second question is, it seems to me that FINN.no in Norway has an exceptionally high margin in the fourth quarter. Is that the case or is it a new level? Finally, just wondering what type of savings in the media houses you would feel comfortable with us putting in our models for the first quarter?
When it comes to the margin picture in, if you take Leboncoin first, we have always said that the margin that we saw 72% or so, is not what we expect to see going forward because we certainly would like to do further development. We have built up sales organization in Leboncoin, development costs. The margins that we're seeing now is maybe more in the level what is more what we could see a little bit shorter term picture. Of course, Leboncoin has potential when it comes to the real estate market, contract expiring a little bit less than two years from now, so we can be more aggressive into that. We have more listings than SeLoger today.
Also they have a certain position in job market. Leboncoin has built up, of course, to be ready also for future prospects. When it comes to Blocket, a little bit the same there in growing into new verticals, and looking at the job market and the real estate market and also some e-commerce. FINN.no, you're right, strong margins, and it's also fair to say that the fourth quarter was somewhat on the high side of what we expect going forward. It fluctuates a little bit from quarter to quarter, depending on the activity level and projects, et cetera. FINN.no is running a lot of projects of course, but we have less of that just in the fourth quarter.
You should maybe expect, it was a very good quarter, right to say. Savings in the media houses, they, I think that we don't have any precise guidance other than saying that out of the NOK 500 million, they are split evenly between 2013 and 2014. Maybe, somewhat more in 2013 than in 2014, first of all from Sweden because they started earlier.
Okay. Is it fair to have a sort of flat savings over the year or is it very back end loaded or?
When it comes to 2013, I would say that it's gradually improving throughout 2013.
Just coming back to the margin to the build up, you know, I fully appreciate you invest for future growth in France and Sweden. I just was more curious to how you saw that. Have you taken the full hit of that build up in Q4 or do you think the margins might be pressured further in France and Sweden in Q1?
I think we are reluctant to give any precise guidance going forward. I think that we have built up certainly the organization and, on the shorter term, we don't see any significant changes. On the other hand, depends on the project and possibilities as we see. That's all we have to say.
Fair enough.
Our next question comes from Mark Braley of Deutsche Bank. Please go ahead.
Yeah, good afternoon. Just a couple of questions. First of all, when in the outlook statement talking about online classifieds, you say that activity investments will increase in 2013. Our aim is to concentrate on our core markets and expand into selected new geographies. Is the kind of range of geographic expansion, is that changing at all? Should we still think about this as being, you know, Brazil plus the fairly long list of countries that have appeared in the capital markets day presentations in the past. Are we actually narrowing this down to Brazil and then a smaller set of other countries? That was the first question. My second question was also on online classifieds and sort of picks up the theme of the prior questions.
You're in a position where principally because of Sweden and France, the costs in the established online businesses are actually growing at a faster percentage rate than the revenues are. I'm kind of wondering when we should think about the revenue benefit of that starting to come through. Is it a sort of two-year process or a one-year process to get revenue acceleration from new products? My final question was on the media houses. You've explicitly said that the margins are gonna be softer than they have been in the past couple of years. I think you actually used that wording back at the Q3 stage. It's actually just a question of precision, I suppose.
Do you mean the margin when you refer to the last couple, well, couple of years, are you still talking about 2010 and 2011? Are we now thinking about it relative to 2011 and 2012? Obviously the 2012 margin has already started to come off.
Okay. When it comes to the outlook of SCM and the spending and geographical expansion, I mean, first of all, as we have said in the quarterly report, it is that we will certainly focus on our core markets. At the same time, we will look into some selected markets that could be interesting in addition to that. I think for us it's important to first of all, secure the positions we have. At the same time, be somewhat open-minded for further possibilities. We are not going to disclose in which potential markets in addition to the core markets we have today, what that could be.
When it comes to the cost side, I think that the growth in cost is, I mean, we have built up our organization and some project development costs in both Schibsted and Blocket. It will vary a little bit when you will see the benefit, but of course you should see the benefit over the next one to two years. It's not a long-term type of buildup of cost and development costs. The media houses, what we say is that, I mean, it's a little bit about the same that we said in Q3. It's softer markets. You should expect soft, softer margins, sorry.
As I said in the early question, more for the morning newspapers maybe than the evening newspapers because they have substantial part of the digital revenues already, the evening newspapers. We are talking about that little bit of the same picture that we saw in Q3.
If I can just sort of ask you for a direction on number there or some help on number. I mean, you're now making in the media houses a margin of about 12%. I mean, should we think that this business can be kept in double digits in, say, three years time? Or would that be challenging?
I think when it comes to talking about morning newspapers, I think it depends very much on our possibility to be able to find payment models on those subscription models that we are testing out. But the general migration from print to online for the larger part of the print advertising could lead to that. It is a bit challenging to keep up with current margin levels, at least that is what we prepare for
I agree with Trond. I think it's very hard to predict how the revenue composition will look for any newspaper in two years time. I think that, you know, print will continue to be important, but we really need to grow the digital part there. We're putting all our efforts into doing that. If we're successful, then it'll look good also on the margins. We're prepared that it might be a downturn.
Okay, thank you.
As a reminder to ask a question, please press star one. Our next question comes from Adrian van Otterloo from IVI. Please go ahead.
Yes, good afternoon. I just have one quick question on the impairment in online Spain. Could you please elaborate a little bit more on that impairment and what has happened? I think from your presentations three, four years ago, you said that even Spain was in a recession, online advertising was still going to be a good business.
Yeah. I think that's still a valid statement. We, I mean, impairment is, it works the way that valuation is depending on what we expect of the future. What we have seen in Spain is that our online operations, except for InfoJobs, the job segment, has kept up, well, I would say in Spain. It's also right to say that on the InfoJobs segment, the trend has been down for the last couple of years, and we are very uncertain about the market with the current unemployment.
We have taken the stance that it's probably right to do some impairment and write down for Spain. We are looking at these as a Spain as a total cash-generating unit, all online positions combined. That's why we have done this. Of course, as you know, with these kind of NPV calculations and our future value, everything is about the terminal value and what we expect overall. It's not easy to say what is the real value, but we have taken as our impairment because we think it's right.
Do you think your... 'Cause it's basically the online job?
It is, first of all, based on the deterioration that we have seen in the online job market in Spain. InfoJobs has kept its market position, no doubt. We still have fairly healthy margins in InfoJobs despite of current unemployment. We think that the relative performance in InfoJobs is quite good job actually. It's not, I mean, we foresaw if you go back a year or two.
What is your market share now, and how much was it three, four years ago?
No, the market share for InfoJobs, if you just take that, I think has always been around 75%-80% of the total job, online job market in Spain. That's still the situation, so no change there.
The impairment is just to do, basically due to overall market rather than your own decision?
It is first of all due to a very harsh macro environment affecting first of all the job market in Spain.
Okay, thank you.
We have no further questions.
Okay. Thank you very much, everybody, for attending. We will be available for further questions afterwards if anybody have anything to add. Otherwise, have a good afternoon. Thanks.
That concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.