Good day everyone, welcome to the Schibsted Group Q1 2018 Q&A conference call. Today's conference is being recorded. At this time, I'd 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 from Oslo to this Q&A session in connection with the presentation of Schibsted's first quarter report for 2018. Thank you very much for joining us. Together with me here in Oslo are our CEO, Rolv Erik Ryssdal, our CFO, Mr. Trond Berger, and Sondre Gravir, who is the CEO of Schibsted Marketplaces. I'm also joined by my colleague on IR, Espen Weium. Let me briefly remind you that we held a webcast presentation in Oslo this morning, and a recording of this presentation 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. Welcome to all of you. Together with the team here, I'm looking forward to discussing our Q1 report with you very soon. Allow me please first to make a short introduction. This morning, we presented the results for the first quarter. Our profitability and cash flow grew very well as planned and signaled to the market earlier. The drivers for the improvements are our main online classified site, particularly France, Norway, and Spain. Within the online classifieds, we continue to move along the strategic path we have laid out. Professional verticals, cars, real estate, and jobs are the main revenue drivers, and this is where we focus most when it comes to product development. The potential to grow market shares and further develop the market in general is significant in many markets, for example France and Spain.
To support this, we continue to develop new product features. We have earlier talked about messaging dashboards for professional customers and valuation tools for cars. We're also focusing on seller profiles and different reputation measures, which is now up and running on FINN. Our Brazilian operation is continuing to grow very well. It was profitable in Q1, the positive development in terms of monetization of cars and real estate are really encouraging. Our other investments, fair assets, primarily Sprat and Segundamano in Mexico, are continuing to grow as expected. Overall, we expect a significant drop in investment-based spending this year. The range of EUR 40 million-EUR 50 million is what we expect. This can be compared to EUR 78 million last year. Our publishing operations saw good revenue development in the quarter, driven by digital growth.
The pure digital subscriptions are becoming a valuable revenue source for us and forms a solid revenue stream in addition to digital advertising. The margins in our publishing operations fell slightly in the quarter as we invested in some new business development, among other things, in distribution. The very foundation of our success in publishing is our high-quality independent journalism. This area had a good quarter, and Schibsted Newsroom was able to set the public agenda on many occasions and received several awards for the past year's achievements. Finally, a few words about Schibsted Growth. This is a group of online companies that have developed very well over the last few years. The star performer continues to be Lendo, which continues its profitable growth. As of this quarter, we have reported Schibsted Growth as a separate segment, and we hope this increased transparency is helpful for the market.
Now, I'd like to hand the word over to our operator who will organize the Q&A session. operator, please go ahead.
If you'd like to pose a question, please press the star key followed by the digit one. Again, that's star one to pose a question. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll proceed to our first caller. That will come from Silvia Cuneo with Deutsche Bank.
Hi, everyone. Thanks for taking my questions. I have four. First on Leboncoin, great acceleration in revenue growth. Can you please clarify if the new product launch in the white collar vertical already had an impact on Q1? Or when exactly are you starting to monetize? Can you please explain the rationales for moving into the white collar job segment, which is already penetrated by LinkedIn? The second question is on the growth segment. It's good to have the increased disclosure on these indeed. Just wondering if you could help understanding the midterm potential of these assets. On Lendo, the revenue growth has been pretty strong. What is the driver, and can it be sustained around 40%-50%? On the other assets, is there scope for margin improvement? Thanks.
Thank you. I think we'll have Sondre answering the first question concerning Leboncoin, the white collar segment.
Yes. Your first question was whether or not the product launch of our job product offering in the white collar segment has been influencing in the Q1 number, and the answer to that is no. This product launch is coming now, so it's not influencing the Q1 numbers. We launched last year our paid products in the job vertical, and this is of course part of the revenue growth, but this new initiative will come on top going forward.
The rationale behind moving into the white collar segment, I think, you know, there are several reasons for us taking this strategic move. It's natural for a generalist site to start to build the job position within blue collar, the blue collar segment. This is the natural path for a generalist to move into the job segment. Leboncoin has already a very strong position in the blue collar and so to say mid-market in France. We think we see a further potential to move up the value chain. Of course, the job customers in the white collar segment demand a different product and different product features, and that's why we're launching a separate, a new product to serve those customer needs.
You asked why it's rational to move into this due to the strong position of LinkedIn. I think, you know, LinkedIn has a strong position in many markets where we also have a strong position in the white-collar job segment. We think we can give value to job customers in addition to what LinkedIn can do also in the French market.
When it comes to the question on Lendo, first of all, we are very happy with the development in Lendo as a digital consumer bank for marketplaces and in that respect. We do see strong growth continue in Lendo. We haven't had to be too precise on the growth level, but we are considering also new markets in Europe for the concept. We also expect continuous good growth, especially in Norway and Sweden, as we have already had. Also we have launched it in Finland and approaching also breakeven there. The Lendo should continue the good growth path and at the same time with margins that we see as of today or could also be better.
Right. Anything on the other assets included in the growth segment, if there is scope for you.
Yes. Well, I think that if you look at Prisjakt price comparison, also a good growth and also there some expansion cost into some European markets that actually dragging down some of the figures. I think that we have also several startup companies that is in a way a drain to the profitability in the segment, like typically in the digital marketplace, like also in the bank, et cetera. The only company that we are somewhat disappointed about is Compricer, fair to say, in the portfolio.
Okay, thank you.
We'll have our next question from Lisa Yang with Goldman Sachs.
Hi. Good afternoon. A few questions, please. The first one is on publishing. I think when we look at the breakdown in Q1, looks like the miss was mainly driven by the headquarter and other, where we saw swing from NOK -5 million last year to NOK -33 million. I'm just wondering, is it just like a one-off? Is it just seasonality? How we should think about that line in the coming quarters, 'cause it's clearly very volatile. The second question is on Shpock. I mean, I appreciate this morning you gave a lot of you know, kind of color in terms of how you're progressing with monetization. Clearly, the market is still very skeptical about your ability to, you know, generate significant revenue and profit over time.
Even if you look at Wallapop in Spain, doesn't look like they are very successful at the moment in terms of monetizing the car vertical. I'm just wondering, like, what do you think the market is missing? At what point you think, you know, you might consider exiting either Shpock or certain markets, a little bit similar to what Letgo did, for instance. Thirdly, I appreciate that you have reoptimized the segments into three cleaner units. I'm just wondering what are the synergies in owning all three, you know, growth marketplace and publishing. Clearly you want to keep the publishing assets, I'm just wondering, you know, whether you would ever consider, you know, spinning off either classifieds or part of classifieds to crystallize their value.
Last thing is at Leboncoin, I'm just wondering if you can talk about all the products and tech you plan to invest in this year and when we should expect all those investments to start benefiting the top line? Thanks.
All right. I'll start with the synergy question. What we're seeing is that there are clear synergies between those assets that we're having and the growth assets. We can say that Lendo, and also Prisjakt and the others, they're built on the back of of the publishing and the classifieds division. Because we have this traffic sum, which can drive traffic to new sites, we see this as a very valuable launchpad. This has clearly been helpful for first the classifieds assets in Scandinavia and also for the growth assets. There's no, there is no change to that. We see actually some continued synergies in ecosystem there, because we can drive traffic but also extract data, and therefore be able to target advertisers even better.
In other countries, we're also seeing that we have launched Prisjakt, the price comparison tools in Italy. We're seeing there that we're using the traffic of Subito to help drive that. Now for the other questions, I think, there were one question concerning Shpock and one concerning Leboncoin. Sondre, please.
Yes. Your question was also in terms of, you know, the monetization and then the number of markets. Currently, we have Shpock in six markets. Three of them were on both Norway, Sweden, and Italy, where we launched this more like a defensive strategy to gain our position there. We also are present in Austria, Germany, and UK. Most of our effort and focus currently has been clear in the last quarterly presentations are now on UK. What we saw from the numbers in the presentation this morning, the growth in the growth of Shpock position in the UK market is continuing. We have passed significantly Gumtree position in the UK market in terms of app usage.
With the recent numbers, we are also number one in C2C cars in the UK market. What we have now done, is that we are ramping up our sales force and starting the commercial product offering in the UK market. It's early still, but the early signs are encouraging. We are onboarding car dealers at paid products. We are delivering leads. Actually, last week, we also were integrated in the Auto Trader tool in the UK market, which is the dominant car dealer uploading tool for classified ads in the UK market, and Shpock is now a part of that. We see that that also will, of course, influence ad inflow from professional dealers going forward.
I think we're following the same journey with Shpock as we presented this morning in, so to say, our strategic SUMO, when we gain leadership and strong position in generalist, we move into the verticals. This takes time, but we are happy with the development so far, and we'll continue to push Shpock to gain a stronger positions in the vertical.
Yes. Then there is around the product and tech investments in Leboncoin. You wanna comment on that, Sondre?
Yeah. The product and tech investments in Leboncoin, we are increasing our product and tech people in Leboncoin, as we are doing in other assets when we move into new segments and new areas. Going forward, we expect the development, so to say, of the local product and tech, force in Leboncoin to continue on the same path as we have seen, over the last couple of years.
Yes.
ion on HQ other, in publishing, if you compare with Q4 in 2017, Q1 now in 2018 is slightly higher. So I think that reflects increased activity level. And also, we have made some investments in the delivery services, which we believe is quite valuable for a position to take, first of all in Norway. So that reflects the increased, so to say, investment and activity as you can see the figures.
Should we expect that line to remain about NOK 30 million negative in the coming quarters?
It may be a little bit high. I think it somewhat is fluctuate, but it should go some down.
Somewhat lower.
Somewhat lower.
Okay. I had a question as well on the, you know, spinning off of some of your assets, like classifieds. Just wonder if you can, you know, share your views on that.
What can you be, you know, can you explain what you mean specifically?
Just, whether you would think, because we know classifieds today has been quite undervalued, because it's part of the group. Like, just wondering if you can think of strategic options like spinning off to crystallize its value in this group?
The total classifieds division.
Mm-hmm.
I think, we're quite happy with the combined strength of the group, and we see some clear synergies there, especially in Scandinavia. There's no plans on that.
Okay. Thank you.
Again, star one for questions. We'll go next to Oliver Pisani with DNB.
I guess most my question has been answered already. I have a question on the lease expenses that you indicate that will have positive impact on EBITDA on the range of NOK 500 million. Have you done the calculations on how this will affect EBIT and EBITDA's profit as well?
We have that. I don't have those figures in front of me. We certainly can provide that. It is a NOK 500 million positive on the EBITDA. Then, of course, you will have negative impact of increased financial expenses the way it works. It is in a way neutral, so to say, to the net profit, right to say. It is reflecting that we have substantial lease commitment in Schibsted, that may vary from some of our peers. I think it's relevant to include the figure and guide on it. That's the reason.
It's a leasing obligation of.
It's a leasing.
NOK 2.5 billion in total.
Yeah.
Which is then in the balance sheet.
Yeah.
Yeah.
Another question.
Yeah, sorry.
Another question. The NOK 360 million in other losses, which was now the third tax benefit recognized is great, so very high tax rate in the quarter. Is there anything special in this quarter? It looks very high relative to the total sort of investment phase spending.
No, it is, first of all, we are prudent on the way we recognize, them tax assets, in our investments in general. Also it reflects on, the product and tech that we have in U.K.
Okay, thank you.
We'll go next to Rasmus Engberg with SHB.
Yes. Hi, good afternoon. I had two questions. Firstly, just wondering at what point you would be willing to share more on OLX, or if that sort of, contractually prevents you somehow from doing that due to your part ownership. Secondly, just wondering, is there a put option on Schibsted Spain that sort of expires this year? Can you shed some light on that?
Rasmus, I think for OLX, if you look at what we revealed today, there is much more detail and more information than we had previously. I expect, you know, to be happy with that. Concerning the our contract and deals, we generally don't comment on those.
Okay. It is mentioned in the annual report. I just wondered what it was.
It's a more standard way, market option from the 10% minority owner, which is at some standard market type of valuation. It is mentioned in the annual report. You're right.
Okay. Right. Okay. Thanks.
Again, that's star one to pose a question at this time. We'll pause for just a moment to see if we have any additional callers. We'll have a follow-up question from Silvia Cuneo with Deutsche Bank.
Thank you. Just a quick follow-up on the margin improvement in the Marketplaces division. Clearly was really high in Q1, 600 basis points. What should we expect for the coming quarters? Can you maybe give some color on your thoughts on seasonality of the marketing spend over the year? Thanks.
Well, in general, I think the first of all, right to say that the marketing spend fluctuates between quarters, and it also something that we have the liberty to change between quarters. Therefore be too precise on this is something that we're hesitant depending on the different campaigns. In more in general, I can say that we don't expect any big swing between quarters going forward. In general, it reflects more or less the marketing level, I would say, but it may fluctuate quarter by quarter.
Thank you.
We'll go next to Lisa Yang, Goldman Sachs.
Hi. Sorry, I just had a follow-up. Just on the uses of cash, and just come back to, you know, the capital raise you did last year. Just wondering if you can give us an update on, you know, the big kind of consolidation opportunities in this space. I found it quite interesting that Naspers also recently sold part of their Tencent stake, and they said they wanted to also, you know, do some M&A in classifieds. Clearly, there's gonna be lots of activity in the space.
We are generally looking for further consolidation opportunities. We've said that we're most interested in the markets that we're already in. The bottom acquisitions are in related. Then, of course, it doesn't necessarily have to be within real estate, cars or jobs could also be related things. In France, for instance, we bought the agriculture marketplace, MB Diffusion. Generally, we're looking in the markets that we're already in and adjacent markets, and we're looking to strengthen our classified positions there. I believe that we're continuously looking at several targets. I believe we're well-positioned financially to grab opportunities that may come up and that we're looking at.
Okay, thank you.
We have no further questions at this time. We'll turn the conference back over to Mr. Steigedal for any additional or closing remarks.
Okay. You still have the chance to sign up for more questions. If not, we thank you very much for participating at this call. Let's wait for a little while, see if there's any more questions.
Good.
As a reminder, it is star one for questions.
In the meantime, let me just remind you that we'll have a lunch for investors in London next week. That's on May 8. There is Sondre Gravir and myself will be present together with Jo Christian. Sondre, and I will also host a lunch for investors in New York later this month. Just please contact our IR people if you want to participate in that.
Okay. apparently there are no more questions. I trust that you are all satisfied, and we thank you very much for participating at this call. I would like to wish you all a nice afternoon and a nice evening. Thanks. Bye.
That does conclude today's conference. Thank you for your participation. You may now disconnect.