Good day, and welcome to the Schibsted Group Q1 2017 Q&A conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Joakim Tsigdal. Please go ahead, sir.
Good afternoon, a warm welcome to this Q&A session in connection with the presentation of Schibsted's first quarter reports for 2017. Thank you very much for joining us today. My name is Joakim Tsigdal. I'm the head of IR in Schibsted Media Group. Together with me here in Oslo are our CEO, Rolv Erik Ryssdal, our CFO, Mr. Trond Berger, and Espen Barth Eide at IR. We're also joined from our office in Barcelona by Gian Paolo Santorsola. He's a member of the senior executive management team in Schibsted and responsible for Emerging Markets division. I'd now like to hand the word over to Rolv Erik Ryssdal for some introductory remarks.
Thank you, Joakim, and welcome to all of you. I'm looking forward to answer your questions regarding Q1 very soon, but please allow me first to make a short introduction. Yesterday evening, we announced that we have agreed with Telenor to swap assets within our common joint ventures in the merchant market. We increased our stake in OLX Brazil from 25%– 50% and in Yapo in Chile from 50%– 100%. At the same time, we exit the Asian markets by selling our stakes to Telenor. Singapore Press Holdings is also selling their shares in these key markets in Telenor. As Schibsted, it makes strong strategic and financial sense, increase our stakes in Brazil and Chile, whereas we exit several Asian markets.
We're now firming up a cluster of very interesting market positions in markets needing online classifieds, not only in Brazil and Chile, but also in Mexico, Colombia, and the Dominican Republic. In total, our footprint covers Latin American population of 400 million. Schibsted has organically built a position in Brazil since 2011, and OLX is now the clearly leading online classified site in the country. OLX reaches 5% of the population in Brazil on a daily basis, and the traffic is growing very well. Around 50% of the traffic is from mobile devices. This is an excellent platform for building on plantation over time. OLX has already a clear leadership position in the car vertical with more than 7 times more listings than number two. Even if you just look at the professional market, OLX is number one.
The position is also strong in real estate, especially when looking at traffic. Yapo in Chile is naturally a smaller operation, the relative positions are very strong here, too. Clear leader in generalists and strong position in the verticals. With 100% ownership in Chile, it will be easier to take up synergies when it comes to products and technology development, as well as competent sharing on all other levels. Let me also take the opportunity to thank SPH and Telenor for their cooperation and innovation on Latin American joint ventures. The cooperation with SPH goes back more than 10 years. We joined forces with Telenor in 2013. It has been value-enhancing for all parties involved. Together, we lifted investment and business development better than we would have done on our own.
We have created great value for our users, our customers, and for our shareholders. From the start, we created the JV based on exit mechanisms. We never expected them to be perpetual. In part, strategic and geographic ambitions are not the same. At the same time, we all saw the benefits of working together. It's worked exactly the way it should. All the companies involved are now better positioned, well-run and more mature than they were when we entered into this relationship. In a rapidly changing environment, we also need to prepare for change. When it comes to today's quarterly release, that showed a good development for Schibsted. All operating revenues and growth or operating profits continued to grow in the first quarter of 2017, the improvement came in both online classified and media houses.
Within online classified, I'm particularly pleased with the strong targets in the verticals. We're strengthening our positions among professional customers, which contributed to an online classified revenue growth of 17%, adjusted for currency associations. Our largest online classified company, leboncoin in France, continued to perform well, driven by good development in the verticals. In Norway, we experienced strong growth driven by both product innovation and good general market dynamic. We had signs of improvements in part of the Spanish business, while the growth in Sweden was lower this quarter. In the first quarter, we increased our investments in the native mobile marketplace, Shpock. Shpock is a very good mobile product and is run by a competent organization. Investments have yielded good results, and Shpock is regularly breaking records in large markets like U.K. and Germany.
First month of 2017 have been positive for our publishing activities. Good cost control combined with digital growth and some slowdown in the print advertisement decline has led to improved operating margins. Schibsted Growth in Sweden continues the strong development. I would particularly like to highlight Blendle, which grew revenues by 35%. Before opening up for questions, I will just remind you that the full presentation recorded on video this morning is available on our website. I would like to hand the word over to the operator, who will organize our Q&A session. Please, operator, go ahead.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for question. We'll take our first question from the line of Chris Collett from Bank.
Good afternoon. Thanks for taking the questions. Just had a couple. First was just on the Spanish business. Just noting your intention, you said to keep with significant marketing expenditure. Should we expect that the margin in Spain remains around the current levels, or can you improve it? Second question was just about Sweden. If you look at the growth of 3% excluding Servicefinder, is that what you'd expect to be a new normal for growth there, or are there things that you can do to improve that business? Lastly, on Brazil, you now obviously own the business 50/50 with Naspers. Is there one partner that has control of the business, or is it exactly 50/50?
Well, thank you for your question. Let me start by the last question, so that's the 50/50 joint venture. The parties have equal input. I think we have proved that we can work well together with Naspers in developing this business, which also I'd like to highlight, has a very competent management. When it comes to question number 2, I would say that Blocket has developed 3%. I was satisfied with that and all. We're working hard in order to roll out new products, so we can get a better development in Sweden, both when it comes to the generalist cars and job market.
Yeah, just to add on, Blocket is that we grow at 3%, and plan growth is somewhat better on the verticals. The figures are hampered on a weaker display, especially in Sweden. When it comes to the Spanish business, well, of course, the margins is not at the levels that we would like going forward. We are not giving guidance by the way, on a quarterly basis. We depends, a little bit of the competitive landscape, it has proven to be somewhat more competitive on real estate. We have made a push there. It may be that we continue to be big with that. I think we are really satisfied with what we are seeing in the car segment with the CocheSeminuevos.
At the same time also InfoJobs is doing well. No doubt the margin in Spain, should go up, I will be careful giving too much guidance on that, over the next couple of quarters.
Great. Thank you.
Our next question comes from the line of Rasmus Edgar from Handelsbanken.
Yes. Hi, good afternoon. Thanks for taking my question. I had really just one question regarding the investment phase cost. They are up very significantly again in Q1. You've already changed your guidance for the year. I mean, is this really under your control to say that these costs will go where or is it more like a 50-50 chance that they actually increase this year? How do you see that going forward?
Well, I mean, first of all, yes, they are under control. We are deciding, of course, it's also right to say that that's the reason for the increase in Q1. We decided to step up the spending, especially in Shpock in February and March. That was due to some push from Letgo that we saw in some markets. We spend as of course, contract on the stock market that has been successful in our home markets, in Norway and in Sweden. At the same time, we also decided to take the position in Italy to avoid also some competition there. I think that has proved to be a wise decision, we have strengthened really our position in these markets.
At the same time, we continue to do well in U.K. and Germany. When it comes to the spending going forward, it is fair to say that we also may have still some push in Q2, but the plan is of course to reduce it, quarter by quarter going forward. But it depends with some competitive situation, fair to say.
I think it's, you know, Shpock is responding well to the marketing efforts we're doing, and that is the most important thing I think, in U.K. is going very well. We're also living in dynamic world. We're seeing what competitors are doing, and we're taking the measures which we believe are necessary.
Mm-hmm. Can I just follow up there on the cost side in Shpock? How much is marketing, firstly? Secondly, does Shpock actually have any revenues at all today, or is that still a couple of years out?
Well, no. First of all, Shpock is having revenues. This is actually ramping up quite well, and most of that is currently on advertising. We are about to test also a little bit new products and going into also a little bit part of the car market. That's a little bit early stage. We really have a product roadmap in that segment. When it comes to the split of the cost, we're not giving guidance. Fair to say that most of the cost you see now in Q1 is really marketing, I have to say.
Are you saying that these costs are in other markets than U.K. and Germany? They are now in more in the Nordics and Italy.
Well, I think that the step up you saw in Q1 is mainly explained by in Norway, Sweden, Italy, right to save.
Okay. That was true.
Our next question comes from Ole Martin Westgaard from DNB.
Yes. Thank you. Thank you for my question. I'm just trying to get a bit of feel for the Brazilian market. Can you sort of update us on the sort of the market size and how big you see the potential online classified market in Brazil? My second question is on France. I wondered if do you have any thoughts on about the potential change in competitive landscape on the real estate vertical?
Thank you. Gian Paolo, do you think you could take the first question? In the meantime, let me try to answer your second question. That was about the real estate market in France. Well, what we've seen is that Springer has Artus joining forces together with a third player, Logic-Immo. I think we are very happy with the discussion that we're having. We are showing a healthy growth, has a strong traffic, and we're seeing also now more interest from brokers in the Parisian market. I think we're, you know, we're moving full steam ahead and then we'll evaluate the options that come along. We feel very comfortable with our position in that market and see good growth perspectives going forward.
Regarding the first question, Gian Paolo, would you care to give a little bit of context about the Brazilian classified market?
Yes, absolutely. Good afternoon, everybody. In general, Brazilian is a very attractive market for us, and it shows a lot of growth potential in terms of traffic and internet populations is very big, and we already have a traffic size that is, what, almost close to the one that we have in France in leboncoin. We believe that, you know, if we keep this level of growth, we'll be able to achieve higher marks when it comes to growing traffic. This leads to our opportunities in advertising. We see a good opportunity in online advertising. In particular, we see the mild segment in advertising that is expected to grow significantly.
When it comes to the main verticals of car and real estate, car in terms of online digital spending from car dealers is pretty big. In terms of potential, it's a size similar to what we observe, for example, in Russia, but it's still a market that is not fully exploited. Just to give you a reference, only 50% of the car dealers are using digital marketing tools yet. There is still a significant part of the market that will move online. With the stronger position that we have, both in traffic and content and in lead generation, I believe that we are very well positioned to capture a significant part of this, of this potential. A similar story applies to real estate as well.
Some of the real estate agents have seen of using the online tools and online marketing tools at full extent and at full potential. There is a huge opportunity there as well. As Robert mentioned this morning, our leadership position is not as strong as it is in car, but we are aggressively moving to gain market share here as well. By delivering mainly new products fit to respond to the needs of digital real estate agents. One example of this is a real estate vertical that we launched last quarter that is called the Soria & Morice, that is mainly targeting sophisticated real estate agents and sophisticated leaders.
In this way, we aim to also offer a full-fledged offering to all kind of our customers in Brazil.
Thank you, Gian Paolo.
Thank you.
Our next question comes from the line of Claes Olsson from Carnegie.
Good afternoon. Just a follow-up on today's morning events. If you look at the deal you're making, what would you say is the value of Yahoo in Chile compared to the value of the assets you're swapping away from in Malaysia, Vietnam and Myanmar? Any color on that?
Well, as we said this morning, first of all, we value Malaysia and Vietnam, our want of that at $100 million. Then Brazil and Chile at $500 million. We don't see the split of Chile and Brazil in that asset. No doubt, Brazil is by far the largest of the two.
Thank you.
The next question comes from Catherine O'Neill from Citi.
Oh, hi. Yeah, three questions. On Shpock, I just wondered how you think about the path profitability and what kind of timeframe you're thinking about there. Secondly, I noticed in the release you mentioned the partnership with AppNexus. Just wondered whether you've seen a positive impact on that. You talked about potential for new revenue streams from that partnership. Could you just provide a bit more detail on what you mean by that? Finally, in Sweden, in the online classifieds, I just wondered how much of an impact the sort of pullback from real estate had on growth.
Excuse me. Christine, I can start with the Shpock question. Obviously, Shpock is currently in a phase of capturing audience and building the position and brand in its key markets. That is the most commercial focus during this period. However, we are in the process of introducing monetization features. We have initiatives with that, particularly in Austria but also to some extent in other markets. This is on the way, and also experimenting and looking into alternative additional measures, in addition to what we would typically call the well-proven traditional online classified monetization features. This is coming, and we plan the monetization to grow also sequentially going forward.
However, when it comes to exactly what, the timing of when we expect to reach a break even here, I think we would be reluctant to comment on that on specifically. It will still be a period of investments into Shpock. I think, yeah, that's a brief answer to that.
Okay. Thank you.
Right. When it comes to your question about the pullback of real estate in Sweden, I think that is 2%–3% maybe or in that range area, effect of that. That has impacted the figures, yes. The AppNexus partnership, I think that we are happy with that. We have rolled out AppNexus in Norway and France and we should also do it now very soon in Sweden and other markets. I think we are happy with that. It's all about them improving the APE, and we're seeing that more and more of the display is moving towards programmatic and that AppNexus has is a good alternative. And also seeing all the players like Spring and others teaming up with AppNexus also.
That's good. We strengthen that as a good alternative in an advertising space that is, that is changing. We're happy with that, also something that we continue to develop to have even better targeting products going forward.
Thank you.
As a reminder, ladies and gentlemen, it's star one to ask a question. Our next question comes from Lisa Yang from Goldman Sachs.
Good afternoon. My first question is on leboncoin. Just wondering in the 20% growth you put in Q1, how much of that was driven by M&A, and how are you thinking about the ramp-up of growth for the coming quarters, given that you can better monetize the jobs vertical? On Spain, I have a similar question. 20% growth, how much of that was driven by M&A? Also, do you expect some acceleration in the second half as the comp gets easier? The third one is on basically competition from like Facebook Marketplace and also Wallapop.
Just wondering, you know, have you seen any change in terms of the progress of those apps in the past quarter? Thank you.
Well, thank you. Let me start with the last question. We're not seeing any effect from the Facebook groups. We've lived with Facebook groups for a number of years. In the U.K., there's the Facebook Marketplace app. We're not seeing that at all affecting the growth of Shpock, which is growing rapidly. We believe that this is contributing to a larger market. Also in Spain, we know that Wallapop have launched in the car vertical. We're not seeing anything effect of that. In fact, we're having a great growth there in cars and Milanuncios and together with Vibbo. We haven't seen anything from there.
I think, from when it comes to France and Spain, we've said that the majority of the growth comes from the existing, right? Is organic nature, and we have a certain %, which is right.
That's right. It's fair to say that it has a little bit more impact in Spain on figures of Habitaclia, but that of course the majority comes from the underlying existing activities.
Yes. The margin in Spain for going forward?
Well, I, as I said earlier, I think that, certainly we expect the margins in Spain to improve. On the other hand, it's, we are, responding to the competitive landscape. It also may be some over the next couple of quarters that we may lose some marketing push that we have done in Q1.
We're obviously happy with the growth we're seeing in these markets, of the 20% in both of them.
Do you think it should accelerate in the coming quarters?
On Spain in particular, I think that I will be careful giving guidance on that. I think that what we're seeing in Spain, I think that is, we are very happy with, by the way, about the Habitaclia acquisition and combining that with Fotocasa gives us a better real estate offering, improving product at the same time, and also the car vertical with Coches.net and Milanuncios doing well with that combined package. InfoJobs is continuing to do well. I think that Spain should develop well, but on the other hand, also it depends a little bit on how much we improve on marketing.
Okay, thank you.
The next question comes from the line of Haseeb Syed from Danske Bank. Please go ahead, Mr. Syed. Your line is open.
Hi. I just had a question regarding the leverage ratio in the company post the acquisition in Yapo and OLX. You show in the presentation that if you include the debt from those acquisitions, the net debt EBITDA level would have been 53 times instead of 0.7 times. My question is, well, when and how do you see the leverage ratio going into a more normal range? When do you expect to be in the range of almost 1 time where you have been before? The other question is about the EBITDA contribution from the from Yapo and OLX.
When do you expect the EBITDA contribution from those units to be positive going forward?
Well, I think we said when it comes to the target ratio, it's between one and two. What we also said this morning is that we expect to be back there during 2018 next year. When it comes to the EBITDA with Yapo and OLX, what we have said on the development, and I think Gian Paolo explained it well, what is the revenue drivers here. Again, we have said that we have the aim for OLX in Brazil to move to a break-even during 2017. When it comes then to the Yapo in Chile, I think it's fair to say that we expect something similar to happen in 2018.
Okay, thank you.
As a reminder, it's star one to ask a question. We'll pause for a moment to allow everyone to signal for questions. We have another question from Lars Herlin from AIM Group.
Okay, most questions have been asked, I have one. It's about Bangladesh. You said in the presentation this morning that you made a loss thereof, quite substantial. Could you explain a little bit more about Bangladesh, where Telenor is having a huge business?
Bangladesh is, I would say that, out of the assets in Asia now, we are, of course, cleaning up, meaning that we are selling Malaysia and Vietnam and then remain with the assets in Indonesia, Thailand and Bangladesh. The performance in Bangladesh has not really been so good as we expected. We have been prudent and taking some write-down at the same time as we do this transaction. In Q2, it's also expected that we will get significant gain, one-time gain as a result of selling Malaysia and Vietnam. Which will be, I would expect around $100 million that we will take in our books.
Also there's a technical thing in Chile that we have to write up, only 50%. That also would give a one-time gain in our books of close to $50 million.
What is happening in Bangladesh? Telenor is not interested in running the site?
Well, I wouldn't comment on Telenor's interest. The only thing I will comment is that, come to think of it as well, we are not so satisfied with the development, and we have taken a write-off of Bangladesh to be prudent. That's the only thing I'm able to comment on that. Right. Other questions?
It appears there are no further questions at this time.
Okay. Ladies and gentlemen, thank you very much for participating in the call this afternoon. I would just like to wish you all a good day and talk to you next time. Bye.
Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect.