Good day, welcome to the Schibsted Media Group Q3 2016 question and answer conference call. Today's conference is being recorded. At this time, I'd like to turn the conference off to Jo Christian Steigedal. Please go ahead.
Good afternoon, and a warm welcome to this Q&A session for Schibsted Media Group. We are inviting you to this in connection with the presentation of our 3rd quarter report for 2015. Thanks a lot for joining us. My name is Jo Christian Steigedal. I'm the Head of IR here in Schibsted. Together with me here in Oslo are our CEO, Rolv Erik Ryssdal, our CFO, Mr. Trond Berger, and my colleague in the IR team, Edson Riso. I'd now like to hand the word over to Rolv Erik Ryssdal for a short introduction.
Thanks a lot, welcome to all of you to this Schibsted Media Group Q3 presentation conference call. Today, we've released a report showing a good development for Schibsted. No big surprises, we're executing well on our strategy. The gross operating profits increased 30% when exclude our online classified operations and investment base. The improvement is driven by online classified, where we've seen continuing revenue growth and improved profitability. Media houses where significant cost reductions have resulted in a higher result than last year. Within online classified, the quarter was good in our large operations in Scandinavia and France, whereas we saw a slowdown in growth in Spain. It's also a pleasure to report that the revenue growth and improved profitability continues in our other developed markets, driven particularly by Italy, Austria, and Ireland.
Leading traffic positions and strong brands, together with continuous product development, forms the basis for further growth and value creation. Our investment-based portfolio contains several interesting earlier-stage market positions in some European countries and in emerging markets. The overall investment put into this portfolio is unchanged compared to Q3 2015. Within this lies an increased spending in our native app spots and correspondingly positive development for the rest of the operations. One of the most interesting sites to follow right now is OLX in Brazil, where monetization is now being turned on, for example, by introducing listing fees and for professional customers. So far, the results from this move are promising. We expect the Brazilian operations to continue to develop well, both in terms of revenues and profitability going forward.
Overall, we expect the losses in our investment-based portfolio to go significantly down in 2017 compared to 2016. Looking after our media houses, I can say I'm satisfied to see both that they're producing great journalism as well as improved profitability this quarter. They operate, of course, in challenging markets and cost reduction, and at the same time, constant digital product development is as necessary in order to mitigate the structural decline. The strongest piece of evidence for digital success right now is the rapidly increasing number of paying digital subscribers to our newspapers. Our efforts in building competence within product and technology continues. We have an ambitious roadmap of products that both help for traffic and engagement as well as monetization going forward. This is absolutely the top focus for us, to develop better products for consumers. Let me end there.
Just remind you that the full presentation recorded on my video this morning is available on our website. I'd like to hand the word over to our operator who will organize this Q&A session. Operator, please go ahead.
Thank you. If you would like to ask a question at this time, please press the star or the asterisk key, followed by the digit one on your telephone. Please ensure 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. We'll now take our first question from Anders Wennberg from Catella. Please go ahead. Your line is open.
Hello, Anders Wennberg from Catella. Congratulations on a good quarter. Being a Swede, I'm particularly interested in the Lendo and Compricer businesses and Prisjakt. I see they have a nice growth of 16% and EBITDA margin of 30%. Can you elaborate a little bit more on the potential here? Do you think you will split them away from the media houses and become more separate standalone units going forward?
I think, you know, to answer the last question, they are already run quite independently. We report them together with our media houses, but they are, you know, with their management is full focused only on running those. I would say that Lendo has developed particularly positive and is the bulk of the increase and also the total profit. I think they still have room for growth. I think there's more to be done on the 2 other companies you mentioned.
Can you say anything more in terms of the size of Lendo? I see you write how much it's growing and how much EBITDA is growing. What's the absolute size of revenues and EBITDA?
No, no, we're not disclosing that because we have a portfolio of growth companies. Lendo is growing fastest as a loan. Prisjakt is also doing well, but we don't split that too detailed information as it is a portfolio currently. We may, however, look into disclosing more information in the future, and it also may be relevant to split it out from the media houses. Currently, it's a part of it, and it's also run very separately.
Okay, thank you.
The numbers are pretty sizable.
We will now take our next question from Alex Zalcini from Goldman Sachs. Please go ahead. Your line is open.
Yes, good afternoon. 2 questions from me. One is, you mentioned previously that Italy is actually break even every other quarter. I was wondering if the last quarter was one of those. My second question is on Spain. In the presentation and the press release, you mentioned some elevated marketing spending, but just looking at the OpEx, I feel was sequentially down. I was wondering where those savings came from, or I'm reading that incorrectly. Thank you.
Well, when it comes to Italy, no doubt that it's from quarter-to-quarter. It has been in a break-even situation. We don't really split out that in detail. Fair to say that we see a good growth in Italy, top line, and also I would say that in 2017, I do still expect quite good improvement in EBITA, in Italy as well, as we see the development currently. Of course, we could decide to run it into profitability. It's really about how much marketing is spent from quarter-to-quarter.
When it comes then to Spain, I would say that we have a development there, which is has been hampered by display and also some number of listings on Import Job. Info Job has improved again. I think we see this as a temporary slowdown, but we also realize that we need to continue to do marketing investments in Spain. First of all, in products like then preserving the market in generalist, and also doing product improvement and marketing in some of the other verticals, like real estate.
Well, you know, we are by far the market leader in jobs and also cars. Then I'd say we're tied number one in real estate, and then in generalist there are more players. I would say that it's important for us to continue to invest both in product and marketing, particularly then in real estate, and generalist. You continue to see that we're going to work very hard on especially those verticals.
Thank you. Just, probably, to clarify, from what you say on Spain, the margin was there, but is it fair to say that it was just lower than in second quarter, that's it? In Italy, as clearly TGG is now less of a competitor. Well, first, would you agree with that? I mean, looking at the traffic statistics and their presence both in desktop and mobile, do you think that TGG is less of a competitor? Is it fair to say that your marketing spend in Italy was predominantly targeting TGG? Thank you.
I think in Italy, I think it's fair to say that in the generalist space, we are by far the leader. I think the interesting challenge now is really to move more into the verticals. I think for instance, in cars, there's lots of things we can do by delivering better products to professional car customers and where the marketing effort so far has been a lot in generalist. I think you're going to see them more specified in the time to come. Was there anything else?
Just on Spain. I think it's fair to say that we as a result, that we are prepared to do product enhancement and marketing. I think that certainly will have an impact on the margin also in Q4 and maybe also somewhat in 2017. On the other hand, we do expect that the revenues from that we're seeing in Q3 is temporary and, hopefully a slight improvement in Q4 and further improvement in 2017. That's at least our plans.
Thank you. That's clear.
Our next question comes from Rasmus Engberg from FH Bleek. Please go ahead. Your line is open.
Yes. Hi. I had a couple of questions. Firstly, you talk about the spend on investment-based projects decreasing significantly next year. It seems to be sort of flattish throughout this year, including your guidance for the fourth quarter. What's driving that decrease? Is it basically that Shpock does not need the same amount of money or is it something else that I'm missing here?
I would say that if you look at their overall portfolio, we haven't started in many new countries. It goes for all of them, that they're moving kind of into a newer phase, and especially the joint ventures that we mentioned, but also some of our fully owned operations are then moving closer to a break-even situation. I think each spot will continue easier to continue investing. Overall, the portfolio is then in a situation where less marketing investments are needed.
Okay. Then you have a comment on the tech costs decline in 2018. Is that correct? How is that coming about, given that there must be fairly significant wage inflation? Are you planning to lay off or reassign-
As we haven't said concretely the headcount in team. What we have said is, of course, that there are since we now are really making one product and tech organization, and then it takes time to transform that into an efficient unit, of course. There are duplications that we expect to be taken out in 18 and onwards, and then of course increase also efficiency and speed. That's really savings that we expect to see in 18 and onwards.
It's number of staff, I suppose you mean?
I think we certainly will look into how this will be organized and how we will use our resources.
You know, you have always in a resource pool like that, you have certain flexibility in terms of, you know, consultants that are hired. There's a little bit of a natural attrition, et cetera. You have several levers to play on there.
Yeah. Now that you are sort of reducing your spend in new ventures, are we at some point in the future, not too far out, I suppose, I'm asking is, are we coming to a situation where your taxes paid are gonna be lower than the sort of 30% as you start to account for tax credits, or is that?
Well, yes.
-possible?
No, I think that's a fair assumption. Bear in mind that the tax rate will be reduced in France, I think it's in 2019 or 2020 from actually effect of 4%. It's actually gone down a little bit in Sweden. It will also now slightly in Norway. The tax rate is expected to go down if you look 3, 4 years ahead. Also that we of course then have a situation that we defer tax assets is of course more prudent to take into account.
There's quite a lot there, isn't there? Both recognized and unrecognized.
Well, I mean, at least I think over if you look 3-4 years ahead, I think you should expect maybe 3%-5% lower tax rate as it is now. Wait and see what actually will be implemented on also with new tax rules.
Thank you.
Our next question comes from Preeti Sukha from Standard Bank. Please go ahead. Your line is open.
Hi. I have 2 questions. Could you perhaps provide some color on the revenue growth in Brazil and the anticipating timing of EBITDA breakeven? My second question is regarding the accelerated revenue growth in the listing fees in the verticals. Could you expand a bit on that, please?
Well, when it comes to Brazil, what we've said there is that we are developing our the operation there, and I think it's going well. What happened with that early in the third quarter, specifically more in July, we started charging professional customers, so real estate agents and car dealers for their content. The volume went down, but of course the monetization went up a lot. What we're seeing there is that, you know, it has a positive development, the pattern that we've seen in some other countries. We haven't been very specific about the breakeven situation, except saying that sometime during the 2017, it should reach a breakeven situation probably in the second half sometime.
I think that was the 1 question, the other one as well?
Yeah. A little bit unclear, you mentioned, also, listing fee, the verticals, that was a little bit unclear to me. Do you mean-
Yeah. Can you.
Do you mean, if you are able to raise the listing prices in different markets? Is the answer to that, raising the ARPU is yes?
Perhaps you could specify your question on the verticals.
Do you have accelerated growth rate for the listing fees in the verticals?
Yes. I mean, we in most of our markets, I think we have good growth in listing fees. Of course, we are doing price studies, we are doing monetization projects. We are looking at ARPU comparing with best practice. We have been working on this of course. This is something that we gradually increase, also we plan to do going forward. We have done it historically. Yes.
Going back to the investor day that we have, I think there we illustrated that there's a potential for us to increase the ARPU in verticals compared with those that we consider a best in class. That's what we're working on.
Okay.
That is not only like you increase prices. What's really important here comes back to also the product and tech spend is really to develop new products. You know, the professional customers such as recruiters, car dealers, and real estate agents, they are willing to pay for a good product that adds value to them. So you know, we have done some price increases and I believe we can do that also going ahead. The most important part for us is to develop good products for those professional customers. That's what we're working on, and that's what we have planned the pipeline to roll out in the coming years.
Okay. Thank you so much.
Thank you.
As a reminder, to ask a question, please press star one. Our next question comes from Marcus Ivar from Bodenholm. Please go ahead. Your line is open.
Yes. Good afternoon. A question on leboncoin. Maybe you can help us kind of... If, if one were to exclude jobs and the recent acquisition, and just look at the, I guess the old business as such, how do you how do you see this, the growth for, for this developing in 2017? Is there any reason why growth rate should change much from the current run rate?
Well, you know, I think it's, I understand your question, Marcus. It's hard to answer it as specifically as you want to for several reasons. 1 is that, you know, we don't want to be too precise. The other is that, you know, we're running a business here that for the next 12 months, you're not exactly sure where exactly you don't have the final answers to all parts of it, right? What I think, as we said earlier today, is that I think leboncoin is a great company. It's developing well. You have to keep in mind that they're big numbers now, so you cannot continue to grow in all segments at a high pace.
That's why I think that it's important to bring in new segments such as jobs, and that will help contribute. It's more, you know, it's more of an aggregate development we're looking at. I think also for leboncoin, it's the same story as I said it for the other ones, is that you, what you really should do, what you really should work on is to develop new products. We have very interesting things in pipeline there, but obviously that will come over the next years. I realize this is not a precise answer to your to your question, but that we're not really prepared to be that detailed.
Okay. if I may have a follow-up on the jobs vertical then.
Yeah.
Looking at that particular vertical, I understand that the opportunity for that market is a little bit more than EUR 100 million in terms of revenue opportunity. Your traffic share in that vertical is north of 30% at the moment or something like that. I mean, how quickly... From your, kind of from history, when you have kind of ramped into new verticals, how quickly are you able to get your revenue share towards your traffic share? Thank you.
Well, I think it's hard also to be precise on that. It's really about getting a critical mass. I think there's a number of things, you know, that we need to account for. The brand, how is that received in the recruitment sector as opposed to the real estate sector, et cetera. I would say that it generally it takes some time to achieve what you're asking for. I would say that the job market is also a little bit special because you get a troubled player, et cetera, et cetera. What I can tell you is that what I've seen so far, I think we've come up to a good start.
That will take a couple of years to really build the big volumes.
Thank you.
We will now take a follow-up question from Alex Pochini from Goldman Sachs. Please go ahead. Your line is open.
Yes. Good afternoon again. I wanted to check with you on the guidance for 2017 significant decline in the in the investment phase investments. The consensus expects something around EUR 70 million in 2017, and you guide for EUR 90-95 million in 2016. Would you consider the decline from this EUR 90-95 million to EUR 70 million as significant? That's my first question. My second question is on Rocket Internet. Rian mentioned at the presentation in the morning that it shows better engagement after MVP launch in Greece. I was just wondering how this, that engagement during the early launch inform your rollout plans across your operations.
In particular, when should we expect those, this engine in, places like France and Spain? Thank you.
Let me take the last question there. I, you know what I said, and I think this is the headline for the other things we're doing right now as well, is that there are no big surprises for us, meaning that the Rocket is doing well, but the trials we're doing there is developing as expected. It's not forcing us to speed up nor delay what we have planned. Out of competitive reasons, I don't want to say exactly when we're going to launch in the different markets. I just want to say that we're pretty pleased with what we're seeing, and the team is working fast.
When it comes to the Interpretation and definition of English language and the words there, Trump, perhaps I should leave that to you.
Okay. I'll. Well, I'm afraid I can't be too precise there either. No, it would be 1995, 16. If you look into 17, we've continued to invest, of course in markets like Mexico, some in Asia. Also fair to say that it's significantly down in some in other markets. Shpock is something that we're not really disclosing what we'll do. We monitor closely the situation, but in sum, this means that it goes, as we say, significantly down. I think that the lesson learned also is our competitors. We like to have some flexibility in this, and not be too precise. That's the reason.
yeah, I appreciate it. that I just wondering if you think like consensus is crazy or not really. just saying.
Yeah. Well, I prefer not to answer that precisely.
Okay. Thank you.
As a reminder, to ask a question, please press star one. We'll now take a follow-up question from Anders Wennberg from Catella. Please go ahead. Your line is open.
Hello. Can I ask a little bit about Facebook? I think about 18 months ago, there were a lot of local buy and sell groups popping up on Facebook in Sweden. I think they're still around in smaller towns, but they've kind of faded away in the bigger cities. People are tired of getting too much stuff in their news feeds, I guess. Now Facebook has kind of relaunched or kind of started pushing harder again. Can you explain a little bit what you see in terms of what they're doing out there?
Well.
I know they're more active in the U.K. than here.
They are active in the U.S. and the U.K., that's right. In the U.K., of course, we have Shpock. We have not seen any effect on Shpock of this so far. Shpock is growing as rapidly as it did before. When it comes to the Facebook groups that you're mentioning, yes, they are significant in parts of Norway, for instance. FINN is still growing in the general list space at very healthy rate. What we've seen on Facebook so far is that it's rather expanding the total market. We feel confident that we have actually better products than they have now. We are increasing the speed of the further development.
It's of course, a development that we're following very closely and paying attention to. So far it hasn't affected us. I would say that we still see healthy growth rates in our sites. That has been alongside even areas with big with Facebook few groups of a sizable nature for a while.
Okay, thanks.
We now have a follow-up question from Alex Pochini from Goldman Sachs. Please go ahead. Your line is open.
Hi again. Just a very quick one. You mentioned previously on the dynamics on display advertising in France. I was wondering, like, is there anything specific with that line of revenues in the country? Was it deceleration, accelerating? Any granularity on the performance of that line would be helpful. I can imagine that with the growth rate, you leboncoin shows overall, the contribution of display is now probably around maybe 20%. Is this about right? Thank you.
When it comes to display, France, we have the effect that we had in no many other markets when you're moving from a desktop to mobile. It takes a while until you're developing new advertising products being the same efficiency mobile wise as desktop. There has been some drain on that. We also have seen that we need innovate to develop also some of the new products being on our mobile site. I think we have a good prospects for the future. It has been slight slowdown, I would say, during 2016 on the display in France, fair to say.
We have a lot of products in pipeline, and I don't think I will comment specifically on the figure you mentioned.
Okay, thanks.
There are no further questions from the phone. Again, as a reminder, please press star one. As there are no further questions, I now turn the call back to your host for any additional or closing remarks.
Well, thank you very much for very good questions. I would just like to wish you all a nice afternoon and a good weekend. Thank you very much and goodbye.
That will conclude today's conference call. Thank Thank you for your participation. Ladies and gentlemen, you may now disconnect.