Good day, welcome to the Schibsted Media Group Q2 2016 Q&A Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Jo Christian Steigedal. Please go ahead, sir.
Good afternoon, a very warm welcome to this Q&A session in connection with the presentation of Schibsted's second quarter report for 2016. Thank you 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, Rolv Erik Ryssdal, our CFO, Mr. Trond Berger, and my colleague in the IR team, Anders Rønning. Now I'd like to hand the word over to Rolv Erik Ryssdal for a short introduction.
Thank you, welcome everyone to this conference call. We'll soon take questions, let me first make a short introduction for results. I'm happy to report that the good development has continued for Schibsted in the second quarter of 2016. Our online classified operations grew well, both in terms of revenue and operating profit. Currency-adjusted growth rate for online classified operations was 18%. Among our main developed operations, it's always good in Spain and France, we've also seen good growth rates in both Norway and Sweden recently. It's clear that leading traffic positions and strong brands provide a solid platform for value creation, backed by both increased ad volumes, new products, as well as price optimization.
The overall margin level for online classified is more or less unchanged compared to the second quarter of last year. This reflects that we have a significantly higher level of marketing spend in some markets in this quarter, France being the most important in that respect. For Schibsted, it's important to continue to build a long-term growth profile. We continue to invest in new market positions. We continue good development in important emerging markets like Brazil and Mexico. We also invest large amounts in the native mobile marketplace, Shpock. Shpock can be described as the mobile Gumtree. It's building an interesting position by attracting new user groups and unlocking a range of items that were not previously traded. U.K., Germany, and Italy are the key markets of investment for Shpock. The results in form of traffic and user engagement are encouraging.
Moving on to our media houses, it's good to see that they were able to improve their profit even though the advertising markets remain challenging. Cost reduction and an innovative approach to product and revenue development is a focus for these operations. It's necessary to deliver on this in order to mitigate the structural decline. The most exciting thing at the moment is that digital subscription bases grow considerably. In fact, this has led to 11% growth in circulation revenue for both, for our innovation subscription-based news offerings. This is a very positive development that with not that evident, if you go only one to two years back. Now we've had a very fast development there. Throughout during this year and last, we stepped up our efforts to build competence within product and technology.
This is continuing, our roadmap for new products is ambitious, both within digital advertising, our online classified markets, and for our media houses. With that, I will conclude this brief introduction. A full presentation recorded on video this morning is available on our website. I'd like to hand the word over to our operator, who will organize the Q&A session. Please, operator, go ahead.
Thank you. If you would like to ask a question at this time, please press star 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. Again, press star one to ask a question. We will take our first question from Chris Collett from Deutsche Bank. Please go ahead.
Good afternoon. This is Chris Collett from Deutsche. Thanks very much for taking the call. Just wonder if you could just address two topics. One was just on Spain. I think you mentioned earlier on today about increased competition in some of the, in the generalist category. If you could just talk a little bit about the competitive position there in Spain. And then moving over to Italy, with Subito, I know you're talking about it being in the investment phase. So just wonder if are there any metrics that you can share with us around consumer traffic, engagement, and, you know, when we should expect that to move more towards a monetization phase?
Right. Okay. Let's just start by Spain. That's right. I mentioned this morning that there's increased competition in the generalist space. That has notably been from Wallapop, which is a service very similar to Shpock, they have been successful in, I would say, enlarging the market and taking a strong position within certain categories: fashion, baby clothing, et cetera. I think that our repositioning of Segunda Mano into [inaudible] has not been as successful as it should have been. Therefore, we're increasing our efforts in product and tech in order to roll out a better product in Spain. So far, this has not impacted our monetization of the service.
When it comes to Italy, Jo Christian, I think we've reported that we have a good and healthy traffic increase.
We have a good traffic increase. We don't really provide any specific numbers from our internal numbers now. We have good development compared to our main competitor in the generalist field, the TT. We are far bigger than them in traffic and reach, also on revenues. We see a good and stable growth rate there. It's been a relatively good quarter.
Thank you.
Our next question from Catherine O'Neill from Citi, please go ahead.
Hi. I've got four questions, so sorry. Firstly on the cash front, the working capital generation was stronger and CapEx is spending higher. I just wondered if you could give us some details on what's happening there and how we should think about that for the year. Secondly, you clearly had a decent set of savings in Norway, in media house there. Are you able to quantify what the savings potential is for the year and also the associated restructuring costs? Thirdly, I just wondered now that Hemnet's happening, you've got a healthy balance sheet, what your sort of M&A plans are and what the pipeline looks like. Finally on Sweden, the margin has been better in the last couple of quarters. The costs look like they're down.
I just wondered what's happening there on the cost side and how we should think about the margin progression for the year.
Hans, would you like to say something?
Yes. When it comes to the working capital, it's fair to say that we have had a positive development in this quarter. That has been impacted by we have taken some actions and at the same time also have some of our tax payments. The seasonality will lead to this probably impact in second half, but it should still be some cost actions to be seen in our working capital as a whole. When it comes to then the savings in Norway, we are not disclosing exactly the impact of the savings. What I can say is that it is several tens of millions in effect in a year of the actions we are doing now.
The restructuring costs that we have taken in this quarter is close to, I believe, NOK 40-50 million in that area. Going then to the Hemnet situation. Well, as a result of this, in general, your question was about the healthy balance sheet and possible M&A. I mean, we will certainly like to continue to do in-market consolidation where we are able to do so. It is sad to say that we're not able to complete Hemnet. And we believe actually that some of the concession required from the competition authorities was not reasonable and expected.
The real estate market in Sweden is clearly a core market still for us, so we will come back and see how we will deal with that going forward. Then it was in Sweden about the development there. I would say that
Sorry, that was Blocket specifically, I meant on the margin.
Yeah. No, Blocket, we saw actually a pretty good growth in Q2. I think that both the display and the underlying vertical development in Blocket is healthy and good. I think that is something that we are satisfied with.
Should we expect the margin to be up for the year because it looks like the costs have been going down?
No, I think, well, because of the, we're not really guiding on margin outlook because we are doing different, marketing, activities, fluctuating from quarter to quarter. And fair to say that, we have been hitting back somewhat marketing activities in Q2.
Okay. Then just on the CapEx, which turned it up.
Yes.
what made that and
No, that is, w ell, it is sounds like a minor effect from the product effect that is included in the CapEx. I think the normal maintenance CapEx is probably closer to NOK 150 a quarter and now we're closer to NOK 200, something like that. It's fluctuating from quarter to quarter, but also driven by the product CapEx.
Okay. Thank you.
Our next question from Alex [inaudible] from Goldman Sachs. Please go ahead.
Yes, good afternoon. Two questions from me, if I may. First is, what is your split in the R&D expenses between the classifieds and ad tech, if you can provide that? I was also wondering if your ad tech developments can be deployed in the classifieds platforms. I mean, are they transferable between different sides of the business? The second question is a follow-up on the comments you made in the morning presentation that you are happy with the real estate vertical staying a part of Leboncoin as it is.
It's quite an interesting comment given some of your, well, some of other global players try to make a great distinguish the vertical and separate the B2C part of the business from the general classified business, which is more designed as a C2C. It seems that, well, Naspers, for example, makes quite a good revenue progress by following that strategy. Do you think that's unnecessary or that's something you may accomplish going forward? Thank you.
Well, Alex, thank you for those questions. Let me take the latter one, and then Trond can take the first one. you know, I think what other players such as Naspers have done in Russia certainly makes sense for them, I'm sure. What we're seeing is that in France, we're having good progress the way it is organized now, and it's and Leboncoin serves as a huge traffic engine. That's why I commented that there is no current plan to change that. Besides that, out of competitive reasons, I don't want to give too much detailed information. I think it's fair to say that this is something that should be viewed on a market by market basis.
Of course, we are aware of the development going on in the other markets and we're constantly, you know, looking at what is the best structure for us. Leboncoin works very well. That was to the second question and to the first one, Trond.
Well, we don't disclose the split between the ad tech and the classifieds. What I can say is that a lot of the work we are doing now in product ad tech is to come up with better improved components that we can use in both areas, and typically like messaging, payment solutions, et cetera. We're also doing a lot on the ad tech and our cooperation with AppNexus. Ad tech is quite a substantial part of what we are doing for time being. We are also looking into next generation verticals in the classifieds. That's also a work undergoing that we also may step up somewhat going forward.
Which we believe will be critical to really be in the forefront in the classified vertical. And no doubt that the ad tech can also be used specifically to your questions, can be used certainly in our classified display part, delivering targeted audience, which we believe is quite important.
Thank you.
As a reminder, press star one to ask a question. We'll take our next question from Carl Tengberg from SHB. Please go ahead. Your line is open.
Yes. Hi, good afternoon. I was a little bit curious to hear about FINN. Obviously revenue has recovered quite strongly, but then also costs jumped a lot. Are those two things related or is it just a coincidence? Also, do you think the Norwegian market is, you know, sustainably in a recovery mode now, or is this just a one quarter jump? Secondly, if you could comment on whether you see revenue growth in France accelerating in the second half compared to the first half, given the positive comments you made on cars and also on real estate?
Well, when it comes to the FINN, I think we are happy to see that we are still doing well in the car vertical, the job vertical. We have done some price mix changes, so that's also some positive revenue figures there. Although still some challenging market on the West Coast, but have improved somewhat on the East Coast of Norway. When it comes to costs, well, they have gone up somewhat in this quarter, driven by some marketing activities. Yes, also somewhat higher IT costs that previously was in the depreciation because now it's outsourced, so it's a little different. It's more operational costs. Also some marketing costs to some of the personal finance in FINN.
I think we are underlying very happy with the FINN development. We also have seen stabilizing of the real estate volume for timing in Norway. Leboncoin, I don't think we really give guidance on the revenue or top line going forward. We have said that it's between 15% and 20%. That is still what we stick to. I think that we are happy with some of the underlying trends there, of course, but I think we stick to that.
I think what we said is that they will have between 15% and 20% for the full year.
Yes, for full year. Yeah.
Yes.
Yeah, that's what I meant. Yeah.
Yep. It will. When I talk about the development of our business, and Leboncoin is no exception, I'm thinking in long term, much longer than, you know, just a quarter or two ahead. I'm happy with the way the business is developing and their prospects. I think their, you know, the numbers will fluctuate from quarter to quarter, and there's no change in long-term trend. The only thing we're telling guidance is for full year between 15 and 20%.
Yes.
Can I have a follow-up just on FINN? Now the margin seems to have come down to almost around about 40% now compared to 50%, two, three years ago. Is that cyclical or is there a structural difference in that?
No, I think the what we have said on FINN is that we have invested in in marketplaces with some lower margin like travel. We have picked up some personal finance within. These are profitable, interesting business to be in, but with lower margins than they inherit in the vertical in itself. It is to some extent somewhat structural, but the right thing to do to broaden the profit base in FINN.no.
Okay, thank you.
Again, to ask a question, it's star one. Our next question is Alex [inaudible] from Goldman Sachs. Please go ahead.
Hi again. Two follow-ups for me, if I may. One is on Italy. You mentioned that there is a good and stable revenue growth, I recall it was in the range of mid-30s, a quarter or two ago. Are we talking about the same sort of type of growth sustainability in Italy? My second question is on Brazil, where, I mean, all the revenue acceleration across the investment phase businesses you're pointing at and the introduction of leasing fees and so on, the margin expense reduction, which Nansen was talking about, do you see the businesses approaching the profitability within the, well, I mean, given the rate of growth in the coming quarters or it's still far away?
Okay. It's Jo Christian here. I can comment on Italy. I think you mentioned growth in the 30s. We had that in the beginning of last year. I think we commented on that it was on in that range. We had a certain slowdown towards the end of last year, but then we've had seen some recovery in the revenue growth. Don't really wanna be specific on the growth rate exactly.
Yeah.
When it comes to Brazil, we are very happy with the growth there, of course, also being able then to monetize on house and real estate. Where we haven't really there given any guidance on breakeven. What we have said is that it may be that we, into some time into 2017 may approach a breakeven. That's all the thing we have said here previously, and we just reiterate that.
May I ask on Brazil, I get the sense was that it may be approximate in 2017, do you think the growth in revenues you see now in Brazil coming from those introduction of listing fees and other monetization tools, is it ahead of your expectations or in line with your expectations?
Well, you know, it's, I would say the growth is in line with the expectations. What we're doing is we're experimenting and then doing it little by bit by bit. I would say there are no big surprises there.
Thank you.
There are no further questions at this time. As a reminder, it's star one to ask a question. We have a question from Alex [inaudible] from Goldman Sachs. Please go ahead.
Yeah, sorry. One more from me. I saw somewhere in the press that Leboncoin now has like over 350 people already. I just wanted to confirm that with you. Does it change your previous plans to have 400 people by the end of the year? If you can, or probably the number was even like close to 400. If you can update us on the number of people you now employ with Leboncoin and how this will develop throughout 2016, that would be helpful. Thanks.
It's Jo Christian. Well, I think what you read is probably accurate from some local press. I don't think we would communicate from us a specific target for number of people at the year-end. You will see some growth, continued growth in headcount there, both related to some on sales and some on product and tech development in Leboncoin. There will be some gradual increase also going forward.
Understood. Thank you.
We will take our next question from Frederick [inaudible] from Pareto. Please go ahead.
Hi, guys. Thanks for taking my question. Just a quick one on media house Norway. I see that you have a positive EBITDA other eliminations figure for second quarter 2016, while that's been like NOK 10 million-NOK 15 million negative per quarter, quarters before that. Can you just give me some color on what that comes from? Thank you.
It's first of all, that we have done a lot of measures in printing and distribution. I think that we now see that the result of these kind of restructuring are going through.
Thank you.
Thank you. There are no further questions at this time.
All right. We'll give you a couple of more seconds to sign up if there's any more.
Okay. As a reminder, it is star one to ask a question. We now have a question from Marcus Ivor from Berenberg Capital. Please go ahead. Mr. Ivor, your line is open.
Sorry, I was on mute. Thank you so much for taking my question. This morning you mentioned that in Blocket you're now seeing some momentum in the job vertical. Maybe you can elaborate a little bit on this. I thought it was a very small part of the business. Has it grown to some kind of materiality? Thank you.
Thank you, Marcus. Well, we haven't released the split or a number, but it's getting into a meaningful number in Sweden. As you know, we have, we market with under two different brands there. We have, we have now joined the sales force together. We're seeing that we're getting actually increased traction in that. I that's one of the sectors where I'm positive for the further development of Blocket.
Thank you.
That's a good release.
There are no further questions in the queue.
Okay. I just like to thank you all very much for participating today. A very good day to all of you and, have a nice summer. Thank you and goodbye.
Please contact us if you haven't had your question directly. Thank you. Bye-bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.