Good day, welcome to the Schibsted Media Group's Quarter One 2016 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.
Thank you. Good afternoon. Welcome to this Q&A session in connection with the presentation of Schibsted's Q1 report for 2016.
Thank you very much 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 Bruning.
Now I'd like to hand the word over to Rolv Erik Ryssdal for a short introduction.
Go ahead.
Thank you, Jo Christian. Welcome, everyone, to this Schibsted Media Group Q1 Q&A conference call.
We'll soon open up for questions. First, I'd like to make a few introductory remarks. Schibsted has had a good start to 2016. The online classifieds operating revenues grew with a currency-adjusted rate of 17%, which represents a higher growth rate than in previous quarters. Steady high growth in Spain and France are the most important top-line drivers.
Across all of our geographies, we see improvements in the way we're able to introduce new services and optimize prices in the verticals. This results also in a better improvement in the profitability this quarter. As we have previously informed the markets, we continue to invest in new market positions to strengthen our long-term growth support profile.
We see good return on investment in the new venture portfolio, for example, through growth in traffic and engagement in the Brazilian markets. We also invest considerable amounts in Mexico, where our site, Segundamano, is the leading generalist site. We're also investing in native mobile marketplace Shpock. This is an exciting concept that has captured considerable positions in big markets like U.K. and in Germany. When it comes to our media houses, the structural changes continue.
We're seeing that both advertisers and consumers rapidly change their behavior. We constantly need to adapt our cost base to the reduced revenue base, particularly in Norway and Sweden, things are looking better at the moment. There are, however, some positive signs also in Norway, because what we're seeing now is good growth in the number of digital subscribers to our newspapers.
In Norway, the total number of subscribers is now higher than one year ago, and that hasn't happened for many years. In Sweden, our media houses show growth in both revenues and EBITDA, fueled by both online advertising and adjacent online concepts like personal finance and price comparisons. Our efforts to build up global product and tech capabilities has continued with full speed in the Q1. Some products have been launched during the first month of 2016, and the roadmap for new products is ambitious going forward.
Our aim is to continue to deliver improved products for consumers within both online classifieds and media houses. Well, with that, I'll conclude this brief introduction. The full presentation recorded on video this morning is available on our website.
I'd like to hand the word over to our operator, so we can get started with Q&A.
Please, operator, go ahead.
Thank you, sir. Ladies and gentlemen, 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 keypad.
Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, please press star one to ask a question.
We pause now for a moment to allow everyone to signal.
Our first question today comes from Alex Blostein from Goldman Sachs. Please go ahead. Your line is open.
Yes, good afternoon. A few questions from me, if I may. First is, on Hemnet.
During the presentation earlier today, you mentioned that you are in a productive dialogue with the regulator, on Hemnet. In the press release or earnings release, earlier this morning, you mentioned that there is an increased uncertainty over the deal. I was just wondering, which of the statements, do you think are more correct?
They sort of, one gives a hope, the other, emphasizes the concerns.
How the situation is different from, like, where you've been, not in the beginning of March, but let's say in February. Is it worse, or you are pretty much where you expect it to be?
My second question is on Brazil. I found it's quite interesting what you mentioned on the listing fees you introduced in real estate and auto verticals. Well, from my experience, listing fees get introduced normally when the businesses are quite established and well, nearly always profitable. I was wondering, is that the indication that Brazil is profitable or maybe very close to that?
If it's not, what makes you sort of the feeling that introduction of the listing fees will not change the business momentum?
Thank you.
Right. I'll answer the Hemnet question, and then Trond can take the second question. Well, concerning Hemnet, We have received signals from the competition authorities in Sweden that have some concerns over the deal. That's why we wrote in the quarterly report that there is increased uncertainty. We also have a good dialogue, so in fact both statements are true.
If you compare to when we entered into the deal, and what we said in February, there is now somewhat increased uncertainty due to those signal signs we have received. We've been in similar situation previously, such as in when we acquired Milanuncios in Spain. At that time, we had a dialogue with the Spanish competition authorities, and we agreed on some remedies.
What we expect here is to have a dialogue with the Swedish competition authorities over possible remedies that might remedy concerns that they have. We don't know exactly what are their objections or statements yet, so we'll have to wait and see.
There is a somewhat increased uncertainty due to the signals that we have received. We expect by during June, this, by mid-June to be able to comment more precisely on this matter. Best to have next.
When it comes to Brazil, first of all, this site is not yet profitable, but it's a strong online growth. We have a strong traffic position in the car market and also in the real estate, by the way, in number of listings. What we have done there is that we see still continuous good growth, even if we have some listing fees and also it will be that going forward.
When it comes to if this will have an impact of the traffic, we haven't seen that yet. We believe that it could go into a break-even situation sometimes in maybe in 2017 or somewhat in first half of 2017. Remains to be seen.
It's interesting and good progress.
Trond, thanks so much. I just wanted to clarify.
You also mentioned that the margin expense went down in the Q1 year-on-year. Last year in the Q1, it was also down quite a bit from what we can judge from your reporting. So you must have sort of get rid of quite a substantial part of your pre-merger cost base, and since then, the growth of revenues has only accelerated. So we basically, like, is this right to think that the profitability in Brazil is really just quite close to where we are now, should such revenue growth continue and given the monetization tools you keep introducing?
Well, as I said, well, I don't think I have heard a doubt, saying that it may go into profitability beginning or first half of 2017. It's, we have to wait and see if we are able to keep the track. Hopefully we are.
Understood. Thank you.
Our next question is from Catherine O'Neill from Citi. Please go ahead. Your line is now open.
well when it comes to the investment we're doing and the investment losses, I think it's hard for us to be too specific on that. We're operating in very dynamic markets. Our actions are partly determined by our own progress and what competition is doing. It's hard really to be more exact. That's why this is not a big change compared to what we've communicated earlier on.
When it comes to Shpock, we said that we will experiment with monetization, and those could take different forms. It could be advertisement, could be special features on product. Could also be to get more into the transaction itself. The final question, Trond.
It's the price gap between number one and number two. First of all, France is very divided in different regions, and especially like Paris is more high-priced market than the rest of France. SeLoger is, of course, the leader in that region.
Also they have raised the prices. In general, our offer is somewhat lower than SeLoger, but nothing that really is, I would say, substantially lowering the price compared to SeLoger. There are some Slight lower prices on our product compared with the last year.
Okay. Thank you.
Our next question is from Silvia Cuneo from Deutsche Bank. Please go ahead. Your line is now open.
Hello. It's Silvia Cuneo from Deutsche Bank. Thank you for taking my question.
I just have a question on online classifieds international margin. You talked about leboncoin margin going down for the rest of 2016 because of saving in marketing spend. How should we think about margin for the other operations like Spain and Subito in Italy?
Well, first let me repeat what you said about leboncoin, then Trond can comment on the others. What you've said for also previously is that we've said that for the top line growth for leboncoin, we expect that for a full year to be between 15% and 20%. The Q1 was very strong. Things will vary a little bit between months and different quarters.
What I also said this morning is that we're seeing this the start of the Q2 is more in the lower part of that range that I mentioned.
When it comes to the margins, this is quite heavily affected by what's happening on the marketing side, the marketing campaigns.
In the Q1, we had some campaigns that were planned but postponed to the Q2, meaning that the margin was unusually good in the Q1 and will be somewhat lower for the rest of the year. Trond, on the other, online classified.
Well, I can say when it comes to Spain, clearly we have done some marketing campaign. We're rebranding into the Vibbo in Q1. In general, I would say that Spain is in over the next two, three years will be somewhat lower margins in general compared with the other classified markets.
Over time, of course, there is no reason why Spain it could not go up to more normalized level later being more comparable. It could take some time. It's a good traction and good development in Spain in general. When it comes to Italy, it's we are focusing on monetizing more in the car vertical, I would say in Italy. That's a special focus in 2016.
But we will at the same time continue to do the marketing campaign, especially towards that segment and in general in Italy. We are prepared to continue invest, meaning that Italy may still be in red figures for 2016 as a total, even if we could decide to do differently. All in all, Italy also develops, I would say good for time being. But I don't think I would give more specific guidance.
Thank you.
Ladies and gentlemen, as a further reminder to ask a question at this time, please press star one on your telephone keypad, please do ensure the mute function on your telephone is switched off to allow your signal to reach our equipment.
Our next question comes from Rasmus Ingberg from SHB. Please go ahead. Your line is open.
Yeah. Yes. Hi, good afternoon. I had a question on your subsidiaries. It seems that you did not inject any more capital into your subsidiaries or joint ventures in this quarter, or if it is, it's much, much lower. Is that ending as a cash burden for you here, or is it just a timing issue?
I would say that this of course will also variously differ quarter to quarter when we inject the capital in our, first of all, JVs, because I believe that's what you're asking, in, and, no, I think you should expect that we still will need to inject some capital going forward, but it will be of course much lower levels, compared to what we saw in 2015. It will go down over time as we expect improvement in of course underlying in these JVs, but still some outflow.
A question on your overhead and tech costs. Are they already at a level or are they still increasing quarter by quarter?
and tech, what we have said is that we will continue to do some further recruitment during 2016. It is likely that it will increase somewhat during 2016, fair to say
Okay. Thank you.
Our next question comes from Christer Roth from DNB Markets. Please go ahead. Your line is open.
Thank you. Just wondering, there were some articles in the French media earlier this year stating that leboncoin would increase headcount by about 100 employees throughout 2016. Is this still a target?
Secondly, could you just give us a rundown of what amount of costs were capitalized in the quarter? Thirdly, in terms of the adjustments that you make for EBITDA ex-investment Phase, there is seemingly NOK 9 million from outside of formal and classified. Could you just talk about how you expect that to move going forward? Is that going to be a significant chunk going forward or remain insignificant? Thank you.
When it comes to leboncoin, we don't want to be too specific on the headcount there. Obviously, as the site is increasing, there is some increase on the sales force, and there is also some increase in the developers. We wouldn't want to go into too much specifics about that. The long-term picture is, of course, that product and tech will, to a larger degree, also be centralized. When it comes to the second question, Tom?
Well, I mean, we have to capitalize some costs according to IFRS when it is directly identifiable on some of the product that we are developing. I would say that we are prudent, and we capitalize maybe 30%-40% of some of the costs in some of these projects. When it comes to the last question, I think that goes really for some project that we have run in the vacation homes services that is likely to go down going forward.
Thank you.
We'll now take a follow-on question from Catherine O'Neill from Citi. Please go ahead.
Hi. Sorry, I had one more question. I just wondered, you talked about expanding or into the jobs vertical this year in France. I just wondered if you could give us a bit more detail about how you think about the size of the opportunity there and what the sort of competitive dynamics are in the market currently and the sort of investment that would be required?
What we have said when it comes to job vertical in France, the total market is around EUR 130-140 million, if I recall, and then, euro. The largest today is, of course, the state portal. It's and it's also then fairly fragmented in the rest of the market.
We believe there is an opportunity. leboncoin has quite substantial traffic already that they don't monetize, but it's a lower segment type of jobs. We have planned to entry into the job segment, but we need to do at the same time some product improvement and some marketing when we do that. That will happen, I would say, towards the end of 2016.
I wouldn't count that to have any significant effect into 2016. It will be into 2017. Because we will run some campaigns parallel in towards late in 2016.
Okay. Thank you.
We have no further questions in the queue, but I'll give a further reminder that if one wishes to place a question, please press star one on your telephone keypad now. We'll take a follow-on question from Alex Blostein from Goldman Sachs. Please go ahead. Your line is now open.
Yes. Hi again. I just wanted to check one thing with you. You mentioned in the previous calls, it was the Q3 and Q4, that the design of Leboncoin website doesn't really allow the monetization when accessed from the mobile devices. I presume your website reshuffle now allows that. I was just wondering, do you see Like, how do you see the process of uptake of that monetization tools you introduced on the mobile, on a mobile platform? My second question is again on France, in the real estate. If you could provide us with just a basic structure of your real estate offering, if you can?
Specifically, you historically favor the leasing model, I was wondering if you may want to consider the subscription model in France. How over time do you see the ideal customer proposition and an overall product in a real estate vertical in France from your standpoint? Thank you.
Well, thank you, Alex.
In France, we're seeing that the mobile traffic is growing rapidly as in other markets. There were around 60% of visits from mobile devices of the total in March. What we've done is we have developed a new responsive format and responsive mobile site. I think that is a very user-friendly thing. I think, however it takes some time to get the advertisers to get used to this new responsive format. I don't expect there to be a big uptake or a big growth on that for this year. Going into next year, I think I'll be more positive around that.
The important thing is that we're developing good and user-friendly sites, and these responsive mobile sites have been very well received so far. I think also advertisers will appreciate that.
May I ask, sorry, may I ask on that, you're also mentioning that, the previous design of website didn't allow the use of certain monetization tools. I was just wondering if that is changing now as you move to this responsive website design?
Yeah. Well, Alex, I think that's what Rolv Erik alluded to, is the, is the monetization on the type private.
Six single up, upsell products, that, where we've seen limited growth. There are products in place on the new mobile, formats, that we think over time will continue to add to the growth.
We're developing those and they will be in place in the new responses site. That will take some time for advertisers to really pick up on it. That's all.
Got you. On the real estate product. Sorry.
I think we will continue to go towards the more subscription model, which is a more common practice in the French market. That's the plan there, and also at the same time improve, of course, the real estate product and offering as such.
May I ask you, Trond, thank you for that. May I ask you, what do you think is the ideal sort of revenue split between the subscription per se and the value-added services which you may be able to charge, or let's say your customers will be happy to pay to you? What's from your standpoint is the ideal mix of those revenues?
well I think it's hard to give a very general answer to that because it depends on the market structure, country by country. It depends on, the, I would say this, the purchasing strength of your customers, for instance. In some markets, you have some, dealer types that are very influential, whereas in other markets, it's more fragmented. It's hard to give a general answer to it. Of course in general, to have a good amount of, add-on products is always a good thing to have.
Understood. Thank you. May I just ask a quick follow-up on the same thing on real estate? You had quite an impressive uptake of the sign up of your P3 customers with 90% up from 70, I believe, in the Q4. Do you see those customers have started paying already, or there is a bit of a gap between the signing up and them actually paying for the services, or that happens pretty much in the same time?
Yeah. We haven't seen any significant problems with getting the money in. If that's what you mean, Alex. That's been proceeding quite well.
It's typically a yearly contract, so that's more and more practice.
Thank you.
We'll now take a question from Marcus Ivar from Bodenholm Capital. Please go ahead. Your line is open.
Yes. Thank you for taking my question. It's about the local advertising that you are targeting towards the SMEs in France now and rolling out in Norway and Sweden later this year. Can you help us quantify the size of that opportunity and kind of how you're looking to actually execute on gaining share in that particular market?
Well, Marcus, you know that many of the SME companies have not been advertisers with us. We see some opportunities to gain some new ground here. If you look at some of the big U.S. American players, they've really been successful in that market. What's necessary for us is to develop them good self-serve solutions. That's what we've been working quite hard on doing. I would be a little bit careful to quantify the size of the market, but we obviously believe that there is this is an interesting market, and that we're not able to serve everyone through sales reps. That's why we're automating part of that sale.
I think I think so far, it looks, the result looks interesting.
Okay. Maybe I can have one more question quickly on the investment Phase. This is growing something like 40+% in EUR terms. How much is this growing in local currency?
Christian?
Around 60% is the currency-adjusted growth rate there.
Okay. Thank you.
We have no further questions in the queue at this present time.
So I'll turn the call back to you for any additional or closing remarks. Thank you.
Okay. it's for Christian here. Thank you very much for good questions from all of you.
Thank you all for participating.
I would just like to wish you all a good afternoon and goodbye.
Thank you, sir.
Thank you.
Ladies and gentlemen, that now concludes today's conference call. Thank you for your participation. You may now disconnect.