Good day, ladies and gentlemen, and welcome to the Schibsted Media Group's Q3 2015 question and answer 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.
Good afternoon. Welcome to this Q&A session in connection with the presentation of Schibsted's Q3 report for 2015. Thank you very much for joining us today. My name is Jo Christian Steigedal. I'm the Head of IR in Schibsted. Together with me here in Oslo are our CEO, Rolv Erik Ryssdal, our CFO, Mr. Trond Berger, and Terje Seljeseth, who is the CEO of Schibsted Classified Media. Now I'd like to hand the word over to Rolv Erik Ryssdal for a short introduction.
Thank you, welcome everyone to the Schibsted Media Group Q3 Q&A conference call. We'll soon open up for questions, I would like first to make a short introduction to our results. Q3 2015 was a good quarter for Schibsted. We have seen good growth both in revenues and operating profit for our key online classified operations. In our financial report, the numbers to some extent are boosted by currency effects, also the underlying development is good. Some highlights that deserve mentioning are France, where the growth rate bounced back to 20%, Spain, where we saw it for an acceleration in revenue growth. Strategically, we continue with a steady course. In online classifieds, we focus on organic growth in all our markets. This means that we continue to invest in developing the product and market position in our established markets.
This is the background for the margin construction, observed in France in Q3. Secondly, we clearly see the value of consolidation in online classified markets. We would like to participate in these consolidations, both through structural arrangements like the consolidation we carried out in Ireland in Q3 and through bolt-on acquisitions. During the Q3, we strengthened our financial muscles through issuing new B-shares amounting to close to NOK 2.7 billion . We're glad to see that the placement received good support in the market, and it shows that establishing the B-share structure earlier this year was an important move for Schibsted. Our media houses continue to adapt to the rapid changes in markets. This implies both development of new online services and reducing the overall cost base.
2015 has been a year where we've put considerable efforts into establishing stronger product and tech competencies in Schibsted. Many important products and functionalities are in the pipeline, both when it comes to the consumer product and within advertising. We'll continue this important work also in the quarters to come. It is necessary in order to preserve our competitive positions, and at the same time, it will create new opportunities for revenue growth for us. This was a brief run-through of how we see the development right now. A full presentation recorded on video this morning is available on our website. I'd like to hand the word over to you operator, so we can get started with questions and answers. Operator, please go ahead.
Thank you, sir. Ladies and gentlemen, if you'd 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 that 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, to place a question, please press star one. We'll pause now for a moment to allow everyone an opportunity to signal. Our first question is from Alexander Balakhnin from Goldman Sachs. Please go ahead, sir.
Yes, good afternoon. I have a few questions. I start with France. There were some news that you have some attractive terms for real estate agencies if they sign up to your offers in the real estate vertical. While I understand it's commercial information and so on, but could you probably share some high-level details of those offers? Also, if you could update us on how this whole sign-up process goes. I understand we're only, like, one month into the quarter, which is very critical for you. I would ask a question, what sort of sign-up rates in terms of the share of real estate agents in France would make you satisfied with the campaign of 2015?
I think it's fair to say that we're happy with the progress we made so far, that on the number of real estate agents signing up. Out of competitive reasons, I cannot really go out with the numbers, nor will I discuss the terms for where they sign up. Sorry about that. What I can tell you is that we're quite pleased with the progress we're having in the market.
It is actually according to what we planned several months back so far.
Maybe just a follow-up on that. With the, well, some news suggest that you offer some discounts. Like, are the discounts a part of the offerings for the new real estate agents or not?
I'm sorry, Alex, but, you know, it's you're really asking for competitive information, and there's several players in the market have different offers out there. I cannot here go in and discuss the exact offers that's been given to real estate brokers.
Sure. Then my second question is on the loss from associates, which shows quite a decline in dynamics. I mean, the loss gets smaller and understand that there was Shpock development spending contribution in the first two months as of the quarter. Should we read that as the rest of the assets that you put under this line show quite substantial improvement in their profitabilities? If so, what assets did contribute the most? Maybe you can share some greater granularity behind the performance maybe in Brazil. That will be also quite helpful.
Well, when it comes to the total investment in the classifieds, we have guided the market for EUR 100 million, 2015. We stick to that. But since we have taken full control in Shpock, that is actually from September onwards included in the EBITDA. That meaning that, of course, that the JV part will be somewhat improved as a result of that being moved. Then of course, also the investment as a part of the EBITDA will go some up as part of Shpock being that. The sum of this exercise is actually still stick to the EUR 100 million in spending.
When it comes to Brazil, I mean, we have said that we are happy with the traffic development and also see that we do some monetization there. I think we are satisfied and with the underlying development we're seeing in Brazil.
Is it fair to say that, if this line is adjusted for Shpock, most of the sort of sequential improvement in this line is attributable to Brazil improvement?
I mean, that, well, there are... I mean, we wouldn't go too much into detail because there are also some assets of course in Asia. We have Brazil, and, so it's a combination of several countries. I will be a bit careful just to say it's Brazil. Fair to say also that Brazil is... There is a positive development there.
Thank you. That's helpful.
Our next question is from Chris Collett from Deutsche Bank. Please go ahead.
Good afternoon. It's Chris Collett from Deutsche. Thanks for taking my call. I wonder just a high level question about leboncoin. You were talking on this morning's webcast just about some of the issues with display advertising coming into the Q4. I wonder if you could just remind us how much display is of leboncoin revenues, and also just what you expect to those trends to be over the next little while and what it is that you are doing on mobile for leboncoin.
Yes. Yeah, I don't think we will comment on the detailed numbers there for the last quarter. How significant it is in the revenue of leboncoin. Instead I can mention something about the other two questions. We are developing a completely new mobile platform for leboncoin. Been going on for a while. The good news from that is that the traffic is increasing a lot and that the mobile products are well taken in the market. The last thing you very often develop when you do this kind of development is the monetization products. This is something that is developed now, and they will have impact more and more into next year.
That is something that is always influencing the premium products in sites like leboncoin. Is one of the reasons for what we mentioned about the last quarter this year and the Q1 next year. Secondly, on display ads. Q1 next year, we'll implement a completely new ad tech platform. We are a bit careful to be too bullish when we are doing these kind of large tech projects. That is also influencing. While I'm on it, we are also launching new products in the job vertical in the last part of next year.
This is why we signal, some more careful on the revenue in the last quarter, Q1, but accelerating growth in the following quarters next year.
Right. I think it's important to understand that leboncoin, it's all the classified sites, so it's a very dynamic site. you know, as we move into mobile, we're facing in new products and that will influence how quickly you can see it in the income statement. the important point from my side is that leboncoin is a great site, very prosperous and developing well. I'm very happy for the outlook in the for leboncoin.
Okay. Thank you. That's very helpful. Round about this time last year at the your analyst presentation, you talked about display ad revenues being up 40% January through September of 2014. Can you give us an indication of, on a similar period this year, have you seen similar rates of growth, or has that decelerated?
Oh, yeah, it's not at the same level, but what we have said is that, we have continued to take market share in total markets that has been more sluggish.
In general, the display market in France is challenging. I think that we are doing well among the online players there, but.
I think we're the third-largest player after Google and Facebook.
Yes.
Thank you.
Our next question is from Catherine O'Neill from Citi. Please go ahead.
Oh, hi. I've got a few questions, actually. I just wanted to understand, and this is probably what you were referring to in the last question. When you talk about slower growth in the Q4 for leboncoin, exactly what's driving that growth to slow down? Is it just display or are there other things going on? Again, on leboncoin, when you're guiding to the 15%-20% growth for next year, what should we assume in terms of incremental revenue from real estate, or is there just nothing coming in next year? Again, on the margin, you obviously talked about quite a lot of investment in leboncoin, the margin was down in this quarter.
Should we think about the margin sort of coming back next year, on the back of that investment, so below 60%, say? On Shpock, you talk about that's gonna be moving into the EBITDA, given you're consolidating it now. When we think about 2016, should we think about investment level in the consolidated sites coming in higher for next year than perhaps this year?
Well, Catherine, I think, you know, we tried to answer some of the questions around leboncoin, but Terry, you wanna repeat that message about 2015 and 2016?
Yeah. I can do that. A large portion of the revenue in leboncoin is something we call premium features. That is something that is influenced by the platform. Is it mobile, iPad or desktop? The conversion, if not developed for on the mobile side, is lower than on desktop. This is dealt with for the time being in leboncoin, in the new mobile development project they have, but it's not finalized. Therefore, the last quarter, we will be seeing lower growth on premium options because of now the very strong growth in the mobile products that we are launching. We will soon have also better monetization products on the mobile platforms, but that will not kick in before next year.
Right. From the margin, Trond, in leboncoin?
Well, the margin is, it's a twofold reason for the margin going down in Q3. That is, first of all, we have run the marketing campaign as a result of the new products and especially real estate. At the same time, we also built up a sales force, and we continue to do so in Q4. It is a, it's twofold thing that is, somewhat hampered the margin in Q3, I would say. Of course, some of this, since we have new products, will also continue into Q4, fair to say. It will vary from quarter to quarter, how much we spend actually in marketing spends.
Catherine had a couple of other questions.
Yes. If we, if you look at, I mean, the real estate, just to comment generally on how that works, it is, we are now in just in the upsale in Q4. It's of course, into 2016 and onwards, where we will have the then our standalone offer being in the market and see revenue from that. At the same time, of course, P3 will then be closed. But no doubt that we will see a positive development in sum of all this from our real estate revenues into 2016. We expect as planned a good uptake in Q4.
When it comes to the Shpock question, we are just in the budget and planning phase, so we are not able to give any guidance on the spending level there. Technically now it's included in the EBITDA as investments there, as we now have a 92% ownership and full control. The management, however, is still in the founders are still incentivized to continue to develop this together with us. The Shpock isolated, of course, as a part of EBITDA, could go some up, but that we will have to come back to.
Okay. Can I just check, when you talk about the leboncoin margin, there'll be some of the impact in Q4. Do you expect that to continue in 2016?
I would be hesitant to give too much comment into 2016 because, as I said, we are running marketing campaign, depending on how we actually launch different product categories. This will of course varies and, we are also just in the planning phase of 2016, so how we'll actually will do the marketing. It's a little bit too early to actually to give some guidance on that. But also we do, as mentioned previously from Rolv Erik and Terje, we will see some gradual improvement on revenue side.
Hopefully that should of course also benefit, I mean, that will benefit the margin.
Okay. Sorry, one final question. On the central technology investment, you previously guided to EUR 100 million-EUR 200 million of investment. Is that still the plan?
Well, for 2015, that's still the plan, yes.
Okay, thank you.
Our next question is from Rasmus Engberg from SHB. Please go ahead.
Yes. Hi, guys. I wanted to come back to the question, when you do guide now for 15%-20% growth in leboncoin on the revenue side. Can you say whether you think that's a rough estimate of the costs as well or not?
Well, I mean, I don't think I have too much to add actually to what we have said on the revenue and on the margin side in Leboncoin. I mean, you have to have some more specific questions. I don't know what.
Okay.
Yeah.
Yeah. Good. Right. In terms of the timing here, you talk about accelerating growth. Does that mean that Q4 or Q1 is the weakest quarter in this guidance?
Yes. we actually said that we expect the Q4 this year and the start of next year, although it's a bit early to say, to be to be weaker than the rest of next year. I think now-
Okay. Yeah.
Yeah.
Q4 and Q1, roughly broadly on the same level, I suppose. Is that what you're saying?
I don't think I'll go into more detail than I've already done on that.
Right. Then, how much, either in Q3 or year-to-date has Shpock accounted for in the associates? Can you give us a feel for that roughly?
No. That is actually the information which is, we believe, is market, is sensitive to the competitive situation, since we also launched this in new markets. I mean. Also, we have seen, I would say a stronger uptake in Germany and U.K., and of course, all the markets. That is seen as sensitive information to give the details on the Shpock spending itself.
Even on history?
Yes.
Okay. Right. Then just a final, kind of nitty-gritty question. The EBITDA impact, or sorry, the associated losses in new ventures, and then, relative to the EBITDA, can you outline again why there's such a difference there between the two and how we should think about that going forward?
I think. Are you referring to the EBITDA effect of the associated companies compared to what we are actually?
Yes. Yes. Exactly that.
NOK 15 million-NOK 20 million of difference. That is related to everything that's below EBITDA in those companies, which is of course, financing, I believe, first and foremost. There's little tax costs at the moment in those assets.
I thought you said something in the presentation earlier that had something to do with FX. Did I misunderstood that maybe?
No, no, I think that's a misunderstanding. That.
Okay.
The FX effect is related to, that is a finance cost, which is not related to.
okay.
Spending.
Right. Good. Okay. I got that sorted out now. Okay. Thank you.
Our next question is from Christer Roth from DNB. Please go ahead.
Hello. Thank you. Just, trying to understand the profile for growth in leboncoin next year.
Right.
Do you expect to end the year above the 20% year-on-year growth range and conversely start the year below the range? Or do you foresee that you'll stay within that range mostly for all courses?
Well, you know, Christer, I think we now tried to explain what to think about next year. You know, we've said that the growth will accelerate throughout the year. I don't think it makes sense for us to be more exact on the guiding for quarters now in the end of next year. I think you'll have to accept that the range we're given is really aggregate for full year. Please have an understanding for that.
Absolutely. Thank you.
Our next question is from Anders Wennberg from Brummer. Please go ahead.
Hello. I wonder if you can help us a little bit further on understanding the organic underlying growth. You have the Servicefinder, Mittanbud, FINN.no, and Blocket, then you have the DoneDeal coming into other established. From what I understand, DoneDeal is doing about EUR 9 million-EUR 10 million for the first half. I guess the acquisition is probably a EUR 2 million increase in the Q3. Is that correct? Basically, can you help us understand what the underlying organic, not affected by acquisition growth is?
We can just start commenting upon if they in Blocket there is only a minor effect in FINN.no on that one. Blocket we have stated in the report that it's around 5%, 6%, if I recall, that the Servicefinder is included. So underlying then is of course 5%, 6%. When it comes to Ireland, I think that we do. I don't think we have given exactly the revenue figures there.
No, we gave an indication of the total, revenue in the first half actually, when we.
Yeah.
-the deal, and that was the NOK 9 million-
Yeah.
you referred to.
So, uh-
Part of that was of course existing revenues in DoneDeal.
Yeah.
Some of it is revenues in the new companies.
Yeah.
I don't think we're going to break it down further.
No.
in those three digits.
but generally I think Ireland is I would say after acquisition continue to do well, in most areas.
If you take out the Ireland acquisition then if you assume that half of the NOK 9 million is the acquired company, then the other established down into below 20% organic growth, so quite significant slowdown. Why is it slowing down? We get the EBITDA figure of 31%, but the rest of that groups must have fairly low growth. Why such a slowdown?
No, I don't think there is really much of a slowdown. If you look at, I mean, Austria continue to do well. Hungary. I mean, still a bit early to see the full effect of the consolidation. Finland is also moving, especially in the traffic, but of course, we can see more on revenues. I think the underlying growth is quite good actually in nearly all our sites. Yeah.
I think, you know, I think we cannot go into too much detail here, but I think it suffices to say that we're happy with the, with the traffic development and the development overall for all these sites that you mentioned now. Those numbers are available in traffics. We don't disclose at the too detailed level for revenues, also competitive reasons. I think perhaps it makes sense for you to follow up with Jo Christian on a bilateral basis little bit later, if that's okay.
Okay, thanks.
We will take our next question or follow on from Alex Fak from Goldman Sachs. Please go ahead.
Good afternoon again. A little bit. Well, the question not really about the results and the short-term performance, but you mentioned this difference you now have between the desktop and mobile and rolling out the monetization. If we set display aside, if we think about like true classified monetization, features like leasing fees, bump-up fees, visibility fees, big data opportunities, doesn't seem that those should have any material difference between the platforms. Is this the right way to think about that in long term or I'm missing something here?
First and foremost, the reason for this being important for the premium future revenue has to do with conversion, which is easier to achieve on desktop than on mobile. Unless you develop the mobile products to really be able to develop these kind of revenues. This is very often, this is not only the case in leboncoin but all our sites. We very often develop the new products with the user perspective and make good functionality and solutions for users. The monetization products are very often the last we develop. This was the case in FINN.no as well, that didn't have really display products on the mobile before just a few, what's that? Months back.
This is quite common and the way we used to develop. This is the way we have developed the mobile, the new mobile solutions in leboncoin as well. The underlying question, you know, you're right. Long term, if you develop good mobile monetization products, it should also, you know, be able to capture similar revenue as on desktop or in some cases even better.
Yeah, that's what I thought. Thank you so much.
Okay. Are there any further questions?
We will now take another question from Marcus Ivar from Bodenholm Capital. Please go ahead.
Good afternoon. Yeah, I thought I'd follow up on the question that was just asked about monetization on mobile. I mean, now when you've done these updates on FINN.no, and it's been live for some months, I mean, how has that developed in terms of conversion? If that is the big difference of the display and the mobile. Is there any reason why we shouldn't expect the same type of development in France, for instance, in the coming months? Thank you.
Yeah. First, I want to say that FINN.no has not, you know, finally developed all the monetization products they want to develop so far, so they will continue to improve these kind of products, display products on FINN.no, just so that is said. The conversion so far in FINN.no is good, but it's still early days. We are testing this also in leboncoin. The tests on premium options are good. We are optimistic about this, and this is why we also think that even this will hurt us a little bit in the last quarter this year. We are quite convinced that this will improve next year.
Okay. Just to get a sense of how quickly has traffic moved to mobile on leboncoin? Has there been a relatively quick— as you have been, I guess, launching, maybe moving traffic to an extent to the mobile, or they have been moving there organically, how quickly have they moved to your mobile solutions on leboncoin? Do you expect that to increase, and that is part of the reason why the slowdown of monetization in Q4 and Q1? Thank you.
Yes, it is. It's the main reason that the traffic has moved faster to the mobile products that we have developed than anticipated. That is the really important reason behind the premium option, what should I say, slowdown in the last quarter that we expect. It's actually there already now. So that's the main driver. Exactly how fast and how big portion, I don't think we will. That kind of information we would like not to give. It's fair to say that it has developed faster than we expected.
This is good for us because we're developing user-friendly products. They want to follow us on their mobile platforms. As long as we have the traffic, we're able to monetize that.
Yeah. The total traffic on all platforms has actually increased more than expected also on leboncoin. That's part of it.
Following the marketing campaigns and others. The engine of leboncoin is working very well.
Okay. That's good news. Just follow up on Spain a little bit. Can you just kinda give a little bit more color on the consolidation of Milanuncios and trying to make Spain into more of a unified marketplace for you? Thank you.
Yeah. Because of the competition authorities, we are not able to consolidate fully Milanuncios with our other sites before the end of the period that we have these restrictions. Of course we cooperate, but between the different sites, but it's limited.
Otherwise, I think we're quite good at, you know, between our existing sites, such as Carjuice and Segunda Mano and so, we're quite good at driving traffic and we're seeing a positive traffic pattern for all of our sites.
Thank you very much.
We'll take another question from Anders Wennberg from Brummer. Please go ahead.
Hello again. I just wonder a little bit about the mix shift to mobile and the risk that it potentially opens up for new competitors. If you look in Spain, you know, we all know, if you look at the app and statistics that Wallapop has been by far the lead in e-commerce and lifestyle app downloads for many, many weeks or months in a row. Segunda Mano is way behind in terms of app downloads. We also know that Naspers have funded Letgo, which is made an American initiative, but also exists in several European countries. How do you see this app-based, pure app-based players coming into your market and with a kind of more mobile-friendly user experience?
We see that as. First and foremost, we think that we in the future will have several models, marketplace models that will serve a particular market, not only the classical, if I can call it, marketplace model we have today. A native app will be one of these kind of models. We see in Spain and some other countries, a good growth, and especially in the young segment and in fashion. And, the whole small consumer goods market for young people is, you know, really big. It's a huge market. This has actually opened up a part of the market that our classical platforms has not been very strong in.
This is something we see with our own platform, Shpock, in Germany, Austria, and the U.K., and hopefully in the new markets that we will launch.
Any more questions on that, Anders?
No, just a little bit worried when I see that Wallapop has so much more downloads, so they must be doing something right. I'm sure that you're working on refreshing the platform to address that for next year.
Yeah. Yes, of course, we are working with the existing platforms we have. That is one thing that we are working hard on. We also consider to launch other platforms that will be more head-to-head in this segment. Definitely.
It's definitely high on our, very high on our to-do list to address this. We have a good team in Spain who's working hard on not only existing products, but what should be our best portfolio there.
Okay, thanks.
Ladies and gentlemen, as a further reminder, if you wish to place a question, please press star one on your telephone keypad now. Just to confirm, there are no further questions in the queue at present. I'll turn the call back to you for any additional remarks.
Thank you very much for all your very good questions. I would now just like to thank you all for participating and wish you all a nice afternoon.
Of course, we'll be available for further questions, et cetera. Please, contact us, and we'll be happy to provide the information you need. Now, for now, let's wish you all a very nice Halloween. Bye-bye.
Thank you, sirs. Ladies and gentlemen, that now concludes today's conference call. Thank you for your participation. You may now disconnect.