Good day and welcome to the Schibsted Media Group Q1 2015 Q&A 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 First Quarter Report for 2015. Thank you very much for joining us today. My name is Jo Christian Steigedal. I'm the Head of IR of Schibsted. Together with me here in Oslo are our CEO, Rolv Erik Ryssdal, our CFO, Mr. Trond Berger, and Mr. Anders Rønning, also on Investor Relations. I'd like to now to hand the word over to Rolv Erik Ryssdal for a short introduction. Please go ahead.
Thank you, and welcome everyone to this Q&A conference call. We'll soon open up for questions, but I'd first like to give a few introductory remarks. To start with the latest news first. Just recently, two hours ago, the AGM of Schibsted agreed to the board of directors' proposal to split the Schibsted share into one A share and one B share. This will be effective approximately from first of June. I'm very happy about that decision, as it gives us the financial flexibility and the tools that I think will be useful for us in the continued expansion of the group. Another important news is that this morning, alongside our quarterly release, we announced the offer to buy all the shares of the Swedish market-leading real estate Hemnet.
This acquisition fits very well with the strategy to grow online and classified operations in markets that we already know and where we are already a big player. By acquiring Hemnet, we expect to create significant value by expanding from the existing strong positions in cars and in journalists. There are two conditions to be met. One is the regulatory approval, and the second is that our bid is our offer is conditioned upon 100% acceptance from the shareholders. Two of the large shareholders representing 50% of the shares have already accepted. When it comes to the regulatory issues, I expect them to go well.
If the competition authorities decide to take it into what we call Phase II, it might take some time, but it should still be concluded before the end of this year. Both online acquisitions like this is one of the few tools we'll use going forward to achieve growth for online classifieds. In the first quarter, we demonstrated our ability to grow fast organically in very large margins. In France, Leboncoin grew its revenues by 20% and reporting then even higher margins than the same quarter last year. We also had strong organic growth in Italy, where we invested in marketing, and that paid off in a good manner. Revenue growth there in the first quarter was 46%, and we experienced an increased gap to competitors in terms of traffic. In Spain, the growth is recovering very well.
We have tailwind now also from improved macro environment, especially for jobs, combined with operational improvement in the operations. The acquisition of Milanuncios with effective early first quarter will be a positive factor going forward. I'm happy also to report that there's healthy traffic growth in all of the Spanish sites. The third growth lever for us is structural agreements. In the first quarter, we executed on the previously announced agreement with Naspers to merge several sites in emerging markets.
Effects are very promising. For example, in Brazil, the number of new ads per day flowing into OLX site is 25% higher than the sum of the two previous sites pre-merger. Many interesting prospects for our classifieds business. When it comes to our media houses, they're working hard to adapt the fast-growing market to adapt to the fast-changing market environment, doing very well journalistically.
Both the technological developments, the behavior of both readers and advertisers change rapidly. For us, it's instrumental to stay focused on both adapting the cost base to stagnating revenues and to keep the pace when it comes to tech development. The central tech teams that we have established during the last few months are an important part of the response to suggest that. On a final note, I'd like to just point out the Schibsted growth in Sweden in particular, but also in Norway, is doing well. We've seen great progress from our personal funding site and also the price comparison site. Prisjakt is doing very well in Norway and Sweden. This is a brief run-through of how we see 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 our operator so we can get started with questions and answers.
Thank you.
Please, operator, go ahead.
Thank you, sir. 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. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will take our first question from Catherine O'Neill at Citi. Please go ahead. Your line is open.
Hi. Thanks for taking my questions. I've got three questions. Firstly, on Hemnet, I just wondered if you could give us some more detail on how the agreement potentially works with the sellers that are estate agents in terms of will there be anything on sort of limiting pricing? Presumably they don't want to sell out 100% and then get big price hikes. Secondly, on the display advertising, which I think you said it's been soft, and there's been a shift to programmatic buying. I just wondered how much of your online revenue overall is from display advertising and whether this is a trend do you think will continue, sort of structural rather than a one-off?
Finally, I think on the previous call or the meeting, you talked about profitability in Brazil, will probably occur maybe quicker than expected. I thought you said, but not next year. I just wanted to clarify what you'd actually said there because I didn't really catch it. If you could just go over that again, that would be great. Thanks.
Well, I think on the general note concerning Hemnet, I think it's fair to say that Blocket is going to develop further the model that works very well in Sweden now, where it's beneficial both to the Hemnet and to the real estate brokers to use this site. I think what we're seeing in Sweden, and where I expect the most revenue growth is actually from additional revenue sources, such as the marketing budgets from big real estate agencies, banks, financial institutions, et cetera. I think that will be a very important part of that.
Yeah. When it comes to the agreements, with the sellers, there is no specific limitations, when it comes to the price, prices going forward, et cetera. The model is so that, 50%, is split of the listing fee between then, the realtors and Hemnet. We believe that, we see growth here both on revenue and different products, as Rolv Erik said, but also that it's possible to take out somewhat more on the cost side, first of all in marketing, and other costs. It's a good synergy case.
Thank you.
Maybe display advertising.
The display advertising, to take that. Well, it's, there is some effect of programmatic. I would say that most impact of that is in Norway being tested more than in Sweden. We, it's a good question whether it's really structural. I mean, it will certainly continue, but I think it's also a little bit of test case. Our understanding is that advertisers are questioning the effect. It may turn out that it's not so effectual as you may believe in the first thinking. It remains to be seen. We, however, developed certainly good ad tech products that should really capture this targeting audience profile that will be rolled out in 2016 and onwards.
That's an important product for us. The Brazil, well, I mean, we disclose or don't disclose when we expect breakeven, but it's fair to say that it may be too optimistic to expect it in 2016.
Okay. Actually, I've got one more question, if you don't mind, on the investment. You talked about the investment sort of close to halving for the online classifieds across the JVs and fully consolidated sites. One of the slides talks about the investment level being around EUR 100 million, which would be about 40% down, if not slightly less than that. I just wondered what the sort of discrepancy is there, because that's probably still higher, I guess, than I thought it would be based on the sort of 50% initial guidance.
Well, what we initially guided in the Q4, we said a little bit less than half effect than we meant. In fact, we meant between, let's say, around NOK 90-NOK 100. Now we're guiding in the area around NOK hundreds. Nothing has really changed. We see that we are able really to take down spending, especially in Brazil and other places. We also see some opportunities, first of all, in the Shpock area, which we see is quite promising development. Which we believe is really right to do somewhat more, but not significant more investment.
Okay. Thank you.
Thank you. We will now take our next question from Alexander Balakhnin from Goldman Sachs. Please go ahead. Your line is open.
Yes, good afternoon. A few questions from me. One is again on Hemnet current monetization model and listings. Can you just draw an example how does that work? If I sell a house and pay, let's say SEK 1 listing fee, and I sell that with a realtor, then Hemnet books this SEK 1 and then gives SEK 0.50 to the realtor. Does that work with just four realtors that are owners or with all the realtors which are on the market? How exactly does that work? And do you plan to eliminate this revenue share scheme, which looks quite unusual to me? At least that's not what you employ in some other markets.
My second question would be on Leboncoin, where clearly the revenue growth is pretty much the same as it was in the fourth quarter last year, but you had a very visible profitability improvement. Can you explain why profitability improved despite pretty much the same growth momentum? Should it inform us of a sort of next organic level of the profitability in this business? Should it be probably higher than it was historically as you ramp up your real estate presence? Your thoughts on your operating leverage would be also very helpful. Thank you.
Well, you know, I think, for the last question, only the first one to Trond Berger is that, you know, I'm very happy with the development in the it's a great site. Now, of course, the this margin, this quarter is very high, and we don't really guide on exact margins. What I can tell you is that there could be seasonal effects. I know that in the, you know, in the, in some quarters there were a lot of marketing expenses, such as the fourth quarter last year. They were not there, the first quarter here, so it might vary a little bit. In general, this site is doing very well.
When it come to Hemnet, well, there is a revenue model, 50% of the listing fee goes back to the realtors. We believe this is actually a very good model. It's a strong incentive for Hemnet and the realtors to be aligned in order to develop the site and revenue models going forward. So, you're right that this is a little different model than in other markets. On the other hand, a strong model for, as we see it when it comes to this applies for all realtors in Sweden, not only the owners.
Right. Just to clarify on that last point, you think that this model may well be sustained as a driver of, like the inventory on the website. Most of the monetization going forward will be coming from value-added services you will be rolling out?
If you take the basic listing, that the model will remain. We have no plans to change that, and we believe it's a strong incentives. But also a substantial part of the revenue is coming from other sources, like display and other products. So that of course goes fully to Hemnet. So that's the plan.
Just very quickly on that. Do you plan to keep the exclusivity, which, as I understand, attached to this revenue share model, going forward as well?
Well, there is, I mean, not going too much into detail, but there is a standard three-year, that's the maximum you can have by the law in Sweden, exclusivity or non-compete and these things. They are protected as well as they can be under strong incentives to keep this to well together going in a longer time period, time horizon also.
Right. Understood. Thanks so much.
Thank you. We'll now take our next question from Marcus Diebel at JP Morgan. Please go ahead. Your line is open.
Hi, Rolv Erik , it's Marcus. Two questions. I mean, one is again on Hemnet. Could you just explain to us the current situation here with obviously 50% of the shareholders already having accepted? What makes you comfortable that you will get the other 50%, given that the overall offer is bound to 100%? Or would you, yeah, in a bad case scenario, worst case scenario, accept also to go with that business with 50% only if there are still some surprises on that part? The other part is on FINN.
Could you just elaborate a bit more on, you know, on the stabilization at least compared to Q4 trends, and how we should think about FINN, at least for the whole year this year? Thank you.
I think when it comes to Hemnet, it's right that we made it conditional upon that. We were able to deal with two of the owners prior to the public announcement. Then of course, the other sellers, they need to make an assessment of whether this is a fair and good price. I believe that it is, and I think that they will accept it. I think that for this association of brokers, this is a lot of money that then can be distributed to the members of association. I think there's an incentive to do that. That's. You know, I think.
I think this will be well received among them. If we not should reach up to fully 100%, I think that's, you know, a hypothetical situation that I wouldn't want to comment on at this stage because I believe that we have good chances of receiving 100%. When it comes to FINN, I think FINN is... I don't think we should dramatize the situation from quarter-to-quarter too much for FINN or any other operations. That is because, you know, these things will vary a little bit from quarter-to-quarter. There are seasonal effects and, you know, big campaigns can influence it from quarter-to-quarter. What I think is that FINN is doing a good job.
I think they are, of course, relying on the Norwegian economy to a certain degree. I think, one operational thing that they have been a bit slow on is to develop good products for mobile advertisement. They're fixing that now, so I think for the second half of the year, that should be in a better shape. Overall, our guiding now is the same as it was in November when we said that FINN will have low single digit growth rate.
Okay. Thank you.
Thank you. We have our next question from Lars Herlin at AIM Group. Please go ahead. Your line is open.
Okay, this is Lars Herlin from AIM Group. I will come back to Hemnet. It was not more than or less than five years ago that Stampen Media in Göteborgs-Posten and Dagens Nyheter owned by Bonnier sold back their stocks, their shares in Hemnet because the realtors wanted to control the company and not to have it in the hands of the commercial media companies. Now you are trying to buy the whole company back from them. I wonder what kind of time limit because this could be a sub matter for discussions among some of them. What is the time limit for the Mäklarsamfundet with 4,000 members and Fastighetsmäklarförbundet with 1,000 members to discuss this? Are they able to have meetings, general meetings in that timeframe?
How much time have you given them?
Well, you know, I think this is a more detailed questions concerning communication between us and the other parties, and I don't want to go too much into details on that. Of course, we'll give them reasonable time in order to evaluate our offer. That's in the best interest of all parties. I hope that they will see that this is a benefit to them. I think the difference from the situation where you referred to five years back is that, you know, this is of course, a very high valuation compared to what you saw five years ago. I think it should be much more attractive for those societies at this stage.
There has been a communication from one of the parts involved that they just have a fortnight to decide. Would you comment on that?
No, I think I'll leave that to to our direct communication with them. Of course, you know, we'll we want to have a constructive dialogue with them as we can, and we'll strive to do to have a good communication and dialogue with them.
Okay.
Thank you. We now have a follow-up question from Alex Balakhnin at Goldman Sachs. Please go ahead. Your line is open.
Yes. Good afternoon again. I was wondering if you can probably add some greater granularity to the new ventures EBITDA loss. Was there like any particular country contributing the most, or it's like equal contribution from all the countries where you launched the investments? Is there like a particular country that drives this number? Probably some granularity on the constituents of those losses will be very helpful. Thank you.
Well, you know, I tend to, as you know, we tend to be kind of a bit general on that and not tell all our competitors exactly how much we're spending in this country. I don't know, Trond, can you say something on a general note?
No, I will say that it follows very much the large size market that we generally spend more, and in the JV markets that's explains for itself. We have in some emerging markets, we have larger one where we also have 100%, of course, more in those. I would be hesitant to go into detail to this because it's, we would like to keep this somewhat secret versus our competitors.
Right. Okay. Thank you.
Thank you. As a reminder to ask a question at this time, please press star one. At this time, we appear to have no further questions. I'll pass it back to the speakers.
Okay. Should we leave them one more chance to sign up? Are there any more questions?
Okay. As a reminder to ask a question, please press star one on your telephone, please ensure that the mute function on your telephone is switched off. We do not appear to have any questions at this time, sir.
Okay. I would like to thank you all for participating in this conference call. We say, thank you very much and, have a nice day.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.