Gruppo MutuiOnline SpA

MIL:MOL

Earnings Call Transcript 2018-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the presentation of Gruppo MutuiOnline First Quarter 2018 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Marco Pescarmona, Chairman of Gruppo MutuiOnline; Mr. Alessandro Fracassi, CEO of Gruppo MutuiOnline; Mr. Francesco Masciandaro, CFO of Gruppo MutuiOnline. Please go ahead.

[Marco Pescarmona, executive]

Thank you, and welcome, everybody, to our conference call. We will refer, as usual, to the document published on our website and go straight to Page 15 of the document.

On Page 15, we have the Q1 highlights, and you see that revenues in the first quarter 2018 are EUR 37.8 million, which is down 2% compared to the EUR 38.5 million of Q1 2017. The operating income in Q1 2018 is EUR 9.7 million, which is down 1.4% compared to the EUR 9.9 million of Q1 2017. And the EBIT margin is 25.7%, almost the same as Q1 2017 when it was 25.6%. Net income is down to EUR 6.1 million in Q1 2018, which is minus 8.5% year-on-year compared to the EUR 6.7 million of Q1 2017. The biggest drop in net income compared to the very small drop in EBIT is due to a one-off item due to the payment of an earn-out on a previous acquisition. So this earn-out has been adjusted to take into account the final expected payment. And so this is a one-off impact, it is below the operating line. And the net income margin is, therefore, 16.3% in Q1 2018, while it was 17.4% in Q1 2017.

Looking at the performance by division on the next page, you see that the BPO Division records EUR 20.6 million of revenues in Q1 2018, which is down 1.8% compared to EUR 21 million of revenues in Q1 2017. The BPO Division (sic) [ Broking Division ] records EUR 17.1 million of revenues, which is down 2.3% compared to the EUR 17.5 million of Q1 2017.

The operating income in Q1 2018 is EUR 4.9 million for the BPO Division, which is down 10.9% compared to the EUR 5.4 million of Q1 of the previous year, while the Broking Division has an operating income of EUR 4.9 million, which is up 10.3% compared to the EUR 4.4 million of Q1 2017.

The EBIT margin as a percentage of revenues is 28.4% for the Broking Division and 23.5% for the BPO Division for a total margin of 25.7% in Q1 2018. And this is very much in line overall with Q1 2017. And also, with 2017, you see there is a little bit of margin expansion for the Broking Division and a slight decline in the margin for the BPO Division.

Now let's see what's behind this performance, which is very much expected. In fact, it was already visible at the end of 2017 that the mortgage market, which is still the reference market for a large portion of our activities, was declining. And the decline is confirmed by public information from a number of sources. If you look at Assofin, which is an association of lenders and which reports the actual disbursements, they report year-on-year drop of 17.5% in January, of 8.7% in February and of 4% in March 2018, which is a consequence, of course, of the weakening of demand that it was visible at the end of 2017. So deeper in January and then slowly improving. And this is, if you look at the details, due to a small contraction of purchased mortgages, so there is also a slowdown in housing transactions. And more importantly, there is a strong decrease in remortgage volumes. Probably these are the last phases of the normalization of remortgages. And remortgages were down 23% year-on-year in the first quarter for the market.

If you look at information from CRIF, the credit bureau, this information is forward-looking because these are credit bureau inquiries, and you see negative 10.8% in January, negative 6.9% in February and negative 8.4% in March 2018. So these figures are slightly better than the ones of the end of 2017, but they are still indicative of a market that is not growing most likely. It is not likely to grow in the very short term.

So our conclusion is that in light of this data, we can expect for the coming months a slight year-on-year decrease of the overall mortgage market, even if purchased mortgage volumes, hopefully, will show a positive sign. The issue that we are facing is political instability, which is basically convincing people to delay their decisions, and this is the main obstacle to a recovery of the real estate market. In fact, all the favorable conditions that we said in the past were present are still present, so we still have very, very low prices for properties, the lowest in the last 15 years, very low long-term interest rates, lenders' appetite, very favorable taxation for first houses and even an economic recovery underway. So all these things should fuel a recovery of the residential real estate market, but it's not happening yet, apart from Milan, let's say. So this is what is behind. And in fact, behind this -- I mean, compared to this background, at least in some areas, we are probably doing better than the market.

Let's look first at the Broking Division. Here, we see that the operating income is up year-on-year. And overall, we are -- we think the operating income could be up year-on-year also in the coming quarters, even if there are some uncertainties mainly related to E-Commerce Price Comparison.

In Mortgage Broking, in particular, well, in Q1 2018, we suffered from the weakness of the mortgage market. So we also -- a drop in our results. And this, by the way, is the main explanation of the contraction of the revenues of the division. However, we have seen in 2018 a strengthening of application volumes. And in fact, in the last few months, they are up year-on-year, and this is likely going to drive year-on-year growth of broker contracts and revenues. And possibly even if the market is still showing negative figures, this will translate into an increase of our market share. So we are confident of this part of the business, and we apparently should be able to do better than the market here.

In Consumer Loan Broking, we see a drop of brokered volumes, and this is linked, however, to the optimization of marketing spend that we've already announced.

In Insurance Broking, we see growth both of new contracts and revenues. This is a moderate growth. And the market cycle is -- the insurance cycle remains stable, so we are not seeing significant increases in price of the traditional insurers. And -- but even against this type of market, we are growing, and that's a positive thing.

Where we have a more difficult situation is in E-Commerce Price Comparison. We had a satisfactory Q1. In fact, we had a recovery of organic traffic and, in general, of visibility of our services on Google. But in April, we saw some new deterioration of organic traffic. And of course, this is a concern, and of course, we intervene. And one thing we are doing here is to -- we are performing a reorganization of the activity also to improve the way it is managed. And this is possible now because of determination of some governance restrictions that were hindering us in the past. So we should be able to better address the situation, and we are confident about our ability to do it. So this is E-commerce Price Comparison.

And then we still have the other smaller activities. In particular, we see growth is -- the comparison and promotion of utilities, that is ADSL and also energy, here, we see -- we continue to see growth, and we will have to decide when we start reporting this as a separate business line. We are getting to a more relevant size year-after-year in this. So this is the overall outlook for the Broking Division.

Now Alessandro will comment on the BPO Division where we had some important news in the quarter.

[Alessandro Fracassi, executive]

Hi, everyone. First, let me just comment on the results and then a little bit on the very important acquisition that we concluded during the quarter.

Well, first of all, the results for Q1 are basically in line with our expectations. We have a very, very small contraction at the revenue level, which, obviously, was a little bigger when it went to the operating margin, but the operating margin are still in -- margins are still well in our target -- at our target level between 20% and 25% so -- by the way, this is basically lower utilizations of our capacity. We have not aggressively reduced it also because we expect, overall, in the medium term, that revenues and utilization will recover.

Anyway, if you get into the single business lines, even if when we are in the first quarterly, we don't report revenues, but basically, the trends are clear and very in line with what we've said at the end of last year.

Mortgage BPO, for all the things that Marco has already said, is a contracting business line. Although, as we said, for the overall year, we expect the results to be between what we did in 2016 and what we did last year in 2017. This decline is, however, basically completely countered by the growth in the other business lines, mainly insurance, something from asset management, while the CQS and loans business line is basically stable. In the next months, we expect these trends to continue, and I think, overall, the year will look similar to the first quarter. We have some upside potential which might come from new clients, but we will see what the impact would be on 2018. But let me continue to say that we are very positive for the mortgage perspective in terms of business line at the medium term. Outsourcing is a trend that is here to stay, and the opportunities for a market leader like us are very significant.

And so let's go now to what we believe is a very, very important strategic step toward continuing to build the market leader in BPO services in Italy for financial institutions in general: the acquisition of the 50% of the share capital of Agenzia Italia S.p.A., with governance rights that allow us to do a line-by-line consolidation. By the way, let me just remind everyone that the total price that was agreed for the acquisition of this 50% of the ordinary share capital was of EUR 25 million. And to give all the necessary details, we should also add that the financial position of Agenzia Italia showed a net debt of EUR 7.2 million at the end of 2017.

This transaction adds a completely new business line, which we will call the leasing and renting BPO. And Agenzia Italia truly is a market leader in complex services in this line, and they cover the -- let's say, the final part of the lending, so the asset purchase for leasing or also for renting and the contract finalization. And then mainly, it's focused in the servicing space. There are over 500,000 positions that Agenzia Italia manages for its clients, and this means following the life of the assets that are leased or rent, doing early collections, doing all the title management and anything that is actually connected with current account servicing.

Last year, Agenzia Italia generated revenues of EUR 26.1 million and an EBIT of EUR 5.4 million, which basically says that it's in line in terms of margins to what we expect to have in our BPO Division. And truly, the positioning of Agenzia Italia is to be the recognized market leader. And also, the kind of offering is very similar to ours in terms of covering from the end -- from the start to the end. The processes we refer to are complexes, and they are performed in an efficient manner, thanks to the knowledge of the people involved, and the IT platform that enable people to do this.

So we really think it's a good fit. We also got on board a good management team, and the entrepreneurial spirit of the guy who created this company, Daniele Da Lozzo, becomes part of the BPO management team. We have started working on synergies, mainly on the commercial side. A lot of clients are similar. And we believe we can bring this forward, creating value for all the shareholders. We will start reporting consolidating -- we will start consolidating Agenzia Italia in our results starting from Q2, so you will be able to see the impacts, although it's basically easy to do the calculation, when we will report our first half result in early September. Anyway, just let me add that the results of the first quarter of 2018 for Agenzia Italia are above those of last year.

Marco, back to you.

[Marco Pescarmona, executive]

Thank you. But I think we are done with the presentation, and so we can open it to Q&A. So please, operator, go ahead with the Q&A.

[Operator]

[Operator Instructions] Gentlemen, there are no questions registered at this time.

[Marco Pescarmona, executive]

Okay. Well, then we will wrap it up and thank everybody for participating. And we remind all the participants to the call that we are available for one-on-one sessions to answer any questions you might have. Thank you.

[Alessandro Fracassi, executive]

Thank you, everyone. See you next time.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.