Gruppo MutuiOnline SpA

MIL:MOL

Earnings Call Transcript 2018-Q3

[Operator]

Good afternoon. This is the conference call operator. Welcome, and thank you for joining the presentation of Gruppo MutuiOnline Third Quarter 2018 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marco Pescarmona, Chairman; Mr. Alessandro Fracassi, CEO and Mr. Francesco Masciandaro, CFO of Gruppo MutuiOnline. Please go ahead, gentlemen.

[Marco Pescarmona, executive]

Thank you, and welcome, everybody, to our conference call.

We'll rely as usual on the presentation that was uploaded on our website and we'll start from page 15 of the document.

On page 15, you'll see the highlights of Q3.

Looking at the revenues, we posted revenues of EUR 43.9 million, which is up 31.2% compared to EUR 33.5 million of Q3 2017.

The operating income is EUR 11 million in Q3 2018, which is up 35% compared to EUR 8.1 million in Q3 2017.

This corresponds to 25% EBIT margin, which compares to 24.3% in the second quarter of the previous year.

Regarding net income, in Q3 2018, it is EUR 8.2 million, which is up EUR 48.5 million (sic) [ 48.5% ] from EUR 5.5 million in Q3 2017.

This corresponds to a net income margin of 18.8%, which compares to 16.6% in the same quarter of the previous year.

Regarding the net income margin, it's worth mentioning that here we have a favorable impact of taxation, basically with a reduced tax rate in the year because we obtained for some cost savings of the group, the so-called patent box which amounts to a reduction of the effective tax rate for a limited period of time. And so it is impacting the full year as well as in the quarter.

And it could be an impact that would also be present even if to a lesser extent in 2019.

Regarding the performance by division on the next page, as you see the revenues are growing due to the impact due to the contribution of both divisions, both division contributes for EUR 18.2 million of revenues, and that's up 23.7% year-over-year from EUR 14.7 million in Q3 2017.

The BPO Division contributes for EUR 25.7 million of revenues, and that is up 37% compared to the EUR 18.8 million of the same quarter of the previous year; however, the growth coming from the BPO Division is not with the same parameter as it is for the Broking Division, because starting from Q2 2018, we also consolidated Agenzia Italia as a response to our leasing, renting BPO business line. Without revenues for the BPO Division for the 9 months would have been slightly negative.

Looking at the operating income. This refers to EUR 11 million in Q3 2018. As mentioned before, that is explained by EUR 4.5 million of operating income from the Broking Division, which is up 37.1% year-on-year from EUR 3.3 million in Q3 2017, and EUR 6.5 million which is up 33.6% from Q3 2017 which was EUR [4.3 ] million.

Here again it's worth pointing out, we have a positive growth of operating income of the BPO Division, thanks to the contribution of Agenzia Italia which was obviously not present last year.

In terms of EBIT margin, in Q3 2018, [ it's up to ] 24.7% for the Broking Division and 25.2% for the BPO Division, and this compares for the same quarter of the previous year with 22.3% from the Broking Division and 25.8% for the BPO Division.

Looking at the 9 months, basically, you will see a picture, it is basically the continuation of what was already visible in the first half, that has grown revenues and net income the third quarter also due to consolidation of Agenzia Italia, brings an acceleration to the trend.

So for the 9 months, revenues are EUR 129.3 million, which is up 15.3% compared to the EUR 112.1 million for the 9 months of 2017.

EBIT for the 9 months of '18 is 34.1% -- EUR 34.1 million which is which is up 19.5% compared to the EUR 28.6 million of the first 9 months of 2017. And the EBIT margins for the 9 months of '18 is 26.4% which compares to 25.5% for the 9 months of '17.

Net income is the 9 months of '18 EUR 24.8 million, up 27.4% compared to EUR [ 19.5 ]million of the 9 months of '17.

And net income margin is 19.2% compared to 17.4% for the 9 months of last year.

And again here there is a difference of the acceleration compared to operating income comes from reduced capital.

Looking at the 2 divisions in the 9 months, we see that Broking Division contributes for EUR 16.6 million -- sorry for EUR 55.4 million in terms of revenues in the 9 months of '18, up 13.4% compared to the EUR 14.8 million in the 9 months of '17. And the BPO Division contributes to revenues for EUR 73.9 million, which is up 16.8% compared to EUR 63.3 million of the 9 months of '17.

In terms of operating income, the Broking Division contributes for EUR 16.6 million, which is up 38% compared to the EUR 12 million of the first 9 months of '17.

And the BPO Division contributes for EUR 17.5 million, which is up 6.1% compared to the EUR 16.5 million of the first 9 months of '17.

The EBIT margin in the 9 months is equal to 30% for the Broking Division and 23.7% for the BPO Division. And this compares to 24.7% for the first 9 months of '17 for the Broking Division, [ 26.1% ] for the BPO Division.

So these are the numbers.

Regarding the other aspects of the [ phase ] on the next page, we have the resolution of the Italia residential mortgage market. We see that the market is slightly up year-on-year in Q3 2018.

We see growth of purchase mortgages, but we see more importantly, a momentary recovery of refinancing activity. Looking at Assofin, which is basically -- the mortgage origination figures, we should get growth of 10% of originations of purchase mortgages in Q3. And even faster growth of remortgages. Every mortgages according to Assofin are around 28% of total -- of closed originations for Q3, actually not only remortgages but mortgages that are not for purchase. The mortgage for purchase is less than that.

If you see the Credit Bureau is lower figures. But these figures are forward-looking and they don't always speak [ one to one ] with Assofin figures. So the figures point to a single digit growth between around 5% for recent months. And they were negative in the first half of the year.

So we do expect -- try to provide very long term outlook, but short term, we expect continuation of good demand for mortgages in the market with a growth of purchase mortgages and continuation of this temporary recovery of remortgages.

This temporary recovery is already fading, but it remains a significant situation for whoever still has an old mortgage and wants to change it. The issue here is -- the [ corporation ] instability coming from financial markets. For now, consumers seem to be comfortable and willing to buy houses and borrow money. And also lenders are still open for business. But at the same time, the pressure on the [southern] spreads will, one way or another impact, especially financial institutions. So we have to see

[Audio Gap]

To have significant reduction in online marketing spend.

Now we have made some adjustments and we have stable -- roughly stable year-on-year volumes and revenues.

And so [indiscernible] decline, year-on-year also second half of the year which is what we thought was likely to happen. I think it's more likely to be second half of the year also stable revenues year-on-year.

Regarding insurance Broking we see compared to the first half of the year, an acceleration of volumes and revenues. And we don't know yet if this is just a spike or if it is linked to a hardening of the insurance cycle.

Prices are no longer falling but still no clear signals of price increases. So it is hard to say but at least from what we are seeing in recent months that the situation looks to be improving.

One area within Broking -- the only major area within Broking where we are not very happy, is E-Commerce Price Comparison, where we said in the press release of the first half so a reiteration of organic due to the [ shortening ] into the ranking -- Google ranking algorithm. But we also put in place a lot of initiatives for the product and on the [indiscernible] to counteract this situation and also can do things to improve anything if that changes. So these are all things that are not immediately effected, the only immediate impact is that we have significantly greater cost due to advertising spend.

So it means the negative impact of the decline in traffic is amplified by the negative impact on operating income of advertising.

In any case we hope that by the first half of 2019, we will be able to see an improvement, first a stabilization and then an improvement.

But for now we have to do some work.

Finally, we will continue to work with the majority of the small initiatives of the Broking Division, particularly [indiscernible] but there is one exception and that is our mobile couponing business which were not able to develop in a satisfactory way. So we are rethinking -- [indiscernible] this small business that was losing less money. So even if it disappears, it will just be a positive impact and [indiscernible]. Regarding the BPO division on the next page. The results are up as we said year-on-year in the first 9 months, and the profitability level is close to our long-term targets of around 25%.

And also Agenzia Italia is operating in that range. And we expect this to continue for the rest of the year.

It's worth pointing out that the results look very nice thanks to the consolidation of Agenzia Italia.

Without Agenzia Italia, on a like-for-like basis, we would have seen a decrease of revenues of 5% year-on-year, which was very much expected and [indiscernible] impact on operating income.

As we are showing the decrease comes from Mortgage BPO, the decrease was more pronounced in the first half of 2018. But this continues in Q3 2018.

And the main reason is the contraction of the para-notarial business into mortgages, that we invented which is more cyclical and so this is the main impact.

And also some time minor contracts with lower profitability were terminated are also impacting revenues.

We'll end up in 2018 with results lower than those of 2017, but in line with those of 2016 as we have said from almost I think from the beginning of the year.

Regarding the other business lines. CQ Loan BPO is up year-on-year in the quarter and the revenues for the 9 months are slightly year-on-year.

Insurance BPO accelerates. The growth comes above all from credit collection services that we performed on the outsourcing insurance companies.

Regarding Asset Management BPO, we have slight growth, and finally, the most [indiscernible] new division ranking the BPO business line, which is Agenzia Italia, obviously with other comparisons year-on-year, but you should just look at results of the company itself. The company is growing double-digit in both Q3 and in the 9 months of 2018, so we are very happy with this acquisition.

And so this concludes the presentation, and we will now hand it back to the operator for questions.

So please operator, move on to Q&A.

[Operator]

[Operator Instructions] Your first question is from Giovanni Razzoli from Equita SIM.

[Giovanni Razzoli, analyst]

I have 2 questions. The first one relates to the EBIT margin of the Broking Division. You have underlined that it was negatively impacted by the marketing spending related to the E-commerce Price Comparison business. I was wondering whether we can assume without getting into the details of the amount of the marketing spending, I was wondering whether we consider the approximately 2% reduction in the EBIT margin Q3 2018 vis-a-vis Q3 2017? Is it mostly driven by these acceleration in the marketing expenses? That's my first question.

And the second one, if you can share with us what are your thoughts about the consumer behavior in the context of extreme uncertainty related to the market conditions? Is it correct to look at the number of -- because the number of credit inquires is up single digits still in September vis-a-vis still a double-digit growing in the number of -- in the origination of purchase mortgages. So was wondering whether we can assume that the demand of mortgages is slowing down progressively so that we have to look at the number of inquiries as a proxy for next year and new production in terms of purchase mortgages?

[Alessandro Fracassi, executive]

Okay. Regarding the EBIT margin of the Broking Division, the -- without [indiscernible] the margin would have increased significantly year-on-year thanks to the growth of -- the strong growth of mortgage broking which has a very nice margin. And the margin year-on-year in Q3 went from 22% to 24%. It could have grown much more without the impact of [ '17 ]. So this is what we can say. So basically, [indiscernible] in terms of percentage margin partially deterioration, partially offset the initial impact from Mortgage Broking. Regarding -- and we will be able to provide more details at the beginning of the year. Regarding customer behavior, I think this is a very interesting question. Because we individually as many other people you know in I would say let's call it the upper class or the middle class, let's say upper class or middle, whatever, are concerned about the current situation with the policies that the government is carrying out with the budget is based on. So one would think that the consumers would get scared and stop spending. But the reality from the figures that we see for now is that probably the consumers are not so concerned for now. But the slice of the population thinks that the current situation is upset, but the majority of the consumers based on what we see in our businesses but also what I personally think is that they are okay with what is happening. So they're buying houses because they need houses. They are buying whatever they need, doing whatever they are going to do. And they work with our current government and are fully happy with what they are doing. And if there is a [indiscernible] factor of the current situation, my guess would be that it comes first from the banks rather than from the consumers. By the way looking back to the first half of 2008, 2009, and early 2011, 2012. In 2009, the consumers were not so scared. You didn't see the alarm of such a negative situation, which was very clear in 2012. So possible to have high spreads, a lot of talk about stable finances et cetera without this really impacting consumers. So...

[Audio Gap]

[Operator]

[Operator Instructions] The next question comes from Mr. James Clark of Capital SCF.

[James Clark, analyst]

Could I ask you to expand on your comments that I think were related to the performance of the shopping services channel? But in particular, if you could give us some more commentary about the evolution of the external marketing costs on a unit basis? So either per customer or per visitor across the TV investment that you've been making and also across the external digital channels that you invest in? We've seen obviously some significant private equity interest in the broader sector in Italy. And I'm interested to see whether the additional money that's being spent in these channels is starting to shift the cost basis?

[Alessandro Fracassi, executive]

Well, I would say, thank you, James. I would say we are quite happy with our advertising spend for insurance for Segugio. It's starting to pay off, I think we had a good execution over the years. And business is now operating at breakeven. And we will continue with the current strategy, and we'll likely to see expanding margins in the coming years also because it'll be on a fixed cost basis and on recurring revenues. So I would say for insurance, this is a decision that paid off and we are quite pleased with that. And we also made a lot of experience in how to spend money on TV, radio and advertising. Regarding shopping services, it's still undecided. I think we are very well prepared for the remainder advertising for these types of services. But in BPO, it is our services that should benefit from advertising because our mass of services. But we are still at the beginning, and it will take time before we can say that this decision has paid off or not. So we think it's the right to do. We think we have all that it takes to do it in the optimal way, because we have a lot of experience with Segugio and some purchasing power with the media and so on. But it will take probably at least 9 months or a year before we know if -- for this type of service, this strategy could function or not. So there is still a question mark.

[James Clark, analyst]

And if I may have a follow-up question. Your comments -- I appreciate it is a very piece of business, but in mobile couponing. Do you that's a reflection purely of the fact that the couponing proposition might not have had a good product market fit or are there broader challenges that we should think about in the transition to mobile across all of the different brands and not specifically your business but in this sector, that you see from the challenges in that smaller piece?

[Alessandro Fracassi, executive]

No, mobile couponing was a business that for us was quite separate from the rest. The business model was quite simple. It basically -- we had -- this was up to date mostly. Basically we had a small app -- with an app where you could find coupons for groceries like supermarket products, and you would buy those products any place and you just take a picture of the [ bid ] and get some credit for -- based on selection of the coupon [indiscernible] electronic wallet redeemable with say Amazon vouchers or other cash equivalent prices. And there was demand for this service because quite difficult synergies with all the other things that we had, even the clients are very different because they were the producers of consumer goods. And basically, you had to subsidize part of the coupons to reach sufficient scale. And without reaching stability. It could have worked with more patience and more money possibly. But this is certainly had very little to do with the other things that we were doing, and it was requiring too much attention. So I don't see any read across from these 20 of our other businesses. And in fact, of course, we are seeing a shift towards more usage of mobile devices and so on. But that is not presenting any structural challenges to any of the businesses relating of course, the product, the way you interact with consumers and to move to more telephone interaction in the regional businesses as you cannot ask 20 questions on a mobile phone or you have to work on interfaces or -- but we don't see for now any structural changes due to the changing in the types of designs -- devices that people use to interact with us. Actually we see for now opportunities because while our desktop experiences are always optimized, the mobile experiences can be significantly improved. And we will work on that going forward.

[Operator]

Gentlemen, at this time there are no questions registered.

[Alessandro Fracassi, executive]

Okay, so we will wrap it up. So thanks everybody for participating. And we will talk to you at the next call or in person and as always, we are available for calls, questions, whatever.

[Francesco Masciandaro, executive]

Thank you very much.

[Marco Pescarmona, executive]

Bye-bye.

[Operator]

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