Gruppo MutuiOnline SpA
MIL:MOL
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the presentation of Gruppo MutuiOnline Third Quarter 2020 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. Please go ahead.
Thank you. This is Marco Pescarmona, and welcome to our call. We will rely on the presentation that we just published on our website, and we will start from Page 15 of the document. And here we have the Q3 highlights. And as you can see, we have reasons to be happy of the Q3 performance. In Q3 2020, we posted revenues of EUR 58.6 million, which is up 20.5% compared to EUR 48.6 million of Q3 2019. In terms of operating income, we posted an EBIT of EUR 14.7 million, which is up 33.5% compared to the same period of the previous year. And this corresponds to an EBIT margin of 25.2%, which compares to 22.7% in the same period of last year. Finally, in terms of net income, we posted a net income of EUR 10.6 million in Q3 2020, which is up 39.1% compared to the EUR 7.6 million of Q3 2019. The net income margin in Q3 2020 is 18.1%, while it was 15.7% in Q3 2019.
On the following page, you have the breakdown by division. And you can see that we saw revenue growth for both divisions with the BPO Division reaching revenues of EUR 33.4 million in the quarter, which is up 14.7% year-on-year, while the Broking Division had revenues of EUR 25.2 million in the quarter, which is up 29.2% year-on-year. In terms of operating income, the BPO Division had an operating income of EUR 4.4 million in the quarter, which is down 20.8% year-on-year, while we had a very strong performance of the Broking Division with an operating income of EUR 10.4 million, which is around 87.9% year-on-year. Looking at the EBIT margin, the Broking Division posted an EBIT margin of 41.1% in Q3 2020 compared to 28.2% in Q3 2019 and 30.3% in full year 2019, while the BPO Division posted an EBIT margin of 13.1% in the third quarter of 2020 and this compares to 19% in Q3 2019 and 18.4% in the full year 2019.
Looking at the 9 months very briefly on the following pages. You can see that in the 9 months, revenues are up 14.1% year-on-year, the operating income is up 15.4% year-on-year and the net income is up 10.7% year-on-year with similar margins compared to the previous year for the 9 months.
And again, on the following page, you have the details for the 9 months for both divisions. And here you see that in the 9 months, the BPO Division had a revenue growth of 6.4% (sic) [ 7.4% ] year-on-year. Of course, the BPO Division suffered more of -- actually suffered because of the lockdown, while in the end, the BPO -- the Broking Division was, in some cases, even able to benefit of the situation. And the Broking Division is up in terms of revenues in the 9 months of -- by 24.8%. In terms of operating income, in the 9 months, the BPO Division is down 26.5% year-on-year, while the Broking Division is up 59.9% year-on-year. And for the 9 months, the EBIT margin is 37.5% for the Broking Division and 13.5% for the BPO Division.
So this is the update in terms of key figures. And of course, we are very proud of these results. Of course, again, the Broking Division benefited from the -- probably the increased shift towards online channels and then favorable conditions for the mortgage market, while the BPO Division was more affected by the general slowdown of economy and more importantly, the freeze of a large number of activities that took place during the first half of the year.
Looking on the next page, which is Page 19, we have the mortgage market, we provide some comments based on the available data. And we -- if you remember, last quarter, we said that after the lockdown, we have seen a recovery, which was already fading. And July was, in fact, a weak month according to the data then available. It turns out that after next July -- so July was, in fact, not a great month for the mortgage market, the market was growing significant year-on-year afterwards. So after July, we saw a pickup in mortgage activity. If you look at the data from Assofin, you see that new mortgage originations were up 9.4% in July. By the way, they revised the figure. The one that we published that time was the lower one, 39.3% year-on-year in August and up 25.5% in September. This is both due to some growth in purchase mortgages actually. They were down in July and up double digit in August and September and strong growth in the mortgages.
If you look at CRIF, the credit bureau, you see in the September figures, a growth of 13% of the credit report inquiries for residential mortgages, before they stop publishing the information since February which will the last month will be published. So they started only September. And what do we expect for -- what is the outlook for 2020? We think that despite the fact that there is, again, uncertainty because the country is more or less under new lockdown, so that creates some uncertainty. But despite this uncertainty, the information available on the market is compatible with an expectation of solid demand. So we expect to see solid demand. The only thing is, as we have already said last year in last time, the final months of 2019 were quite strong in terms of the mortgaging activity so the comparison in the -- will be more challenging than before, but we expect to see a continuation of solid demand.
Finally, I will comment on the outlook for the Broking Division and will also provide some more color on the results. The Broking Division had strong growth in Q3, and this was both in terms of revenues and margins. And the good thing was that this was to -- thanks to the contribution above, I would say and I must say above our expectations of all the business lines. And this is possibly also due to an increased propensity to use remote channels by the Italian population even after the lockdown was over. Of course, [ we had ] the special situation that, in particular, benefited Trovaprezzi, but still, we saw still good activity levels, online activity levels in all our businesses. And in fact, the revenues in Q3 of all the major business lines of the Broking Division, which means Mortgages, Insurance and E-Commerce Price Comparison, all these business lines were up more than 20% year-on-year while consumer loans was lower, but the good news was that even consumer loans was again growing year-on-year, even in the low single-digit figure.
And finally, what do we see as the outlook for the Broking Division, we expect a continuation of the current growth trends. So we expect to see growth and with a robust and diversified contribution from all the major business lines. So again, we expect to see good growth from Mortgages, Insurance and E-Commerce Price Comparison. So unless anything really ugly happens, this is our current outlook.
And with this, I will hand it to -- hand it over to Alessandro Fracassi for the comments on the BPO Division.
Yes. Thanks, Marco. So I'm on Page 21, where you see the business outlook of the BPO Division. Basically, as Marco said, the results for Q3 are basically in continuity with the trend that we have seen in H1. Revenues in Q3 are slightly higher than they were in 2019 and the EBITDA is basically stable. Therefore, we have a reduction in the operating margin on an EBITDA level. But this reduction is still a little -- okay, we are in the up and up situation, a bit slightly better from what we have seen in H1 2020. So there's a little bit of pickup.
As you know, if you look -- this is technically the picture at the division level. If you go into the individual business line and you look for the reason why there has been this reduction in margins, basically, we have a business line that is performing really well, growing both in terms of margins and revenues, it's the Loans BPO. As you know, we have taken advantage of this situation and entered the small and medium enterprise guaranteed loans market. And the Mortgage BPO is also growing fast, but it's reducing its margin for a mix effect as most of the growth comes from para-notary activities for remortgages. Also, we see that the Leasing/Rental BPO business line had a reduction in revenues and a stable margin. Therefore, it contributes less to the overall margin -- operating margin of the division. However, we do expect a better Q4 for the Leasing/Rental BPO, which is connected to some administrative tasks that will need to be performed in the last quarter. All the other business lines are basically stable.
Therefore, for Q4, obviously, as Marco has mentioned, there is a lot of uncertainty. But we do expect this trend to continue. So we expect the para-notary activity will still be a major part of the Mortgage BPO. And therefore, the margins -- the overall margin of that business line will still be lower than in the past with a mix effect. We will have a little pick up in the Leasing and Rental BPO, as I said.
And then the real news for Q4 is basically what we have just published 15 minutes before the conference call started, and I hope you have all received the press release. I had been commenting in the last years that our strategy is -- at the BPO level, is business lines that represent -- that have significant market share and represent, when possible, the leader in outsourcing services in the chosen field. And the one that is -- that was kind of lagging behind in the strategy was the Insurance BPO part, which was too small and not really growing as we expected it to grow. We were already fixing it on a stand-alone basis, but we have been working in the last month on a significant partnership, which is the one that we closed this morning, and I am happy to announce today. So today, Gruppo MutuiOnline has purchased 50.1% of Gruppo Lercari. Gruppo Lercari is a historical group of companies based in Genoa, and it's by far the leader in the insurance claims management so after sales services, both as a loss adjustor and as a third-party administrator for insurance companies.
Gruppo Lercari, who is an ultra-centenary company, it was, until today, a family company. The origin dates back to 1879. To date, it manages over 130,000 claims on behalf of the most important players in the Italian market, and it has the support of over 400 professionals, most of them are actually external professionals, and it has a number of employees, around 60. This deal, as I said, represents an industrial partnership between Gruppo MutuiOnline and the Lercari family. The members of the family will remain and will maintain the professional commitment at the helm of the Lercari Group. Actually, we will also include the activities that we were doing on a stand-alone basis before -- within the new business line that we will report in our consolidated numbers, the new insurance business line.
And the idea behind this industrial partnership is that we have now a significant market share in this market. And what this group brings to the table is a lot of, obviously, entrepreneurial drive. This is what they have been doing for over a century. But a very deep technical knowledge, very good commercial presence and clout in the insurance market. And what we will bring to the table is actually our innovative drive, our technological and process and organizational skill. So we believe that we will have very significant opportunities for growth in a market that is already consolidating. And we believe we will be the primary player emerging in this market.
In terms of the transaction, let me give you some numbers. We agreed a price for the 50.01% of the shares of EUR 35.7 million. We paid EUR 10 million this morning and the remaining part will be paid, EUR 22.7 million, during 2021, while a small portion, EUR 3 million, will be retained as escrow as a guarantee to the obligations, obviously, in this contract with the guarantees that have been underwritten by the sellers. And they will be -- and this escrow will be released over a 3-year period. In addition, there is also a conditional price component of up to EUR 4 million, which is subject to the occurrence of certain events, which will be released between September and December of next year. All payments will be financed through cash and cash equivalents that we already have or credit lines that are already available to us.
Gruppo Lercari does not prepare consolidated financial statements. So to give you an idea, I will use aggregate figures. So in 2019, Gruppo Lercari topped EUR 42.9 million of aggregate revenues and an EBITDA of EUR 8 million, roughly. As of June 2020, the aggregate net financial position of Gruppo Lercari companies was cash positive for approximately EUR 4 million. As I said, this is a partnership. It's a partnership that looks forward for the next 5 years, at least. And so therefore, the shares of Gruppo Lercari will be subject to a lockup. At the end of this period as well also some specific events during this period, reciprocal put and call options were agreed for the remaining 49.9%.
Mr. Rodolfo Lercari, who has been in the last 30 years, the entrepreneurial soul of this company, will remain as Chairman of Gruppo Lercari. I will be Vice President and basically kind of addressing on the strategic growth of the company and the strategic issues of the company, while Mr. Gian Luigi Lercari, who's the son of Rodolfo Lercari, will be appointed CEO, is already the position that he has; Giovanni and Alessandro Lercari, the brothers of Gian Luigi, will maintain their current positions, basically heading up the 2 sub businesses that exist within the company, the loss adjusting and the TPA; and Mr. Urciuoli, who is the Head of our Insurance BPO, will lead the innovation efforts in technology, processes and organization. Basically, he will lead the effort -- the things that we bring to the table.
Let me comment that this is, I believe, very consistent to the strategic direction that we have been telling the market in the last few years. And I am personally proud to join our entrepreneurial story to one that is over a century. And I believe this is -- and I hope this is just the beginning of a century story also for Gruppo MutuiOnline.
And with this, I finish there, and I am leaving the floor back to Marco, and I guess, to questions.
Maybe I'll just make one final comment. So we are very happy of this transaction. And the comment I want to make is just on the net financial position of Gruppo MutuiOnline, and this is on Page 35. As of September 30, 2020, our net financial position as reported according to regulation -- regulations is a negative EUR 48 million that means a debt -- a net debt of EUR 48 million. But of this amount, EUR 41 million are the liability for the put and call on Agenzia Italia and the IFRS liability on office leasing contracts. So those 2 things are, in our mind, the side that the regulations say that should be here, are not exactly financial liabilities like the others. And our net financial position, I must say, also benefit from some advances that we received for around EUR 16 million from some customers of Agenzia Italia, which are just a temporary effect. So [ if you ] net that out, it's slightly different, but still it's -- before the Lercari transaction, not far from 0.
And I also want to remind you that we still have a good number of Cerved shares, north of 3%, and this is not showing in the net financial position. And of course, this provides us with additional financial flexibility.
So with this comment, we are done with the presentation. And so the operator can open the floor for questions. Go ahead, operator.
[Operator Instructions] The first question is from Filippo Prini with Kepler.
We got, maybe 3 blocks of questions. The first one is basically, if you can give some indication on the evolution of Trovaprezzi. You mentioned that basically all the business line in Broking Division increased more than 20% compared -- excluding, of course, consumer loans. But if you can be a little bit adding some more details on Trovaprezzi will be very welcome.
The second is if you can quantify the impact of the cash advances from the car tax to Agenzia Italia on the result of your net debt at the end of September. And the last block is a few clarification on this latest acquisition of Lercari. The first one is that if you can give an idea of the [ dilution ] of revenues and margin in the -- basically this year, consider that there may be claims on some area of insurance are down this year in comparison to last year.
The second one, if can you already give us an indication on the possible impact of amortization of PPA intangibles, which is the gap between EBITDA and the EBIT. And the -- basically, last one, if -- do you expect any meaningful growth of these new vertical on your BPO Division in the next year.
Okay. Thank you. I'll and kind of cover the questions. This is Marco. So regarding Trovaprezzi, it is difficult to provide more details. There is clearly less growth than in Q3, but still nice growth north of 20%. Then we'll have to wait until next year when we publish the second -- the full year result to see what we did back in the second half. But again, our comment is that we see -- I'm not seeing exactly a homogeneous performance, but it's a broad-based growth. So growth is across the different verticals. And also Trovaprezzi did, I think, slightly better than what one could have inferred from our outlook of last quarter. But it's difficult to say more.
In terms of -- and this lockdown, by the way, is not looking the same as the previous lockdown clearly because it's not a full lockdown. Many stores are open. People are still going to stores to buy a lot of things that they just couldn't buy physically in March and April. So the physical channel is not closed and clearly people are not [ really afraid ].
And secondly, Amazon is actively advertising while it was in a way trying to avoid too much business volume in the first half. So those 2 things are not there, but still we see good growth. Regarding the cash advances, these are -- I think it's written in the quarterly report. It is EUR 16 million, the impact is EUR 16 million. So there is extra cash because of this EUR 16 million. And it's written there so that one can do [indiscernible] if one who wishes.
And finally, I will only answer one question about Lercari, and the rest will be in Alessandro's [ bank ]. If they -- the PPA question. Well, first of all, let me say, in general, I mean, we normally prefer to look at things in terms of operating income, EBIT. And this works pretty well, and we think it's a better representation of real economic performance if you are growing organically. If you start doing acquisitions, then PPA amortization is a sort of pollution of the figures. So it is more difficult to see the real performance. So we would advise you to also look at EBITDA for -- especially for the BPO Division. And maybe we will need more visibility to give out also in the quarterly presentations.
And for Lercari, again, we'll have to do a PPA allocation exercise. I think we have until the end of last year, but maybe we'll do it before of next year, but they -- so end of 2021, but maybe even before then. And obviously, these companies tend to have some immaterial assets such as software. So certainly, some of the goodwill, I mean, of -- will have to be allocated -- the purchase price will have to be allocated to software intangibles and we see there will be other intangibles as well. So for now, we don't know there will be an impact. And the last is when you look at BPO to look at EBITDA more than the EBIT. And maybe we try to provide over time some details allowing those interested to make an easy normalization of the PPA amortization, the impacts on the EBIT. In regards...
Yes, with regards the growth prospects and the performance, we see are relative to the numbers and [ we exceeded that ]. So first of all, let me say, this is a company that up to 2019 has been growing both at revenue level and at an EBIT -- EBITDA and EBIT level, double digit. So it's a company that has benefited from the consolidation that is happening in the market. Not consolidation in terms of 1 company buying the other, but the fact that the insurance company used to work with a very diversified base of appraisers and loss adjustors have started to shrink down the number of players they play with. And Lercari, being already the leader, has benefited more than the rest by this trend. So this is what has happened until 2019.
2020 is the year where -- when we see basically stability and resilience of this business. There might be a little impact on revenues and margins, but we are really talking about a very, very stable business that is not that impacted by the COVID crisis. Bear in mind that here, we do not have or we have really minimal part things relating to automotive claims. Most of the work that we are doing here is relative to third-party liabilities for property, marine, electric shops, these kind of things, electrical phenomena. So this is not that -- it can obviously be impacted by a contraction of economic activities or any way movement of goods and people during the pandemic, but overall tend to be resilient.
Also another factor is that there are some of these services, which are really large claims and take sometimes over a year before they are processed. So this is being the leading company, this company is normally also a part of the most significant accident unfortunately that happen in terms of property infrastructure in the market, and those will take obviously, sometimes even more than 2 or 3 years before they can be closed and therefore, revenues can completely be accrued. So that also gives a little of, let's say, buffer in the way revenues and profits are impacted by external factors such as the pandemic.
So what we expect going forward is -- actually, we expect this trend of growth to continue and also frankly be fueled by some of the enablers that we bring to the market, the ability of -- we are showing some of the clerical activities, the ability to use technology more effectively in the processing. So it will not be immediate. But we believe there is room for more growth and to keep -- and basically to keep the pace of the rest of the division in double-digit growth in normal years of the -- during the pandemic.
[Operator Instructions] The next question is from Robert Vinall with RV Capital.
Just a quick question from me. I think the Trovaprezzi business -- the Trovaprezzi business has been suffering in the last few years from various factors, in particular, Google's search changes. Obviously, it's improved a lot this year. To what extent do you think that is structural versus sort of COVID-related?
Sorry, we lost you -- we completely lost you.
I'm sorry, can you hear me now?
Yes. But you would have to start from scratch, if you don't mind.
Yes. Sure, no problem. The Trovaprezzi business has suffered a lot in recent years due to the changes in Google's ranking. It's improved a lot this year. To what extent do you think that is structural versus sort of related to some temporary factors driven by COVID?
Well, certainly, we had significant benefits from the situation induced by COVID, but some of the changes are also structural. I would say our visibility on search engines has not improved this year. But despite that, and even after the lockdown, we are still seeing good growth. And we are also developing new other channels of -- or sources of traffic acquisition, in particular. One thing we have just started doing again is TV advertising also for Trovaprezzi. And we launched a couple of weeks ago, a new commercial which is much better quality than the previous one. And we think it will also be important to have more and more than brand-driven traffic for Trovaprezzi, which is something we have been successful with Segugio. So will also follow that route.
So now this -- I mean, again, not only the positive impact of this year is structural, but some of it certainly is, and with this a change in consumer behavior and then we are trying to reinforce the brand to generate growth, but also as a protection from our exposure to search traffic.
[Operator Instructions] The next question is from Raphaël Moreau with Amiral.
Congrats for this nice acquisition. On paper, it looks very good. Just to know, you plan to do more acquisitions and use this for the platform to concentrate, I understand. And how optimized is the market and how many opportunities do you see in this -- to acquiring [ in this field ]?
Well, I mean in terms of -- we have an opportunistic approach towards acquisitions. So there are companies we like, and maybe we find 2 or 3 opportunities in a row or maybe we have to wait 2 or 3 years. On this one, we have been talking to the family and then getting used to each other, let's say, also for more than 2 years. It's been a very long dialogue. So we have the flexibility to do things. But whether we are able to do them or not really depends on whether we find the right opportunities. But certainly, we reinforced our balance sheet when we saw, call it, coming and then it turns out that our business is, at least on the broking side, quite resilient.
And there's a market for this? Do you know the market share of Gruppo Lercari?
No, because -- yes, it's hard to say, but let's say that we are -- Gruppo Lercari is basically at least double the size of its next competitor. And we had -- we were probably number 5 or 6 in the market, and it's also not that easy to define the market, but it is a significant share. We'll try to come up with a number.
Okay. Okay. But it's [indiscernible]. And just in terms of profitability, so it's a little bit less profitable than your BPO segment. And I understand there is high value added and a specialization in what they do. So using your technology and processes, is it a segment that has the potential to be more profitable than your busier segment? Or do you view that it should be on par in the future?
Yes. Well, let's say, not the core of it. So the core of the service provision because most -- let's say, there are basically 2 businesses in there. One business is basically having an expert that will go out and upgrade the damages, okay? So this is a variable cost because it is mostly, in most cases, 95% of the cases and not an employee of the company. And in the provision of the services, the technology can help up to a certain point, can help, let's say, in mass claims, those that have less frequency because you can schedule better the appraisals that go out. But in the really, really high value add, the one where the expert is keen in doing it, technology can [ talk ] to a certain point.
What -- the other part of the business is instead what is called TPA, or third-party administration. This is more -- a more complete outsourcing of managing an insurance policy. So anything that happens to the policy itself. Here, it has [ cars ] that are -- it can involve an appraisal going out. It can enroll just a negotiation with the damaged party. It also involves just managing the administrative process. That is the part where our technology can make it more profitable or also the use of nearshoring can make it a little bit more profitable.
Yes. And on this part, is it something that has the potential to be more profitable on the group or similar?
I'm not -- I'm sorry, I didn't hear you very well on that.
On the second part, on the administration...
Yes, yes, yes. Yes, that's what I was saying. Here is where technology and nearshoring can boost a little bit the profitability. But I mean it's already at a very good level and in line with what is our target.
As we see -- this is Marco. Here, the main opportunity is growth -- is to accelerate growth.
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
All right. Perfect. So we thank everybody for participating to our call. And we are also very happy that we are at EUR 25, which means EUR 1 billion of market cap, so hope it lasts for more than half an hour. And well, again, thank you, and we'll speak with you at the end when we publish the full year results or earlier if you want to call us. We are available, otherwise. Thank you.
Yes. Excellent. Thank you very much. Thank you, everyone. Bye-bye.
Bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.