Gruppo MutuiOnline SpA

MIL:MOL

Earnings Call Transcript 2017-Q4

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the presentation of Gruppo MutuiOnline Fourth Quarter 2017 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; and Mr. Francesco Masciandaro, CFO of Gruppo MutuiOnline. Please go ahead.

[Marco Pescarmona, executive]

Thank you, and welcome, everybody, to our conference call. We will use the document that was posted on our website this morning and start from Page 15, with the revenue update.

Revenues for 2017 are EUR 152.8 million, and this is up 10.7% year-on-year compared to the EUR 138.1 million of 2016. The operating income, the EBIT, is EUR 39.7 million in 2017, which is up 12.8% compared to EUR 35.2 million in financial year 2016. This corresponds to an EBIT margin of 26% in 2017 and 25.5% in 2016. Net income is also up. It is EUR 27.2 million, which is -- in 2017, which is up 9.7% year-on-year compared to the EUR 24.8 million of 2016. The net income margin is 17.8% in 2017, and this compares to 18% in 2016.

This performance is driven in a very similar way by the performance of both divisions, as we see on the next page. In fact, looking at the revenues, the revenues of the Broking Division are 67.2%, which is up 10.3 -- EUR 67.2 million, which is up 10.3% compared to the EUR 61 million of the previous year. And the revenues of the BPO Division in 2017 are EUR 85.6 million, which is up 11% compared to the EUR 77.1 million of 2016.

Same situation for the EBIT, which is EUR 18.4 million in 2017 for the Broking Division, which corresponds to a growth of 12.3% year-on-year compared to the EUR 16.4 million of 2016. And the BPO Division, which has an EBIT of EUR 21.3 million in 2017, which is up 13.2% compared to the EUR 18.8 million of 2016.

And as a consequence, the EBIT margin is quite similar to the previous year. It is 27.4% for the Broking Division and 24.9% for the BPO Division in 2017. And this compares to 26.9% for the Broking and 24.4% for the BPO Division in the previous year.

Now looking at the general market conditions and then at the different business lines of the 2 divisions. We can start from an update on the residential mortgage market, on which we significantly depend.

And 2017 -- so we go to page -- to the next page. 2017 was a year of recovery for purchase mortgages, while refinancings continued to contract and to normalize. The recovery for -- of the real estate market and of purchase mortgages, however, was stronger at the beginning of the year and then progressively faded. And in fact, we even observed the contraction even in purchase mortgages year-on-year in December 2017.

In fact, if you look at the Assofin data, you see this very well. The total market was up overall 4.3%. This is the result of -- in 2017 year-on-year. This is the result of a growth of 6.2% for purchases and a contraction of 24.5% of other mortgages, mainly refinancings. And you can see, however, that at the end of the year, you have negative figures -- actually, significant negative figures for the entire market, say, December 2017 but also January 2018 year-on-year were down 16%, both months. And the interesting thing is that in these 2 months, also purchase mortgages were significantly down by around 8.5%. So we -- probably due also to the political uncertainty leading to the elections, we had this contraction also of the housing market and of purchase mortgages.

And if we look at the data from CRIF, the credit bureau, we see more or less the same picture if you look at the double-digit decrease in credit report -- credit bureau inquiries for the last few months.

Now what do we expect for the coming year? Here, we are talking about the market more than about our own business even if the 2 are linked. So we expect the drop of remortgages to continue. Most of the normalization has taken place, but there are still volumes of remortgages that are probably above the long-term average. So we expect this normalization to continue even if now for the market, remortgages are less than 1/3 of the total.

With respect to purchase mortgages, we clearly have to live with the current drop of the market, but we -- and so we expect this contraction to continue just because it is in the numbers, so -- in the credit inquiries and so on. But we expect, however, to see a recovery of the housing market in -- at least in the second half of 2018.

This is, of course, linked to a number of factors. We still have incredibly favorable factors for a recovery of the housing market. Interest rates are very low. Housing prices are very low. Taxation is favorable. Banks are competing to lend more and more money. And there is an ongoing economic recovery. The only issue is that there is a situation of political uncertainty, and this is probably what caused this slowdown or contraction of the first -- of the end of 2017. So if there are no -- if instability -- political instability remains within a certain limit, that -- the other factors should prevail, and we should see a recovery, and this is our baseline scenario. But again, this is not fully predictable. We don't see any catastrophic scenario, but we see certainly some uncertainty.

Now regarding our business, we'll start from the Broking Division, and also we'll comment on how this could evolve given also the market conditions. 2017 was a good year for the Broking Division. We had growth in many areas. We had significant growth of Mortgage Broking, both in terms of revenues and margins. Personal Loans had a very slight growth of revenues, but margins were down. The Insurance Broking was up in terms of both revenues and margins. E-Commerce Price Comparison, as you know, suffered a drop both in revenues, in this case, single digit; and in margins, more severe. And we had strong growth of revenues from the promotion of -- from the comparison and intermediation of utilities. This is still a small business, however, for us. And we continue to invest so little revenues and more significant costs for the mutual fund supermarket and for mobile couponing.

What do we expect for 2018 overall? Despite the general market conditions that we mentioned before, we still expect some revenue growth for the Broking Division as a whole even if we have to admit that the market conditions for both Mortgage Broking and also for E-Commerce Price Comparison will be more challenging.

Specifically looking at Mortgage Broking, well, we were simply able to increase mortgage volumes, and also a slightly -- a higher proportion of these volumes came from purchase mortgages, which pay higher commissions. The result is a growth of Mortgage Broking revenues from EUR 19.8 million in 2016 to EUR 24.9 million in 2017. So this is significant growth around more than 20%. And this happened -- by the way, as you have seen in the market, it was up 4.3%, so clearly, our market share must have gone up.

For the first part of 2018, we expect a year-on-year decrease also because, last year, the first quarter was characterized by a very unusual peak of business activity that we couldn't explain with seasonality. So we are also comparing with a very strong Q1 2017. And then subsequently, as we said before also, unless there is a big impact of -- negative impact of political instability, we expect some growth of broker volumes, and this is driven, of course, by housing transactions. And on the other hand, we'll see a further normalization of remortgages. So the issue will be if and to what extent our market share get -- continue to improve in this market.

Looking at Consumer Loan Brokings. Consumer Loan Broking, in a way, well, last year was a relatively challenging year because we had some slight growth of revenues, but we had to spend significantly more money on marketing. With diminishing returns, there is more competition, especially on online marketing. And for 2018, we can expect to see some more growth or maybe stability of Consumer Loan Broking, but we are doing a number of operational improvements that should at least stop margin erosion or potentially allow us to have some improvements.

Then going to Insurance Broking, here, you see that results are up year-on-year. This means both revenues and margins. And this is both because of the growth of new business and of renewals even if you see the growth is not so strong. This is also due to the fact that the market was not an easy market. Basically, they expected a recovery in average premiums didn't -- did not occur. And so premiums are, let's say, stable if -- have been stable but certainly not increasing, and this didn't help. And in the first half of 2018, we expect the continuation of what we have seen in 2017. So we don't see any discontinuities in the market, and we keep the expectation that sometime in the future, shouldn't be too far away, but we have already said this for quite a while now. Insurers should increase premiums because the technical results of the industry are deteriorating. And obviously, if that happens, we will be able to see an increase in switching and the growth of our business. But again, it's not happening yet. So this is the situation for Insurance Broking.

For E-Commerce Price Comparison, we had, as we already said in the past, a non-negligible drop of organic traffic in 2017. The drop was bigger in the first half of the year and diminished in the second half also because we made a number of operational improvement and also some organizational changes. And we are now, by the way, much more involved -- more directly involved in the management of this activity. And for 2018, we expect a slight improvement of the performance. So at least stabilization may be a slight improvement. But at the same time, this business remains under close scrutiny because it is highly reliant on organic traffic, and there is, therefore, some intrinsic fragility, so we will keep a very close eye on this.

And looking at the other activities, these are smaller. Where we had good growth was the utility business. But again, this remains small, but we believe this could continue to grow. We -- 2017 was also the first year of operation of our mutual fund supermarket, and the developments were behind expectations; especially in client acquisition, it was very weak at the beginning. And then it started improving, still with very low numbers but with an interesting trend in the last months of 2017. And we'll continue in 2018 to grow this business. And also, we expect that client acquisition could improve, also thanks to MiFID II and the number of changes in consumer behavior or the structure of the market. But this will be something that takes patience, that we have anyway.

And finally, what we have in mobile couponing remains in an early phase, and we still have to spend money on this to make it work.

And this ends the update on the Broking Division, so, Alessandro?

[Alessandro Fracassi, executive]

Yes. Hello, everyone. I'm on Page 21 to give you the update on the BPO Division, on the results of this year and the outlook for next.

As we commented, 2017 was again a positive year for the BPO Division. Revenue grew for the fifth year in a row at a double-digit rate, and we were able to maintain our operating margin closer to our stated objective of long-term profitably. And it's also the way in which we make decision whether to enter or not a market if we believe it can generate all these sorts of margins for our investments.

We can see all the business lines have contributed to the positive results, but the real growth engine again has been the Mortgage BPO, which has performed well beyond our expectations. We expected it to shrink, and instead, it grew.

Now as we look at 2018, it is inevitable at this point that we will be impacted by the shrinking of the financing market, which affects especially our para-notarial activities. Anyway, we want to point out that as we look at the medium term, so beyond 2018, we see that we have very [ different ] growth prospects both in the segments that we are currently succeeding on and also potentially in other close segments, where we intend to pursue opportunities. The reason why I'm saying this is because the course to strategic outsourcing through strategic partnership is still not so common for financial institutions and insurance company in the Italian market. And even with the growth that we have shown in these years, we still believe we have interesting opportunities and growth space even in -- even organically remaining where -- in the segments that we are. And then we have the opportunities to grow in similar segments. The important thing is the 2 segments that can -- that are -- where processes are complex enough and difficult enough that we can protect margins in the neighborhood of the ones that we are performing at this point -- we are delivering at this point.

Now getting into the 4 business lines. As we've said, Mortgage BPO was a positive surprise. It was mainly because we had in the first part of the year the contribution, that was very significant, of the new clients and that we acquired at the end of 2016, and that paved most of these results in 2017. So the first half of the year was particularly positive. And then we were able to generate growth even with the mortgage market shrinking, as Marco commented in the numbers for the market. And this was possible, thanks to an increase again in our market share.

As we look at 2018, we do expect lower revenues but -- so that we don't generate here -- and if you were listening, I think we can say that as the mortgage market will normalize, we expect it would still be slightly above the results of 2016.

As we look at the other -- the “Cessione del Quinto” Loans business lines, here, we never expected to reach the growth. We believe we earned a little bit of it. And as we have commented in the previous year, it's the focus here, it's mainly on recovering margins and improving margins and funding them through initiatives in operational excellence and anything that we can do to make our operations cheaper and more effective.

In -- as we look at 2018, we expect again substantial stability on this business. Discontinuity, which could [indiscernible] was then -- could be generated by the entry of new players, which are still looking very actively in the segment, by the consolidation of existing ones. And also, Bank of Italy has announced that there will be new regulations coming. It doesn't seem to be particularly different from the existing product call that was a -- it keeps sales regulation by the industry very aligned to it. So that shouldn't be such a big impact. But anyway, the regulation is still not official, so we'll wait to see how it gets in the next few weeks, yes, and then we can assess the impact on our clients and, therefore, on our business.

As we look at the Insurance business, as we predicted, it will end back to the levels where it was before. We -- things that are going well are the claims management also for large institutions. We announced earlier in the year that we have secured a contract with [indiscernible] and then also for the activities in credit collections for insurance companies. So we expect 2018 to be on a slight uptake relative to 2017 but will be aligned with 2017.

In Asset Management, you also know that we -- at a less interesting way, but I will comment that the challenge here was to substitute the volumes that we saw in H2 of 2016, which were related to a one-off project that we were really not -- volumes at the project, but they were -- let's say, consulting revenues are from a specific project that was a one-off thing. We expected it -- to substitute it with volumes of normal steady business, and this is what happened in 2017. Here, we expect results that are aligned the next year. The growth from the new client that we announced in August is not as significant as we would have hoped. It doesn't mean that the prospects don't remain interesting as we have look in the medium term. But the plans for growth that had been announced were kind of -- were reduced, and so we don't expect it to have a big impact in 2018. But still, it can be an engine for future years.

And with this, I think the overview of the outlook of the BPO division is finished, and I'll hand it back to you, Marco.

[Marco Pescarmona, executive]

Okay. Thank you, Alessandro. Just 2 final comments.

You can see on Page 36 of the presentation our net financial position at the end of December 2017. And so we are now at -- with a cash position -- net cash position of EUR 22 million, which is significantly up compared to the EUR 7.8 million at the end of 2016, and so we are in a very solid situation. And the Board of Directors has proposed a dividend of EUR 0.30 per share, which is around EUR 11.5 million. And this is the same that we paid out last year, and this also -- this is a payout that gives us significant financial flexibility going forward. So we are in a sound position, and we retain flexibility from a financial standpoint. That's the last point I think that is worth making.

And so we are open -- we can open now the floor for questions. Please, operator?

[Operator]

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

[Marco Pescarmona, executive]

Well, that will close the call, and we thank everybody for participating. And as always, we remind you that we are available for one-on-one discussions on any issues you might have. So thank you again, and goodbye.

[Operator]

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