Schibsted ASA

OSE:SCHA

Earnings Call Transcript 2017-Q4

[Rolv Erik Ryssdal, Chief Executive Officer and President]

Welcome to this presentation of the Q4 results. I know that many are following us on video so please also post your questions and we'll try to answer them afterwards. So in the normal manner, Trond and I will give the presentation but then there are representatives from senior management here also to help answer questions. So Sondre, who's head of the Classifieds division is here, and [indiscernible] who's the CEO of Media division is here. So hopefully, we'll be able to answer questions and also questions you might have afterward.So the Q4 was a good quarter for Schibsted. We delivered solid growth and revenues and result compared to the same quarter last year. We are on the steady course, but we're -- there are not any big news really. We are following steady course delivering on the things that we said we work on. So these are the highlights. In Online Classifieds, we see a good continued revenue growth and good also growth in the EBITDA. There is a positive development, I'd say, especially the big locomotives in France, in Norway and Spain, is helping and driving the growth there. And also as we had advised earlier, the investment phase loss is somewhat reduced.For Publishing, there is a big emphasis on digital product development. And there's a number of editorial achievements also in the quarter and also going on, on a continuous basis and also there is stable EBITDA. For the Schibsted Growth, we see a continued expansion, and personal finance is the one that's really standing out, with Lendo delivering a very good development.They've launched also in Finland and so in Norway, and Finland is also contributing in addition to Sweden.Right. So I think we'll go right into the Classifieds, and let me start with the big sites. Leboncoin, great year, with great results for Leboncoin also in the fourth quarter. You can see there is a good revenue growth in the verticals and we continue to roll out new products. So the performance dashboard is a dashboard where real estate brokers and car dealers can see how well their ads are performing, how they can boost and optimize that. That has been very positively received. And as you know, real estate and car have been the 2 big vertical traditionals under Leboncoin. And then we started in 2016 to monetize also the jobs, and we're seeing that that also is now a good contributor.And what I'm also happy about is that there is this solid traffic growth continued in Leboncoin. Remember Leboncoin is a huge site, so to drive traffic even further there is very positive for us. And then I think no one should be surprised that the margin in this quarter is somewhat lower than in the last quarter because I actually said that quite clearly in the presentation here in November, that the Q4 will have a lot of positive marketing campaigns. For those of you who have spent some time in France, in Q4, I'm sure you have seen this on television that they've been very positively received.Over to Norway, continued good performance by Finn in the fourth quarter. They continued to have volume increase, and both cars and real estate have performed well. And especially jobs in the Norwegian economy is rebounding and so we can see that the jobs vertical of Finn, reflects that. We can see that the banks from the West Coast of Norway are reporting good results. And we can see that also in the energy sector, the jobs are coming back. Otherwise, there is a good demand also for people skilled for IT and also actually classic industry jobs. And that -- the product development goes on in Finn as well so that Blink, the targeted app for real estate and jobs classifieds where we can target also individuals across our different sites, it seems to work well for our customers. Then also in Finn, there has been spending on marketing in the fourth quarter. Over to Spain. I think in Spain, we're seeing good performance. We have 2 verticals that have been doing very well: it's jobs, that's also a reflection of the good macroeconomic situation in Spain; and cars. So cars in Coches is growing well. And if you look at what is actually the penetration so far, I believe -- and compare that with other countries. I believe we illustrated that at the Capital Markets Day. You can see that there should be a continued growth potential. Then there's stronger competition in the real estate and in the generalist, as we know. I'm very happy with the acquisition of Habitaclia, this was completed a year back and also the Spanish real estate markets is developing well and that, therefore, Habitaclia is doing well. And also then a better product development for Fotocasa. And there, you can see that the marketing spend then works the other way around and in this quarter a little bit lower, hence, better margins.In Sweden, it's a softer quarter overall also this quarter. The positive side there is that we have 2 -- we then have 2 verticals in Sweden, it's the cars and it's the jobs. In cars, it's been the market leader for a long time, has seen a good development. We're also working there to provide better tools for the car dealers so they also have their own performance dashboard. And then a bit similar situation in France is that we're coming from a relatively, I would say, modest position in jobs, that's growing very well. So I think we're now the market leader in the jobs sector.What has been softer in Sweden and, hence, the flattish development on the top line is, of course, the display advertisement and also the company's ServiceFinder, which is a marketplace for services, which is dragging down the total. So Blocket isolated is doing somewhat better.All right. In the other countries that we are in, in Italy and Austria and some of the other countries, I think willhaben is continuing on a positive development in Austria. Also in Italy, we're seeing a positive growth. Whereas, Ireland has been somewhat slower.Investment phase, I know that many follow that. We've said that 2017 would be lower than 2016, and we said also it would go down by the quarters, but it might vary between the different quarters. But the trend there is quite clear, that is lower and that will continue also in the year to come.In Brazil, we have the OLX sites. And we see solid -- remember we started monetizing that site really with professional car dealers and real estate brokers around 18 months ago, and we're seeing a positive development there. I think especially we've been doing quite well in the car vertical, so I'm optimistic as to what will -- how that site will continue to develop.For Shpock, this is especially the U.K., which is our growth market there. And here you can see that compared to Gumtree, we have a bigger number of downloads. In fact, it's a high number of total downloads so far. And there's a continuous product development and listings continue to do well. We're also starting to roll out professional seller tools and we're starting there with the general merchandise.Otherwise in Classifieds, and let me go back to the Investor Day that we had in Barcelona, where Sondre and his team presented what we're doing on product. I think we're continuing that, of course, and the important thing is, there, that we continue to do product development for the verticals. And you see some examples here. That is important for us and will strengthen the ties with the professional dealers and real estate brokers and recruiters. And I believe that also will give good services for consumers and for these professional customers and also provide good revenue opportunities in the years to come. Happy to answer any questions you might have on that afterward.Then let me talk about the Media Houses. I think we got some, a lot of very good achievements in the Media Houses, a lot of good work being done. Let me take 2 examples of important journalism, this is just from the last week, where [indiscernible] had a big story over the weekend covering a story that actually unsettled Norway some time back. They really go behind the story, on what happened and what was -- how many interactions he had shared with the police, et cetera, et cetera, very good example of investigative journalism. And [indiscernible] from last weekend focusing on Norwegian Internet abusers. When it comes to the results, you can see that it's a steady development there. And so there is focus on digital development. At the same time, of course, trying to balance the cost. If you look at Aftonbladet and VG together, who are the biggest contributors to the result, you can see that there is very good digital growth in VG and there is some margin contraction due to some print decline. But whereas Aftonbladet is increasing their margin, what I'd like to see is that VG is working hard in the -- both with their -- with both revenue legs, but there, also, they have done very well in the digital ad market in -- over the last year.And then, of course, we talked about digital subscriptions. Both we and our industry peers are focusing on that. And this is especially important for the subscription-based newspapers. That will continue to be a big focus for them going forward. And of course, we do work continuously with product development. So we have the traditional models, I've talked about VG's [ experimentation ] earlier on with Snapshot. Here are some other examples. So Omni, the news app in Sweden, had launched a vertical on business and economic affairs -- has achieved a lot of downloads and very popular. Based on the same technology, we have launched a similar service with E24 in Norway, and many people here are in the target group. It's an excellent service, you should try it. And then VG is also experimenting with new services, such as VG [ Prime ], which is especially directed towards a young public that normally don't visit news sites so much. So it's important for us to continue these product developments.Schibsted Growth, I'll keep that relatively brief. I think we have an interesting portfolio in Schibsted Growth. And you know these brand names by now, but of course, there are a couple that particularly stand out. I could point to Prisjakt having a positive development, but especially Lendo, which is an effective customer acquisition for lenders and a great service for privates. Because for consumers, instead of having just one bank or financial institution to relate to, you actually get a wide comparison on many different banks and, therefore, better and more competitive offer. I think this is a fully digitized service and that's why it's going so well. I said at the Capital Markets Day that we're looking at this strategically because we believe that we are expanding this service in Norway, Sweden and Finland in a very positive manner. We believe that there's also some potential to take it up further in Europe, in which case, we'll look at some partner to help us with that.Right. Before I round off and hand over to Trond, I'd like to also point out that of course, we're, as our industry peers, we're working hard to look at how are the regulatory framework for the businesses that we're in. And there's -- of course, we want to have a level playing field for what we're doing, so we support the EU initiative initiated by the big countries, Germany and France. And there was also a Norwegian initiative in parliament yesterday that we supported, that -- to investigate what could be effective taxation rules for the big international giants. We are interested in having that level playing field. Then we're working hard to comply with the GDPR regulations coming into force in May. And then later on, perhaps in 2019, we'll get the ePrivacy Regulation as we also should adhere to, and we're working with the organizations in Brussels to make sure that this is done in a way where we can comply and still work -- provide a good solution for our users. Then, of course, we support the work in Norway by the [indiscernible] commission and look forward to politicians looking into both that and also the role of the public broadcasting, that is the debate going on. It's important in Norway and Sweden, but we see it also in other European markets. And then we hope that the Swedish politicians will look to Norway when it comes to the VAT because we're very pleased that the Norwegian politicians, they managed to cut through and say taxation VAT should be the same for digital media as a print media. And they did that, although many said it was difficult. And I hope the Swedish authorities will be able to do the same. We have to answer any questions we'll be hearing from the press afterward on these topics. Right, then I think I'll leave the presentation to you, Trond, to take care of the finance.

[Trond Berger]

Thank you, Rolv Erik. The fourth quarter is a good quarter, and its stable course continued the development that we have seen throughout 2017. So we're happy with that. And you see that our Media Houses are stable, more or less, also on the revenues and on the profit and certainly continue the growth in the Classifieds section. So that is good to see. If you look at more the details in the fourth quarter, you see that we have a gross operating profit of NOK 945 million (sic) [ NOK 845 million ] compared with NOK 682 million last year than '16. And then we have slightly higher depreciation due to some increased activity in the product [ tech ] and also that we have done a couple of minor acquisitions during '17. We have had some cleaning-up costs in the JVs line of NOK 29 million, and we expect of course that to continue to go into positive territory going forward as we have Brazil and Austria in there, which is certainly doing well.In the other income and expenses, we have some restructuring and also some one-off gains. So this leads to an operating profit after these items of NOK 479 million compared with NOK 295 million. And we also have some minor currency losses in -- that fluctuates somewhat between quarters. So it's a good quarter as such. Looking then at the development between the 2 years in Q4, you see that it increased from NOK 501 million up to NOK 695 million in EBITDA. And again, France is an important contributor there. We also have Finland, Norway doing well, but the underlying development in the [ marketplace ], Blocket, is also performing, I would say, good. And then Spain, good to see that's also doing well. So that, compared with the development in media and also some increased product [ tech ] leads to a quite good increase in the EBITDA.If you take the different countries and looking at the revenue and the growth in EBITDA margins it is, as Rolv Erik said, France, 55%. It is as we guided for, that it would go somewhat down in Q4 due to increased marketing spend. But we have, as a result of this, seen quite good development in traffic and also the continued development of that in January. The Finn, 18% total growth. And Sweden, the underlying vertical, as I said, has performed as expected. Spain, especially the job and the cars section, has a good position in the market. We have a balanced portfolio. And if you look at the breakdown of our portfolio and revenues, it is certainly then France being the biggest contributor, but also Spain and Norway and Sweden are important in the developed phase in the Classifieds; and also corresponding development in the EBITDA. If you look at the investments phase, we see strong growth on revenue and also continued decrease in then the losses from that portfolio. And that will continue to go down.As we have said when it comes to the guidance for Schibsted, we restate our 15% to 20% top-line growth for the Online Classifieds, and that is maintained over the next 3 to 5 years. And we will certainly focus on continuous than operational leverage and focus on cash flow and profitability improvement. And as I said, the Online Classified investment phase will continue to go down. And as you also know, Brazil will certainly be in positive territory in '18. And Media Houses, we have seen a strong development in the digital part. And of course, the print continued to decline, so also you may expect some contraction as a result of that.Looking then at the key financial figures. We have then reduced our net interest rate debt, we have continuous good cash flow from operations and a fairly stable CapEx as the quarter shows. Looking at our financial position, we had an equity issue in the fourth quarter and we have now a net interest-bearing debt or EBITDA of 1.0, which is -- then gives us the possibility to continue to do some expansion. And we would like to, as we have already said, some in-market consolidation and be positioned for further growth. The board has proposed a dividend of NOK 1.75 per share, that is 32% of the cash flow and it's a stable dividend. And so that has also been the dividend over the last years as you see. In 2018 and going into Q1, we will do some adjustment for the segment reporting. And the main change there is that we will split out the growth segment as a separate segment in our reporting. We believe that is an important part of Schibsted to highlight now and especially Lendo, but also some of the other promising activities will then be highlighted more in our reporting going forward.We have underlying tax rate around 30%, so that is more or less as before. And as you know, our [ retail activity ] is that we are prudent in the way that we don't recognize tax benefits from losses of investments in countries that we're building up activity. So that concludes the financial, Rolv Erik, and for you to go through the highlights.

[Rolv Erik Ryssdal, Chief Executive Officer and President]

Yes, well, I think I've been through this already. It's a good quarter for Schibsted. We continue on our steady course. But I think we'll just open up for questions.Anyone here, otherwise I'm sure we have something on the web. Here, it's here on the front, no?

[Jo Christian Steigedal, Head of Investor Relations and Vice President]

Okay. We'll take one question from the web. Please, can you confirm your guidance for Headquarters/Other? Do you still think tech investments will be less than in 2018 compared to 2017?

[Trond Berger]

What we have said there is that we expect '18 to be at the same level or slightly down in '18, and there are no changes on that. In Q4, we have some higher cleanup costs, which is not relevant for, I would say, the level and guiding going forward.

[Jo Christian Steigedal, Head of Investor Relations and Vice President]

Okay. We can do one more here. You have -- you had suggested that Brazil would be breakeven in 2017 or towards the end of 2017, but it sounds like it hasn't happened. Why not? And what did you reinvest in?

[Rolv Erik Ryssdal, Chief Executive Officer and President]

The OLX site in Brazil was breakeven in Q4, but they have also started a new site, a real estate site where -- so that -- they sell a bundled product, so it's listed on both sites. And it's the cost of that new site, which is a new investment which we believe will be a very good investment, that makes the totality not in breakeven, but OLX is a breakeven in Q4.

[Trond Berger]

And also fair to say that it has started well off in '18, so pleased with the development in Brazil.

[Rolv Erik Ryssdal, Chief Executive Officer and President]

Any other questions? Well, if not, then I can remind you that there is a telephone conference for investors in the afternoon, also with the U.S. markets present. So that's at 2:00, so please phone in to that. Otherwise, we're here and you can also take the opportunity to come and chat with the senior management and also the Chairman here for those interested in that. So thank you very much. Thanks for coming.