Schibsted ASA (SBSNF) CEO Rolv Erik Ryssdal on Q2 2018 Results - Earnings Call Transcript

|
About: Schibsted ASA (SBSNF)
by: SA Transcripts

Start Time: 08:00 January 1, 0000 8:27 AM ET

Schibsted ASA (OTCPK:SBSNF)

Q2 2018 Earnings Conference Call

July 17, 2018, 08:00 AM ET

Executives

Rolv Erik Ryssdal - CEO

Trond Berger - EVP and CFO

Jo Christian Steigedal - VP, Head of IR

Analysts

Silvia Cuneo - Deutsche Bank

Catherine O’Neill - Citigroup

Andrew Ross - Barclays

Rasmus Engberg - Handelsbanken Capital Markets

Aditya Buddhavarapu - Goldman Sachs

Operator

Good day and welcome to the Schibsted Second Quarter 2018 Q&A Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Jo Christian Steigedal. Please go ahead, sir.

Jo Christian Steigedal

Good afternoon. I’m Jo Christian Steigedal, the Head of IR in Schibsted. A warm welcome from Oslo to this Q&A session in connection with our second quarter report for 2018. Thanks a lot for joining us today.

Together with me here in Oslo are our CEO, Mr. Rolv Erik Ryssdal, our CFO; Mr. Trond Berger; and the CEO of Schibsted Marketplaces, Sondre Gravir. We are also supported by my colleagues on the IR team, Espen Risholm and [indiscernible].

Let me briefly remind you that we had a webcast presentation in Oslo this morning and the recording of this is available on our Web site.

Now, I would like to hand the word over to Rolv Erik Ryssdal for a short introduction.

Rolv Erik Ryssdal

Thank you, Jo Christian. Please allow me to make a short introduction. The second quarter was a record quarter for us. Our EBITDA of NOK 895 million was all-time high and we also reduced our CapEx and improved our cash flow.

The drivers for the improvements are our key online classifieds ads together with activities and Schibsted Growth. The results are very much the result of steady development along the strategic path we have set out.

Professional verticals, cars, real estate and jobs continues to drive revenue growth. This is the area where we’re emphasizing most when it comes to product development and other initiatives in the markets. We believe that the vertical potential is very promising when it comes developing the markets in countries like France and Spain.

Q2 was the second quarter in a row with profitability in Brazil which is an early-stage market. The revenue growth accelerated compared to Q1 because of the strong performance in the professional car markets. We’re strengthened in our beliefs that the investments increase our stake in Brazil last summer was the right one.

We have early this year clearly indicated that investment in new markets would come down considerably in 2018. In the second quarter, we’re delivering on this driven by reduced losses particularly in Shpock. At the same time, we have reduced losses in headquarter of this segment as expected.

Our Publishing operation show fairly stable revenue development in the quarter supported by digital growth. The digital subscriptions are continuing to grow well. We’re gradually building a second revenue stream in addition to digital advertisement.

The margin of our Publishing operations fell slightly in the quarter and we’ve guided that the EBITDA for the second half of the year will be at the same level for the first half for the Publishing operations.

Finally, a few words about Schibsted Growth. This is a group of online companies that have developed very well over the last few years. Within the portfolio, the personal finance service Lendo continues to lead the way. We do see potential for further expansion of the Lendo concept and the conclusion of our strategic review will be communicated in the third quarter.

Now, I’d like to hand the word over to the operator who will organize the Q&A session. So please, operator, go ahead.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. We’ll take our first question. Caller, go ahead.

Silvia Cuneo

Hi, everyone. It’s Silvia Cuneo from Deutsche Bank. Thanks for taking my questions. I have two mainly. So the first one is on Norway. Great having your accreditation [ph] in Q2. Can you please quantify the positive Easter effect so that we can understand what the underlying growth in the verticals falls? Just trying to understand if the double-digit rate is sustainable. And also can you please give us an example of which products have you improved? Are they for the user experience or for the professional advertising? And then second question is on Shpock and more generally on the investment phase assets. And given losses came down quite markedly in Q2, should we expect them to continue to decrease sequentially for the next two quarters of the year? And then after Brazil, what are the assets on track to reach breakeven and profitability next? Thanks.

Rolv Erik Ryssdal

Well, I think for the first question, it’s about the same. And then I think you should look at the first six months in totality and compare that to the same period last year. Then I think you will still get a double-digit growth though and low double digits. I think when it comes to the profits there, I think all the verticals are growing. Jobs has been growing very well in this quarter and also this [indiscernible] has grown very well. When it comes to the second question, Trond?

Trond Berger

Yes, on Shpock, we have guided on investment phase losses of 40 million to 50 million for 2018 and we are confident that we will deliver on that. When it comes into Shpock itself, it’s not about that. We of course there we will expect that to improve meaning that losses going forward will be lower. We haven’t given that guidance but it is expected that Shpock should continue to go down in losses going forward. And then of course we have Mexico in addition another two smaller ones. But all-in-all, like-for-like should normally continue to go down. When it comes to the question on which countries are still [ph] progressing that will come into breakeven. We have countries in [indiscernible] as an example. We have in Europe we have Hungary which is more or less also in breakeven. We have Finland more or less also in a breakeven situation. So those are examples and also Italy is also likely not too far ahead to come into breakeven. So it will be a portfolio of assets that’s breakeven or positive and more or less for all the more major markets or midsized markets.

Silvia Cuneo

Thank you.

Operator

We’ll take our next question. Caller, go ahead.

Catherine O’Neill

Hi. It’s Catherine from Citi. I’ve got four questions actually. The first one, in Leboncoin I think you talked about marketing costs had stepped up in the second quarter. I just wondered how we should think about that into the second half. Is that something we should expect will continue? On Brazil, would you just provide a bit more detail around what drove that revenue growth acceleration when we look at second quarter versus the first quarter in terms of the growth there? Thirdly on Publishing, the margin in the second half which you talked about for EBITDA will be flat with the first half. Is that because you’re expecting revenue trends to continue to soften or is that because you’re increasing costs from an investment perspective? And finally on Mexico, I know you gave some details on Shpock around apps, downloads and things like that. But are there any details you can give on Mexico to provide some color on the developments there?

Rolv Erik Ryssdal

Jo Steigedal, if you can address the classified question, then Trond can answer on the Publishing side.

Jo Christian Steigedal

Yes. I’ll start with the question around marketing in Leboncoin and as we have said earlier, marketing spending is varying from quarter-to-quarter. It’s very often linked to product development launches. And so for example now in the second quarter of this year we have launched white collar job prospects for Leboncoin and we have spent marketing in announcing that launch and setting up the marketing in that part of the market. When it comes to guidance coming forward, we don’t guide on a quarterly level on marketing activities but the overall marketing level so far this year is a fair guidance obviously going forward. But as I said, this will vary from quarter-to-quarter depending on product launches. Then on Brazil, as Rolv Erik mentioned in the presentation also today and as you can see from the number, it’s a strong revenue growth in Brazil in the second quarter followed by strong revenue development also in the first quarter. It’s mainly fueled by our increased position with professional car dealers but we also see strong revenue uptick though from a lower level in terms of absolute numbers in the real estate vertical in Brazil. Then lastly on Mexico, our development there is according to plan. It’s an earlier stage market as we know and with big competition in the market as we have also commented on earlier. But we don’t give so to say detailed disclosure on the numbers for Brazil.

Trond Berger

When it comes to the Publishing, flat as we guide second versus first. Publishing we expect to continue digital subscription increase. We expect to decline of course in print and also somewhat soft display. So summing all this up I think that guidance is best we can say as of today. There is no new investments or anything else in that segment.

Catherine O’Neill

Okay. Thank you.

Operator

And we’ll take our next question. Caller, go ahead.

Andrew Ross

Hi, guys. It’s Andrew Ross from Barclays. I’ve got a couple left. First one on the HQ and other line, you’ve kept your guidance to be here at stable to slightly reduced but it was a bit more than slightly reduced in Q2. So perhaps you could help us understand perhaps in timing going on there in Q2 or we can extrapolate that run rate for the rest of the year? Second question is on Shpock. It kind of feels like the defensive reason to own Shpock is now behind us in the sense that you’re not really investing in Norway in the same way also into the other markets and most of the spend is going into the UK. Can you remind us why you need to own Shpock and potentially [indiscernible] same cost portfolio? And my last question is on GDPR. Can you remind us why you’ve seen an impact in Sweden but not anywhere else and is that something we need to be nervous about as GDPR comes into Norway in a few days time?

Rolv Erik Ryssdal

I’ll start with Shpock and then Jo Christian will answer the other two questions. When it comes to Shpock, Shpock is an exciting native app product. It had given us exposure to the two largest markets in Europe where we have not been present earlier on and we think that we see some promising development in the UK taking advantage of the car dealers once you have alternative marketplaces. So we’re pleased with the developments we’re seeing there and it gives us then an exposure to the biggest markets in Europe that they haven’t had before. So that’s why we’ve invested in that. When it comes to the other two questions, Jo Christian you want to --

Jo Christian Steigedal

Yes, based on the headquarters and other line, as you say, we have guided on flat to slightly down. I think the run rate now is obviously somewhat lower than that. I think there will be some fluctuations in the quarters but it’s fair to expect some decline year-over-year in the second half but maybe Q2 was a little bit more positive than the total run rate. When it comes to the GDPR I think the implementation has occurred in most of Europe, not in Norway yet. Stable transition in most of our markets including France and Spain. And Sweden, however, there has been a bit of pressure on the programmatic revenues as there is still a situation where we are not getting the programmatic revenues from the Google platforms into our sites. So this is an evolving situation where we are in Norway in a different situation when GDPR will be implemented later this month where we don’t really expect the same kind of turbulence. However, in Sweden there was a bit of impact in Q2 on the Aftonbladet in particular and some in Blocket. And I think there will be some outlook for a bit of pressure also going forward with the current situation where we are taking approach in the market where we are not integrating with the Google platform.

Operator

We’ll take our next question. Caller, go ahead.

Rasmus Engberg

Hi. Rasmus Engberg with Handelsbanken. Can you help me understand the profit from associates? It was too low in Q1. I think recall there was some sort of one-off, but is it not too high compared to the joint venture contribution at least from online classifieds?

Trond Berger

[Indiscernible]

Rasmus Engberg

Just to explain it from the EBITDA, sorry about that.

Trond Berger

I think that the main contribution is certainly coming from – we have a gain from exiting Thailand in the second quarter which certainly is somewhat more a level of big [ph]. It’s actually around NOK 20 million. Other than that, we have [indiscernible] from Brazil, we have in Austria Polaris and we have also a start up in personal finance which actually [indiscernible]. So this tends to – this is certainly impacted by exit Thailand.

Rasmus Engberg

Yes, that makes sense. Thank you. And then second just a little bit of a nitty-gritty. When you say 40 million to 60 million in investment phase losses, is that on EBITDA or is it going to be larger than that because you make a profit in Brazil? How should we sort of model that?

Rolv Erik Ryssdal

Yes, that’s the net EBITDA including JV. That’s the sort of thinking here. So certainly there will be some profits from Brazil included in that number.

Rasmus Engberg

Great. Okay. Thank you for that. And then finally in Sweden with all the moving parts happening here, the third quarter it seems to me to be a much more difficult comparison than the second quarter and you also do not have the positive Easter effect, because you said in the presentation in the morning that you’re going to launch some new products. So do you think that we will be at around minus 5% in Q3 or do you think you will be worse or better if you have any indication on that would be very helpful?

Rolv Erik Ryssdal

Yes, so when it comes to the development in Sweden, we don’t guide specifically on the quarter but we have already launched some new products in the car vertical and we will continue to have an aggressive roadmap in product launches for the second half of this year. Of course, it takes some time before we see the underlying revenue effect from these new product launches. But when it comes to the development in the verticals, as we said in the presentation this morning I think it’s important to underline that the development in the verticals are as expected. So we see good growth in the jobs vertical in Sweden and we are very satisfied with the development both from product and sales side there. And then in the car vertical we also see good development in terms of our lead generation to car dealers and in terms of the traffic and we also see [indiscernible] in the presentation this morning that many of the bigger car dealers that went exclusive on WiKi [ph] a while ago is now coming back to Blocket because of the significant number one position Blocket has in terms of lead generation to the car dealers. So in the longer-term perspective we’re confident in the development in Blocket but we have some shorter-term challenges among others with the display advertising revenues.

Trond Berger

And display is down 10%, so that’s actually the explanation for the minus 5% and it’s flattish on the car vertical. So it’s really display is drawing some of the growth in the vertical.

Rolv Erik Ryssdal

When it comes to the Q3, just to pre-comment on that, I think that is seasonally a strong quarter margin wise. So you need to look at it on a year-on-year basis. And then I wouldn’t say that the comparisons are particularly strong in that sense, so I think that would be more as usual.

Rasmus Engberg

Okay. Thank you.

Operator

[Operator Instructions]. We’ll take our next question. Caller, go ahead.

Aditya Buddhavarapu

Hi. This is Aditya from Goldman Sachs. I just had two questions. Firstly, I think you talked about in the morning presentation that you would remain under levered in the short to medium term. Could you just talk about the reasons behind that? Is that just because you’ll don’t have any attractive targets right now? And when we should think about any timeline for sort of M&A? And then second, you exited Thailand in the second quarter. Are there any other markets which you think are probably – have some scope for you to maybe exit whether it’s within the investment phases or maybe the associates and what do you think should be the ideal geographic mix of the portfolio let’s say maybe five years down the line? Thank you.

Jo Christian Steigedal

We have said on the slide this morning that we are of course slightly overcapitalized compared with our target rate between [indiscernible] to EBITDA. We are comfortable with that. We will continue to pursue M&A and particularly looking for in-market consolidation. We have done some of these acquisitions over the last couple of years and also the big one in Brazil. We’re very happy with all those. So we will continue to look for these kind of M&A deals and allow ourselves to be somewhat or slightly overcapitalized, as you say. When it comes then to the vertical, we have said previously that Asia is a financial holding. So now we have stable holdings in Indonesia but that’s [indiscernible]. So that’s a financial holding. Rolv, would you like to comment on the portfolio more overall?

Rolv Erik Ryssdal

Overall, I think we’ve developed our portfolio to a position where we’re happy with the portfolio that we have today, mainly a footprint in Europe and Latin America and a little bit in northern Africa. And then we’re also looking to expand that footprint in existing and adjacent markets. And that is why I’m happy to say that we have the strength also financially to be able to participate in further consolidation.

Aditya Buddhavarapu

Okay, great. Thank you.

Operator

We’ll take our next question. Caller, go ahead.

Silvia Cuneo

Hi. It’s Silvia again. Just a quick follow-up on Lendo. Ahead of the end of year strategic review just wondering if you wanted to talk more generally about this business model in the markets you are already in terms of, for example, how many years it took you to get to profitability. Now we’re seeing the margin going above 40% but just thinking about can you walk us through the development of this personal finance business? Thanks.

Rolv Erik Ryssdal

We’re quite happy with the development there. We started in Sweden, then we followed in Norway and then in Finland. In general I would say it’s a commission-based model and so far it has taken us approximately two years from launch to go to a breakeven. What you’re now looking at is to expanding into some other markets and there we’ve looked at some medium-sized markets in Europe and we said that we’re doing a strategic review. And I think I’ve also said that if the outcome is that we’ll continue in smaller and medium-sized markets and we’ll do it [indiscernible]. But if we were to take on the bigger markets in Europe, the biggest, then we’ll probably take on a partner and we’ll conclude and finalize and communicate around that in the third quarter.

Silvia Cuneo

Okay. Thank you.

Operator

[Operator Instructions]. We’ll take our next question. Caller, go ahead.

Andrew Ross

Hi, guys. It’s Andrew here again from Barclays. Just one follow-up on the M&A point. You said you were looking at existing and adjacent markets. And I guess one thing, are you interested in any kind of adjacent business models? Like [indiscernible] just raised a lot of money from Softbank [indiscernible] invested into Frontier and a couple of similar things. Are you interested in anything that’s kind of slightly outside the realms of a core capitalized marketplace?

Rolv Erik Ryssdal

Yes, I think it’s important for us to follow the development and to look at new models. And our trend is to look at models that are closer to the transactions. So I think in our extending the current marketplace [indiscernible] and to also new kind of marketplaces and new kind of more transaction-related model is also something we’ll be looking at.

Operator

[Operator Instructions]. There are no further questions at this time.

Rolv Erik Ryssdal

Well, then I think it’s time to wrap up. I’d like to just repeat some of the main headlines from us. So this was a very good quarter for Schibsted. It’s an all-time high results, but I don’t think it’s contained any big surprises. We continue our steady growth and our steady course. And for the marketplaces it’s mostly a very good picture.

Revenue has continued to grow. We’re seeing margin improvement. The big engines in France, Spain, Norway and Brazil are showing continuous strong development in the second quarter. Investment phase losses are declining as planned as communicated to the markets.

Then on the Publishing side, there is – development is also as expected. So the paper revenues are of course declining. That’s why we’re happy that we have a solid position in digital. And digital subscriptions especially continues to grow nicely.

Then on Schibsted Growth, the revenues are up and also the margins. And Lendo is particularly running very well. We also have new and exciting opportunities in other parts of the personal finance sector.

So I think that wraps it up. And thank you very much for attending. I wish you all a continued good day and a warm and nice summer holiday when you get to that. Thank you all very much for attending.

Operator

And that concludes today’s presentation. We thank you for your participation. You may now disconnect.