Moltiply Group S.p.A. (MOL) Earnings Call Transcript & Summary

Good afternoon. This is the conference call operator. Welcome, and thank you for joining the presentation of Moltiply Group First Half 2024 Results Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Marco Pescarmona, Chairman of Moltiply Group, Alessandro Fracassi, CEO of Moltiply Group and Mr. Francesco Masciandaro, CFO of Moltiply Group.

Thank you, and welcome, everybody. As always, we rely on the presentation that is available on our website. And we shall start from Page 18 of the document with the H1 highlights. And in the first half of 2024, we recorded revenues of EUR 215.3 million and that is up 9.2% year-on-year compared to the same period of 2023 and the increase 48% from the Mavriq, the Broking Division and 52% from the Moltiply or BPO division. EBITDA in the first half 2024 is EUR 55.5 million, that's up 6% year-on-year, and the mix is 53% from Broking and 47% from BPO. The EBITDA margin was 25.8% and that compares to 26.6% in the same period of the previous year. In terms of EBIT, we have in the first half 2024, EUR 31.6 million and that's down 9% year-on-year compared to the first half of 2023. But this is affected by the fact that with some PPA that was not booked in the first half of 2023 that all was made on business acquisitions that was made during 2023. And finally, the net income in the first half 2024 is EUR 20 million and that's up 5.7% year-on-year compared to the same period of 2023. More interesting is probably the performance of the quarter. And in terms of revenues on the next page, we have the revenues of Q2 and it's -- the revenues are EUR 109 million, and that's up 5.6% year-on-year. The mix 48% for Mavriq and 52% from the Moltiply division. The EBITDA is -- in the first half -- during the second quarter of 2024, EUR 28.4 million, and that's down 1.7% year-on-year and it accounts for 53% from the Broking and 47% from the BPO division. The EBITDA margin in the second quarter is 26.1%, and that compares to 28% in the second quarter of the same period of the previous year -- the second quarter of 2023. EBIT in the second quarter, EUR 16.2 million, that's down 7.6% year-on-year. And net income is EUR 9.1 million in the second quarter of 2024, and that's down 3.7% year-on-year. So overall, I would say, this is not a particularly exciting quarter and is EBIT worse than what we originally anticipated in that when we announced the results of the first quarter. And now to explain better why you know we have the type of performance. I think it's very fair to focus on two divisions and to look at the second quarter from both divisions. So we can comment on the current and also on outlook. So if we go to Page 21, we have the Q2 financials of the Broking Division. You see in Q2 2024, Broking was EUR 52.3 million of revenues, and that's up 9.3% year-on-year. Whereas the EBITDA is EUR 14.9 million, and that's down 5.9% year-on-year. So the EBITDA of the Broking Division despite growing revenues is down in a year-on-year comparison in the second quarter. And to understand this performance, let's look at the different business lines. The overall explanation is basically that we had the anticipated weakness in e-commerce price comparison, and that was very much expected, but also we had a softer performance of credit broking in particular mortgages where we had -- expectations were up for a faster recovery. And in fact, regarding credit broking, which again is mainly mortgages, revenues were down year-on-year in the full first half of 2024 but also this is the part that was not exactly expected in the second quarter of 2024 because of maybe a weaker market. At the same time, we had an increase in marketing costs because basically, we had an increase in the strengthening of the pipeline. But it didn't transform into new mortgages as quickly as we expected. So we are -- in terms of gross mortgages and revenues, a relatively soft situation of the client basically. In terms of incoming volumes, we had some strength. And so we have to spend more on marketing, which tends to be very lean to demand. So this -- the negative impact in the economic performance year-on-year of credit broking. At the same time, the fact that we spent for all the pipeline means that we are confident. We expect to see growth year-on-year in both top and bottom line in credit broking from the third quarter of 2024. Insurance broking went as expected, it continues to grow year-on-year. And this growth is more or less continuous and stable. And obviously, we see expanding profitability because this is a business with fixed costs. So this is delivering expanding margins. And there is no reason to expect any change in this trend in the coming quarters. So we can expect growth there. Telco & Energy Comparison was -- it is just as expected, I would say. So we had strong growth in the first half, particularly very strong in Q1 and then slowdown with growth in Q2. And from Q3, the comparison will be a bit more difficult, but we will benefit from the contribution of Switcho both in terms of just adding, expanding the consolidation area and adding the new business but also the integration will lead to efficiencies that should benefit both Switcho and the existing businesses. So there could be an extra boost, maybe not in Q3, but in Q4, Q3 could just be the additional volumes. And in Q4, maybe some synergies. But it's -- this is going to help us grow also in the coming quarters. E-Commerce Price Comparison. This is quite interesting. Because basically, in the first half, particular also in Q2, a robust revenue growth. So revenues went up in a significant way. But basically, we were able to generate much more traffic, thanks to new features introduced by Google with entry into force of the DMA. But all this traffic was traffic that is basically very low or 0 margin. So with Google after the DMA came into force may be possible for a comparison website to drive traffic also directly to the website and we experimented with that. And in terms of volumes, it has a positive impact. But then in terms of cost of this traffic compared to the revenues that this traffic is able to generate, it was sort of a wash. So we remained in -- with the damage of the reduced organic visibility that affected all comparison websites in the previous months. So again, it was -- in this period, it was -- especially in Q2, a strong growth in revenues year-on-year, but instead significantly lower EBITDA year-on-year. Then we also know that the European Commission started the litigation on Google for noncompliance with the DMA in regard to the -- with respect to comparison shopping or, in general, favoring, article 6.15. And from Q3, we don't know if things were changed or we also try to optimize things and also last year, we started suffering because of the reduced visibility in Q3. Anyway, from Q3, we are seeing a more favorable comparison -- and so we expect from Q3, even for e-commerce price comparisons could see revenues and EBITDA up year-on-year. And finally, we are -- we have fingers crossed, awaiting for the final judgment of the European Court of Justice on the Google Shopping antitrust case, which is due on September 10. And this is important because basically if everything goes well, and this is the last obstacle before proceeding with potential damage claims. And finally, International Markets. International Markets goods, which means mainly Spain and France for Broking, revenues were up moderately in the first half, but we had a faster increase in marketing cost. And the general market was also less favorable than in 2023. So we had -- we didn't have such a strong performance year-on-year. At the same time, we continue to improve since we have the new CEO and the new CTO in France. So there, we have now a very strong team. And we're also able to free up coordination resources. And what we expect and what we see is year-on-year growth from the third quarter. So given this more difficult situation of the market in the first half, it is possibly something that has changed. So also here, we see growth both in top line and bottom line from Q3. And finally, we are still awaiting for the authorization to close the price-wise transaction and as soon as that is approved, the company joined the group and it will start contributing. So this is for the Broking Division. So the summary is, Q2 was weak, but then we expect at least Q3 and possibly the coming quarters to see growth across the board, different speeds but growth across the board. That is for the Mavriq or Broking Division. And now I let Alessandro continue with the Moltiply division.

Hello. Sorry. I was on mute. Can you hear me? Shall we start again?

I was ending with [indiscernible].

Yes, yes, yes. I don't know if we are -- conference call operator, are we still online?

Yes, you are.

Okay. Sorry, everyone, for this miscommunication. Thank you, hello, everyone. So we are on Page 24 with the result of the BPO Division, what in our Moltiply Division. In the first half of 2024, revenue grew year-on-year, 3.9% from EUR 107.9 million to EUR 112.1 million. Also, the EBITDA grew 7.4% year-on-year from EUR 24.2 million to EUR 26 million. EBIT grew 9.7% from 12.9% -- from EUR 11.8 million to EUR 12.9 million. The EBITDA margin grew from 22.4% to 23.2% while the EBIT margin also grew from 10.9% to 11.5%. If we look just at Q2, we see results that are a little lower than the result -- the overall result of the semester but a kind on the same trend. So again, small growth overall in revenues and basically a stable marginality. So what you see, Q2 is growth year-on-year of 2.4% in revenues, from EUR 55.3 million to EUR 56.6 million and at the EBITDA level, a growth of 3.3% from EUR 13.1 million to EUR 13.5 million, that is an EBITDA margin that basically remained stable from 23.6% to 23.8%. EBIT here shows a very significant growth year-on-year. But again, this is -- those impacts of one is the moment in which we recognize the PPA. So for probably something went out of the amortization schedule. So what you see in Q2 is really not significant this quarter in EBIT. And it's more significant to look at the overall the H1 result in terms of EBIT. Now if we look a level beneath the Moltiply Division and went at the different business lines, the dynamic is actually very, very different looking at the different business lines. So first of all, looking at each -- overall, we expect that the second part of the year to show a weaker results and more challenging environment. And therefore, we expect that H2 2024 will bring more or less the same results at least in terms of EBITDA so that the overall year results will be in line with 2023. That means that probably the comparison of the second half part of the year relative to 2023 will show a negative sign. And the reason relies basically on the different business lines. So if you look at Moltiply Mortgages, we had an increase in demand in Q2 2024, but this increase in demand is mainly relative to the para-notary services. In terms of our classic outsourcing -- scoring outsourcing services, demand is still weak, and we are also seeing some of the dynamics that Marco talked about for the Broking division, that is we see them in, but we don't see the closing, which means we work with sustained costs, but not necessarily we have the revenues at the end. But supposedly, we expect that to improve, part of the problem is also that we have some new clients. So we have to build up a little bit of capacity that at this point is still not efficiently used. We hope maybe not to see better results in Q3, but we hope to see them by the end of the year. So we expect to see a positive contribution of the new clients in Q4 2024. Moltiply Real Estate -- and by the way, this weakness in mortgage was not expected, but we were a little bit more positive because we were seeing the increase in demand. So we hope that also that will mean increase in profitability that didn't really happen. Instead, we expected weakness in Moltiply Real Estate, both in terms of margins and in terms of revenue, and it is exactly what we have seen. And the reason, as you all know, is the fact that we don't have any more -- basically any revenues from the Ecobonus-related business. And the volumes related to valuation of real estate guarantees, that is our classic appraisals of property, although slightly growing, has not offset the decrease in the termination of the Ecobonus-related business. Also in terms of profitability mix, the Ecobonus business was highly profitable, relatively more profitable than the appraisal part. Moltiply Loans, which grew very nicely in the first quarter is basically stable in the second quarter. And so we have a single-digit overall growth in H1. We expect H2 to be basically very similar to H1 overall. So here, we have a positive sign at the end of the year. Moving on to Claims. Claims is actually what has offset the negative sign or 0 signs that we have seen in the rest of -- in the business described up to this point. We had a robust double-digit growth in Q1 and in Q2. And as you know, this started basically last year, when we started recording an increase in business volumes due to the exceptional weather events. Therefore, we are now seeing basically the tail of this, which will continue also in the next quarters. And the tail is also the most profitable part of the business because it's what we call as very complex claims or very rare claims, which take longer to be processed, but in the end, as the more complex, allow us to add more value and we also recognize more value by the insurance companies. Therefore, we are not only seeing growth in revenues, but also seeing growth in profitability in this tail of the volumes. By the way, 2024 in terms of new claims that are being opened, is still a good year, obviously is not as exceptional as was 2023 to date. Obviously we will see revenues for the rest of the year. Anyway, this means that for the second part of the year, we will still see very high volumes in terms of revenues and profitability, but they will compare with already good numbers in 2023. Therefore, here, the offset capability of the insurance claims business line will be less significant than it was in the first half of the year. Moltiply Wealth business line is also displaying growth. Revenues are up double digit. And we expect the H2 2024 performance to be more or less in line with H1. So here, we have good news, but this is still the smallest of our business line. By the way, I should also say that start just 3 days ago, a new manager for this business line started because the previous one retired. And so we have a new person that brings more than 10 years of experience in multiple roles in the fund administration area, which is part of what we do in the Moltiply Wealth area. So it is a very good person that we have now on board and that I hope will fuel the growth of this business line. Moltiply Lease continues to show a stable performance when compared to 2023. But this is actually good news because you might remember that 2023 had a lot of one-off items that contributed to a record year for this business line. So what we expect is that by the end of the year, we'll have the same results, but at this point, they will be organic. So without the one-off items. So bearing negative news that means that this will become the base of growth for the following quarters. Finally, it should be pointed out that the other revenues decreased significantly and most -- not all of the other revenues refer to our lending platform to perform Lending as a Service activities. This is a regulated entity called Centro Finanziamenti. They -- this part has impacted not only the revenues but also significantly the profitability because it's a very small structure. And therefore, if the revenues go down, obviously very -- the fixed cost of the regulated entity are all there and therefore, that impact negatively the EBITDA. Therefore, we decided to refocus -- to simplify the structure and to focus only what today appears as a promising product although not as quickly as we expected it would be promising, which is the reduced mortgages, the equity release mortgages. And anyway we have also started a review of what strategic options are for this initiative looking forward. So with this, I end the discussion on the results and the outlook of the BPO Division, the Moltiply Division and hand it back to Marco to give us a point on the net financial position.

Thank you, Alessandro. And we can move to Page 29 of the presentation for some comments on the net financial position. And basically, here what is worth explaining is the fact that the evolution of the net financial position, which is about EUR 16 million worse compared to the end of Q1 is basically linked to 3 or 4 factors. First of all, at the very end of June, we acquired Switcho and that added a negative effect of EUR 18 million; EUR 12 million of cash that we paid right away and EUR 6 million of liability that we recognized -- of financial liabilities that we recognize for the put and call. So that's one factor. Another factor is -- Alessandro explained that we are doing very well with insurance claims, and we are happy with that. But at the same time, we have options on the 49% of Gruppo Lercari that we don't own that are linked to the results of the company. And so the price we need to pay for the minority is increasing, and this is recorded as a financial liability. So basically, for this reason, we recognized an increase of EUR 5 million roughly in -- mainly for this reason in financial liabilities. By the way, this liability will be due in -- normally in the second quarter of 2025. So there is also a reclassification of this liability from noncurrent to current. You see -- if you want to see that, read those results through the half year report, but basically -- so we have this liability that shifted from noncurrent to current and it was increased by EUR 5 million because our estimate is that we would like to pay more because of the results. And then, we had -- but this is more in line with what we have every year. A negative impact of the working capital of Agenzia Italia. There is always -- this is a company that advances tax and duties on a huge fleet of vehicles for the owners. And this is very short spike. And this happens a few times a year, but the worst time for -- when it's visible in our financial position is June because it's not too far away from you know, the cut-off date and so Agenzia Italia absorbed cash and generated receivables because it advances mainly before the end of June to the fleet owners. Again, this is more similar to what we have in an ordinary way. The part that is not ordinary is EUR 18 million of Switcho and the EUR 5 million of the recalculation of or new estimate of liability for Gruppo Lercari. So this is -- these are the comments that I had on the net financial positions, and we have tried to explain it in detail anyway. So it's clear exactly all the different factors in the RCR report. With this, I think we are done with the presentation and we can go to the Q&A session and I hand it over to the operator for this.

[Operator Instructions]. The first question is from Aleksandra Arsova with Equita.

Two questions on my end. The first one on Mavriq and the other one on Moltiply. So on Mavriq, on the e-commerce, first of all, can you just clarify a little bit what are the steps and the timing of -- lets say that the profits you will start after the 10th of September so after the European Commission will -- Court of Justice will provide its final decision. So what you expect after that? Then the second one, again, on e-commerce. So you explained that you had a lot of volumes, but with very low on significant marginality. Can you better clarify and explain what is the dynamics here and maybe make some example of, let's say, revenue switch that now generates EBITDA in the e-commerce? And then on Moltiply, BPO. So on the claims, insurance claim business, as from what I understand now the government is finally finalizing the regulation below on this mandatory insurances -- insurance policies by the companies. Maybe by the end of the year, we will get this regulation. Do you have or did you make any simulation of what could be the impact on your business and the benefit for you in quantitative terms in the coming years?

Thank you. This is Marco. I will handle, of course, the Mavriq questions. And first of all, the implications of what will happen after September 10. But first of all, let's assume that we get a positive decision so that Google's appeal is rejected like everybody expects. And at that point, we will be able to -- it'll take us a while, but not too long, but we should be able to file a damage claim to sue for the damages without -- normally in the Italian court without the possibility or the risk that the thing is sustained. So it will be just a normal litigation for antitrust damages, the fact that in abusive conduct that was carried out, we'll be undisputed at the point, and it would be mostly a matter of quantification. And of course, it could be very technical. It will take a long time. And by the way, we expect these damage litigations to take place in all jurisdictions. In every country, there is a similar situation. So there will be, in the EU, I don't know, 10, 15, 20, at least, parallel litigations of this type that are mostly at the starting block. So some are already ongoing because they were not blocked, but most are at the starting point and we see what happens. And it's -- the timing would be what you would normally expect from an Italian court or it's likely to be a few years, not forever, but it's not a matter of months if it has to go through the entire judicial process. And it's also worth saying that this one comes from the abusive favoring of Google Shopping by Google as the dominant operator in Google search. And this matter has not been solved and is also addressed by the DMA. And so there are other things that are moving which are not directly related to this claims processing and so on, but related, at least, to the same matter and basically part of the DMA, there is on articles, it's 6.15, it is designed to avoid this possible favoring, this possible abusive favoring without requiring to prove an antitrust -- breach of antitrust regulations. And Google was supposed to start complying with this in March 2024. And they did some changes, but the changes that they did were not considered acceptable by -- not by us, but not only also by the European Commission that opened an investigation for noncompliance or potential noncompliance on this and so also and this is much faster turnaround times, and this could also have an impact. So on one end, we'll be able to sue for damages without any obstacle at this point. On the other hand, the DMA should be able to fix or improve the situation on a shorter time frame. So this is the first answer. The extra volumes are linked to -- instead the changes that indeed Google made, but again, are not changes that in our mind and are bringing compliance with the DMA. But the changes are very simple. You go to Google and you make a search and you see some product AdWords. These are called product ads, which is called the shopping box. And basically, this has now product features and descriptions. And normally, this used to always link to the merchants, so the sellers of the products. And we were able to participate but more as catalog providers. So you could have an AdWords for a particular merchant by Trovaprezzi and by clicking, you coul to that merchant, but we were not allowed to send traffic directly to our website. And with the entry into force of the DMA, with this change was that Google allowed us also to participate to these shopping ads with AdWords sending traffic to our website in favor of -- to merchant. And that's more interesting for us and also for consumers. And so we have been using that. The problem is the cost of this traffic, which is significant because that does increase our visibility. But -- and we have been able to drive much more traffic thanks to this to our website. But in order to do that, the remuneration that we have to pay is comparable to what we are getting out of the traffic. So it's very low margin. Then it's something which is experimental for us and Google, we know in other situations apparently has knobs to decide how things should work. And today, this is not work -- this is just driving volumes and not transferring any margins basically. And with the DMA, Google is supposed to provide transparent and fair, reasonable and nondiscriminatory access terms for whatever is done within search, which includes this one. And so far, we don't have any -- I mean at least we don't have the transparency. So it's very hard to say exactly what is that [indiscernible] that part also a big issue. So the extra volumes come from this new feature. This new feature is nice, but not profitable. So doesn't make an economic difference, of course, it could be some tuning and we have been doing some tuning and maybe that will improve the situation, but this is what is happening.

Right. And relative to the claims, I have read the newspapers report of the decree -- the ministerial decree that should clear the application framework for the law that makes it compulsory. It's really recent. I mean -- and I have not read the actual decree, which has not been approved yet, but should happen shortly at this point. It seems from, again, what you can read in the newspapers that one of the important points -- some important points are being addressed, which are basically the worries that the insurance company had on this decree there has to be very clear limitations of what are -- who would be able to file a claim and this seems to be very clear and so going in one of the right direction as well as giving a platform from the government in supporting insurance company and reinsurers on this. What I have not found, at least in the reports is what they are going to do if a company does not comply with the compulsory policy, so they don't take it out, which is actually in the end the real incentive to sustain this increased cost by companies, and that is not yet completely clear. So I don't know, so we haven't done an analysis to answer directly to your question. Obviously, whatever happens is going to be bound -- first of all, it's only a positive impact and the amplitude of this positive impact will be depending on how much actually this market catches on. So it actually becomes very significant as it should be, then we expect even with a constant level with an average level of natural catastrophe to see a significant increase in our activities in claim processing because there will be many more insured subjects especially in the less dense areas of Italy in terms of populations and especially for industrial claims, which normally bring complicated claims, complex claims, which are the most profitable as I finished to say. Then this time, there is an increase in demand for us, so you can also expect that there will be an increase in supply and therefore an increase in competition. But it is a dynamic that still has -- definitely has to play. But all of that, I believe it is just a positive thing. And I think that the most positive aspect is that the government has said that they will issue a regulation within the month of October and it seems like this is going to happen because we are in early September and the first lots are being circulated and that is anticipation. So I think that all of this is positive.

The next question is from Filippo Prini with Kepler.

I've got two questions. Firstly, given your comment about the decline of revenues of -- related to mortgages. This decline is in the second quarter, is it coming also from a decline of revenues linked to refinancing or financing [indiscernible] refinancing is positive, but still overshadowed by the other part of the business? And the second and final question, given what could happen after the sentence on September 10. Will you file the same request of damage against Google that you filed 5 years ago -- almost 5 years ago as asking for a total damage of EUR 800 million?

Okay. Thank you. Well, in mortgages, I think this year, refinancing is up year-on-year and there is more weakness in purchase mortgages. By the way, it is always very difficult to make comparisons. I was looking at Assofin, and according to Assofin, actually there is a bit of growth in the second quarter. So maybe we are seeing a different market. I don't know. I don't think we have any competitive issue. Actually we are quite convinced of the contrary. So I think the proper description is that there is a soft purchase market with people buying cash when they have the opportunity, especially people that are in better offer within the population, which are quite often our clients and remortgage is picking up a little bit. Regarding the...

Marco, just let me comment that instead is definitely the case for the BPO. So we saw increase in the para-notary services related to refinancing while it was weak, the part on normal purchase mortgages.

Yes. No. So we are seeing the same clearly. And regarding the potential claims for the abuse of dominant position, I think not much has changed. So we are going to be talking about -- of course, we will need to update the economy -- basically, when you do those claims, you work with economists that are specialized in antitrust cases and they will do what they call counterfactual scenarios and so on. And basically, the big models to assess the damages -- and I don't think that much has changed. At least for now, I don't see why it could be -- if you update the numbers, because basically, the way you do it is basically say, look at an explicit period and then like sort of the terminal value in that type of situation and maybe the explicit period is a bit longer. And maybe we have some more information about how the [indiscernible], but I think that ballpark -- the ballpark numbers are of the order of magnitude.

[Operator Instructions] The next question is from Giada Cabrino with Intesa Sanpaolo.

Just a clarification for me. I would just like to understand if you feel with the end of the year guidance, full year '24 guidance, of EUR 119, EUR 120 million EBITDA.

Well, there is a lot of background noise, if you can go to mute. Well, we don't have a guidance that we issue. I think what we are saying for now is that BPO will be kind of flattish year-on-year for the full year whereas Broking, we see growth in the second half year-on-year. So let me see. I think -- we don't know what we can say. I think it's not impossible, maybe it's a bit optimistic, but it's really hard to say. So I mean, it's not really a big change that we are seeing. At least, from talking, not at all. But then Alessandro if you have any view on this, but I think for what we can say, this is more or less with like last year, we had another in Q3 -- 55 -- another 55 of EBITDA. It's -- given that we don't give a guidance, I would say it would be on the high side of what is feasible. If you just -- another reference point for the second. That means we did 55 in the first half, I think. It would mean this 55 in the second -- when we did 55 in the second of last year, I would say, that's may be aggressive, that may be aggressive, the 120.

Yes. But the low side, I think it's okay.

Yes, so exactly.

Okay, thank you so much, I meant consensus, I am very sorry, not guidance.

The next question is from Aleksandra Arsova with Equita.

A very quick one. Let's say, then, after a time you get -- let's say you win against Google and you get some, let's say, compensation from Google, which is relatively significant. What would be the use of proceeds in this case, M&A or strengthening the balance sheet or whatever, just color on this?

Well, okay. Well, in Italian, we say [Foreign Language], I mean let's not think about how to use the money until you know we have got it. We still don't have a decision. We still have to do a litigation and so on. So it is a very sizable amount of money potentially. But it's a bit far away in time for now unless they decide to try to close all these things. But for now, it's impossible to predict what will happen.

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

All right. Okay. Thank you. Thanks, everybody, for participating to our call then, and we are available as always for one-on-one. And otherwise, we speak to you with the approval of the Q3 results.

In early November.

Thank you. Bye-bye, everyone.

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