MONY Group plc (MONY) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the MoneySupermarket Group Interim Results Q&A Conference Call. [Operator Instructions] We will be going directly into the question and answer session in just a minute. Please be advised that today's conference is being recorded. [Operator Instructions] Thank you, everyone. I will now hand over to CEO, Peter Duffy, to start the meeting.

Thanks, Nicole, and good morning, everyone, and thanks very much for joining us. I'm Peter Duffy, CEO of MoneySupermarket and also on the call with me this morning -- and here in the room with me this morning is Scilla Grimble our CFO. And we both very much looking forward to taking your questions. I hope you have the opportunity to have a look at the presentation online, and I'd just like to summarize the main messages, which we are communicating this morning. Number one, we've made good strategic progress against the strategy we shared back in February, particularly in terms of acquisition efficiency and our data infrastructure. We've made major upgrades to our digital marketing, and we're well on the way to having a leading data and analytics platform, and I'm pleased with the progress we've achieved so far. In terms of trading, the story is more mixed. With revenue for the second half down 11% as we lapped largely pre-COVID quarter one last year, but also met some challenging market conditions, especially in energy. EBITDA fell 18%, but with a strong gross margin performance, up 3% to 70%, with most of that improvement as a direct result of actions we have taken. We've maintained the interim dividend of 3.1p per share, reflecting our continued strong cash generation, and we're confident of meeting full year profit expectations. So with that, Nicole, can I ask you to open the virtual floor to questions, please.

[Operator Instructions] And the first question comes from the line of Jo Barnet-Lamb at Credit Suisse.

Excellent. So you gave some useful color both in the presentation and in the release around the strategic progress made on customer acquisition and related gross margin benefit. I have had two related questions, Peter. So firstly, insurance revenues are somewhat weaker in 2Q than I anticipated. Was that solely driven by market weakness, i.e., the premiums as discussed in Scilla's presentation or where you perhaps pushing on customer acquisition less hard, which in turn aided margins? And then secondly, these gross margin benefits have come through remarkably quickly. Peter, you spoke about believing there is much more to be seen from data and more efficient bidding. Can you confirm, therefore, you expect further margin expansion in 2H and FY '22 versus 1H '21 levels? Or will there be a trade-off with growth? And then my final question is around vouchers within car insurance, specifically, the GBP 150 redeemed through the year. Can you talk a bit about how that GBP 150 is funded and what your economics would be on a product like that?

Yes. Thanks very much, Jo. I think you were first last time around as well, and three really good questions. Look, I'll split this with Scilla. So on insurance revenues, pretty much is a bit of an obvious thing to start with, but it's a sum of 4 parts, car, home, life and travel. So I get -- so to kind of give an overview of each of those markets. And I'll come back on the second part of the question, really about PPC and margins. Scilla, do you want to just kick off with the main story?

So let's look at kind of Q2 in particular, Jo, which is I think is where -- that's the heart of where your question is going. So 5% up in that quarter. What we've reminded everybody, obviously, travel insurance basically still remains negligible really in terms of revenue in that quarter as it has, frankly, since this year. Home insurance is really, I think, a matter though with the market. We are seeing lower premiums sort of as described in the RNs and within my presentation this morning. So that's sort of reflecting there in terms of what's happening on trade, where we are still lower year-on-year in Q2. Life is the area where I think it's a fair point in relation to customer acquisition versus top line. Many of you will know that we've had a cash-back incentive, which has run for quite a long time in life insurance. We've tested in the past, the quantum of that some cash back. But what we tested within the first half and particularly towards the sort of second quarter in the half, we're turning that off and pulsing it rather than it being an always on incentive. We're confident. I'm confident that, that has put us in at least as good, if not better place in terms of pound notes gross margin. But clearly, what that has done, there's been a bit of a trade-off between gross margin rate and top line within life insurance. And car, we were up in Q2, a reminder in terms of the shape of that in the prior year when June onwards was when we got the sort of really strong demand last year as a result of the release of pent-up demand following the lockdown. So -- that's probably what I will say in terms of the shape, and I'll maybe hand you over to Peter to add a bit more color as to go forward.

Yes. And if I just pick up the second half of the first question and then move into the second question, Jo. I mean a big part of this, obviously, is PPC. And what I can say to you is, whilst we've always had the strategy of bidding up to breakeven, we're now implementing that with rigor. And the reality of those strategies in practice is that when you have an envelope like that, you sort of A/B test around it. You want to make sure that you're not cutting off your nose to spite your face. So you're constantly running trials to begin to understand if that is the right cutoff. And so that is happening with rigor as well. And the outcome of that is that I can pretty confidently tell you that it is a more efficient outcome rather than a reduced outcome that we're getting to. I think it's a very logical question to say, are you essentially just doing less at a higher margin. I think the answer to that is no, that isn't what is happening at the moment but what sort of have to say on life. In terms of opportunity going forward, I think the reason we're optimistic is we haven't really turned the smarts on from SA360 yet. So the platform went in towards the middle part to the end of quarter two. And as we begin to use it in anger, as described in the presentation this morning, we can begin to use our first-party data more. But also increasingly, we get sort of more real-time data feeds, we get more automated approaches. And what that means in practice is that we bid in more granular ways on much smaller subsets of customers, essentially down to one customer is the individual strategy in terms of what we do. And we're just not there yet in terms of that being switched on. That is coming literally on a week-by-week basis in terms of functionality rolling out. So I'm confident that there is more to come inevitably. There is a trade-off then between that increased margin versus volume. These markets have different levels of heat and competitive intensity at different points in time. The outcomes can vary, but there is certainly more opportunity to come. In terms of vouchers, Scilla, do you want to just pick up on the economics of that?

Sure. So as we've alluded to, the car incentive is a trial at this stage. And so we were very keen to make sure that we could manage and understand our costs going in and focus very much on what that did in terms of driving conversion and hopefully, engagement through the year and -- follow up on that if you want to ask more. In terms of what that therefore means, the current contract is expect to be a fixed price per insurance policy that's taken out. So we know exactly what that is. We haven't given you any guidance on that, so you can take it that it's not material at all in terms of our numbers.

And just one very small add on top of that is, and it kind of links into your last question, Jo. We have what I hope is going to be much more compelling advertising coming from September onwards. And of course, car will feature very strongly as part of that with the consumer. So I'm hoping that the combination of new advertising, the car incentive will have an amplification effect going forward.

I am tremendously excited about the relaunch of the brand.

Hope you like it.

And your next question comes from the line of Adam Berlin at UBS.

I've got two on the gross margin issue again. And then just when you're explaining in the presentation on Page 10, the drivers of the gross margin improvement, you didn't say anything about auto switching as a driver of gross margin. Can you explain why despite the increasing number of kind of auto-switching customers you've got, that's not creating a benefit to gross margin at the moment? And is that something that could help drive a step-up in the gross margins for medium term? And just trying to understand that a little bit better? And the second question is, can you give us some guidance on where you think gross margins can get to -- can they get back to historical peaks? Or is there some structural reasons why they'll never quite get back to where they used to be in the past?

Okay. Thanks very much, Adam. I'm going to throw both of these over to Scilla actually. But just one point on auto switching is whilst it was sort of launched in September last year, the switching -- the repeat switching hasn't really happened yet. So again, that sort of opportunity is one kind of going forward. Scilla, do you want to pick up on that?

Sure. So remember, Adam, the auto switching happened on MoneySavingExpert. So editorial proposition, and therefore, we don't pay to acquire those customers. So there aren't the same gross margin dynamics in terms of PPC. And in terms of what does impact the margin there is cash back, and cash back is still prevalent, so as and when you do get cash back on your second switch. So I wouldn't expect any of that to impact the margin of that channel. And as we've guided, Cheap Energy Club in and by itself is a lower margin than some of the rest of the group. So as we mix in and out, that does change the total shape of the group gross margin. It is good conversion. So we're pleased with the numbers that we've got in terms of picking a tariff every year. We are seeing that people who are in that journey are converting better than those in the DIY. So that is a positive. But as I said, we don't pay to acquire those customers in the first place. Gross margin. I'm sure we're going to get lots of different questions of aiming at this in different shapes and forms, and you won't be surprised probably, Adam, so I'm not going to give you any guidance in terms of beyond this year. I think you've heard us say that we're growing in our confidence in terms of what data enables for us in terms of effective customer acquisition. We've given you some of the building blocks as to what's happened within margin this half. This continues to be a competitive market across a number of different channels. And therefore, as Peter referred to in his answer to Jo, it will be a question of choice at different points in time and depending on how hot the various auctions are as to how much of the new opportunities that we identify, we reinvest back into market growth versus flow through to the bottom line. Bear in mind as well about the sort of first pillar of the strategy, the other piece, which we continue to able or bear fruit as we move forward is the cross-sell and retention piece, and I'm sure we'll look forward to describing that in more detail as we move forward.

Can I just ask one more question on energy just given the disappointing Q2 number. Do you think the introduction of the price cap is going to be a kind of permanent effect on your ability to go back to kind of historic revenue? I know you benefited quite well from it in the first half of 2019. But since that, there seems to have been a slight problem. Is that just the way the wholesale prices and price cap have moved in the recent times and can that improve? Or is that going to be a problem going forward?

I don't think I'd describe it as a sort of problem. And certainly, what we've seen since the price cap was implemented in early 2019, is that typically in sort of normal -- what can I say, normal wholesale market conditions, it's often set to the level, which does still facilitate switching. So it protects those vulnerable customers, but there are often savings levels, which are attractive and still facilitate switching. So there's nothing in the regulation change by itself, which means that the switching market shouldn't remain robust. I think what we will see a bit is a little bit more variability quarter-on-quarter depending on what's happening. So we've described before, because of the way that the price cap works, that it's sort of a retrospective look back versus a kind of real-time sort of spot cost, if you like, of wholesale prices. That does result in savings moving around quarter-on-quarter in a way it maybe wouldn't without the price cap. Does that answer your question?

Yes, it's very helpful.

And your next question comes from the line of Bridie Barrett at Stifel.

A few questions if that's okay. So I want to start, I mean, in light of the FCA review, and obviously, it won't impact officially until next year. But are you already starting to feel the changes of pricing and marketing stress due to your product providers? That's the first question. And my second question relates to the mortgage product. You're indicating again some additional integrations. Can you talk a little bit about the demand side there whether is there any evidence that anyone using them or sort of time frame on potentially revenue building out in that segment? And then my final question just relates to the phasing out of third-party cookies. And I mean, I know Google has given the industry little bit of a reprieve in kicking that down to 2023. But can you just maybe remind us about how the group is on that data and to targeting?

Thanks, Bridie. Okay. So on the FCA review, I think really what was finally published was broadly in line with what was anticipated with what the market was expecting. And on balance, we see it to be net positive. Sort of two observations around that really. Firstly, we'll see providers starting to adapt their pricing strategies, and that should create some volatility, which in turn will, I think, create opportunity for us because consumers are relatively well versed in the annual checking on a price comparison website, whether they're getting value or not. So certainly, we see that to be a positive. And then I think perhaps less well commented on, but perhaps maybe more so in the last few weeks is the regulation changes around auto switching, which is the provider essentially being able to flip the customer onto a new policy very simply at the end of their existing policy. And the rules, which are changing around that I think really adds to a price comparison website's opportunity. It should really aid conversion because, essentially, it should take friction out of a journey of a customer switching and in turn, make it easier for them to go to a new provider. So we see that as a positive. So I think the balance is net positive. I think your question was, are we starting to begin to feel those changes. I think it's very hard to say that. We anticipate there are a number of providers who certainly tell us they are adapting their pricing strategies in advance of what is happening. How far through that cycle they are will be very hard for us to comment. I'll throw that over to Scilla in terms of any other observations. Number two, on mortgages yet. So we've added NatWest. So that's on top of Santander and Nationwide. You remember that we're focusing at the moment on the remortgage side of the market. That probably hasn't been a bit of the market that's been on fire sort of post pandemic. That's been all about sort of house moving. So that hasn't been the part of the market that we are in. But what's great is that we are proving out the ability to deep link into a provider's application process. And yes, I think I said sort of in February, this is a very attractive opportunity. It's just a question of time, the time being, where do we feature in the prioritization of a provider versus all the other good stuff that they're potentially doing. So if I kick over to you.

Yes, on FCA...

FCA, yes. On any -- yes.

Yes. So in terms of what we're seeing from providers, I mean, as Peter is exactly saying, Bridie, we're not seeing that much at the moment. I think where we will see potentially is car actually in advance of home just given where they make their money, really. So we'll continue to see how that plays out during the second half. Clearly, the regulations were only finalized in May. So there's some time still to play through in terms of their acquisition strategy. So...

I missed that on cookies. Sorry, do you want to do that or do you want me to?

Yes. I mean so just on cookies really where it would impact us anywhere adjusting, re-recognizing people who haven't signed in. And so we're doing quite a lot of work at the moment in terms of focusing on getting more customers to sign into the sites and therefore making us less reliant on cookies going forward. But there's nothing in and itself of that, that I would be concerned about in terms of the numbers.

Yes, it's forward journey to make us less dependable.

[Operator Instructions] And the next question comes from the line of Giles Thorne at Jefferies.

It was just a one question, again, on the broad competitive landscape and how that's going to evolve over the next couple of years. And what's prompted the question is obviously, the -- Uswitch, Confused or Uswitch or RVU, Penguin Portals, however you want to look at it, that transaction is now completed. And they followed it up very, very quickly with the acquisition of Mojo, which to my eye is a pretty substantive statement of intent and a pretty substantive change in who owns what and who's offering what. So clearly, there's no sign of any integration of all these brands into a single platform in the same way the MoneySupermarket is at broad platform. But nonetheless, substantive changes. So Peter, I'd just be interested to see how you see things evolving over the next couple of years? And if there is going to be a much more like-for-like type competitor, where do you see that competition manifesting itself?

Yes. Thanks, Giles. I think it's a really interesting question because what you have seen is, as you're pointing out, the number of customer propositions coming under the one stable, what you haven't yet seen is that being brought -- gather in one brand with then the ability to sort of cross-sell in a more seamless way. Not to say that, that can't happen, but that hasn't begun to happen yet. But one more guess as the reason for doing this is to make that happen, and we would expect to see the emergence of a new competitor. So certainly, I think in some of the PPC bidding auctions, we're starting to feel the weight of some of these ownership changes and you just see sort of different levels of funding that start to be coming in. And as a consequence of different pricing coming through in terms of that, we should fully expect to get a competitor on the horizon at some point in time that is trying to begin to cross-sell into our customer base in the way that we're doing, it's a very logical thing to do. I think where we have great advantage, however, is that we have that single brand proposition at the moment. We have that breadth at the moment. We are well advanced on the technology stack to begin to make that happen. And in addition, with MSE, we have a brand, which is our own publishing brand, which has a very, very engaged customer audience who are signed up for the purposes of kind of financial services. So I expect you'll see changes in the market in the way that you're describing. But I think we're really well positioned to begin to handle that as when that happens.

Peter, you have seen these things unfold, is it -- you're increasing the sense of urgency within the business to execute on -- is it changing your, I don't know, your sensibilities or your sense of urgency?

Well, I hope, Giles, you're feeling the sense of urgency in the business at the moment. I think the rate of delivery in the first half is really pleasing. And I think the progress we've made, particularly in terms of understanding our customers, when I say that, I sort of mean the progress we've made in terms of data, understanding a similar customer view, making that available to all parts of the business. And in turn, to the product proposition, so the customers can then begin to realize it, absolutely, it is all about that pace and making sure that we stay ahead of competitive propositions. So I hope you're seeing evidence of that.

There are no further questions at this time.

Okay. If there are no further questions, can I just thank everybody for their time this morning. We really appreciate you taking that time out. Of course, if we can help, please reach out, and we will answer anything further on a one-on-one basis. Thanks very much.

Thank you. That does conclude the conference for today. Thank you for participating. You may all disconnect.