MONY Group plc (MONY) Earnings Call Transcript

Your next question comes from the line of Bridie Barrett from Stifel.

A couple of follow-on questions from me actually. Just returning to your points on the margin. And you talked about the impact of mobile. But I mean there seems to be quite a lot going on at the moment in terms of what underlying shift in that margin. We had last year the volatility as a result of Google-led issues and now obviously we've got COVID-led issues in the Money segment and prices potentially coming down for advertising. And I think you've mentioned that your tech costs are becoming more P&L versus balance sheet weighted. So I wondered if you wouldn't mind just kind of talking through maybe to point a little bit more detail and what we might anticipate over the next year or 2. And I have one other question once you dealt with that, please.

Okay. Scilla, why don't you go through from the margin point?

Sure. I'm going to chunk it up a bit, if that's okay, Bridie. So I'll start with gross margin and hopefully, we were clear within the RNS that what we've seen is just over 2.5 percentage points reduction in gross margin in the half. So broadly, 1 percentage point of that is some of the continuation of the volatility and lower on average positions that we've seen in natural search. So we talked through that in the second half last year, and we've continued to see that in the first half. Some -- that sort of intimate to the prelims some slight improvements, some first half versus second half, but we've continued to see that tailwind. But we've now, as we've come to the end of the first half, if you'd like, we've annualized through that impact. The second thing in gross margin, as you've touched on, is the money conversion. So talked to it in terms of the impact of those lending criteria and significantly impacting conversion. So that cost is about 1 percentage point of gross margin in the first half. We've signposted that we haven't seen that improve as yet. And clearly, if that was to continue all the way through the second half of 2020, there's been more impacts. We've just had sort of 1 quarter, obviously, in the first half. And then mobile, well, I sort of touched on in relation to the question from Natasha. So we're continuing to see that shift. You'll know, in aggregate, where we're under 3 percentage points of shift, and we've had 1 percentage point roughly from natural search, 1 percentage point from money conversion and the balance from mobile. So that's a bit of an improvements on what we have seen before. And again, we sort of flagged in the RNS. We're continuing to make progress on improving conversion by device and to narrow that gap between mobile and desktop. So that's the sort of gross margin story. From a -- in terms of marketing, so sort of splitting that out in terms of the TV and radio spend, we signaled at prelims, we were looking to invest a further GBP 5 million this year. That's going to be second half weighted. The most of that coming through into the second half. And so we continue to think that that's the right thing to do. So that's the kind of expense reduction in OpEx in the first half, and that was driven both by a reduction in sort of general discretionary spend but also a lower year-on-year incentive accrual materially lower. As we go into the second half, partly due to, obviously, some headcount savings, we will end up with those costs being slightly higher than the first half.

That was very clear. And just on to my second points, and we -- obviously you've held the dividends at last year's level. Can you just refresh us on your capital allocation policy given the situation we all in at the moment? Is there any reason why that should change the full year, if trading continues sort of more or less as you flagged?

Yes. So our capital allocation policy, Bridie, remains unchanged. So we first invest for growth in the business, organic, then we have M&A. And then if there's surplus cash left, then we'd continue to return that to shareholders as we have in the past. So that framework is unchanged. I think it's fair to say that when -- and clearly, the dividend is a Board decision, but in taking the decision for the interim, we've been conscious of 2 things really. First is our expectations in terms of the performance for the business over a medium-term view, but also and importantly, the cash characteristics of the business. So you've seen our cash generation in the first half has remained strong. We finished the half in a net cash position, and our liquidity is also very good.

Yes. I think if I -- Bridie, if I can just underline that one clearly, any future dividend decision is one [ for thought ] at the appropriate time. But what we are saying in this is that the business model has proved resilient through what is undeniably significant impact in our market. But we're very confident about our ability to continue to trade through. Our teams are all fully deployed. Our services are useful for people. In fact, probably never have been more useful than they are now. And so there's a sort of underlying confidence in the resilience of that model. That's a significant point here.

Your next question comes from the line of Giles Thorne from Jefferies.

I had 3 questions, please. The first 2 were on Autoswitching. And I don't mind admitting, I googled MSE Cheap Energy Club this morning, and I was surprised to see that the page search return was [ full across my ] bills. So it kind of prompted me to ask a question or to invite you to comment on how your approach customer acquisition in Autoswitching, both off-line and online as we go forward? And obviously, you've got a fantastic existing platform, but surely, there's an opportunity to -- at the customer acquisition activities. And kind of in the same vein, Cheap Energy Club got 4.5 million members. It'd be useful to know how many of those initiated a switch last year or in the most recent trading period before Autoswitching went live? And where do you think that penetration could go to now that you're into an Autoswitching proposition? And then finally, completely separate question. In the past few weeks, we've seen that Admiral is looking to sell Penguin Portals. It's not often that you've had the opportunity to talk about transformational M&A. But what was the Moneysupermarket view on that deal be, both from a value creation and an antitrust perspective?

Okay. A few things in there. So first off sort of Autoswitching. So I think the anecdote you're relating, if I understood correctly, is what happens on the Google Search site. I just want to check I understood that correctly. Look, if you think of our position in the market here, so obviously, we have positions on energy across both Moneysupermarket and MoneySavingExpert. MoneySavingExpert is a very big player in this space, and that's really built on the editorial strength at the point of view and the understanding of the market that it takes to its users with great confidence, the range of sort of unique deals and collectives that it's able to secure. And as such, we have built up a sizable base within the Cheap Energy Club and, obviously, a very sizable base of users that subscribe to what we call the MoneySavingExpert tip, which is essentially about a go-to-market strategy for Autoswitch. Our absolutely main priority is to take that presentation to -- take that proposition to our existing fee from us most over the coming periods will be communications to our existing users rather than choosing to invest marketing spend against trying to acquire further users. We have our own inbuilt communications channels that we've developed and investing through the strength of that editorial proposition. So I think what you're seeing is very consistent with our approach to it, and I think that is right approach for us in the business. We'll see where the -- where the penetration gets to because this is obviously a new proposition. So we are very excited about it. And we think that a number of users will want to say, you know what, move me every year to the deal that matches my declared preferences. Some, we think, may still want to invest the time each year and do their own search. And you know what, we are comfortable with that. MoneySavingExpert likes to give that choice to its users, and that's part of the thing that underlines the super high levels of trust and confidence that, that brand receives. So it's not really something we're going to give a target on at this moment. But obviously, there is a very sizable base to penetrate within there before we have to worry about going outside of that group. And remember, the economics are based on our existing economics. And so retention play there will be very meaningful for us. With regards to sort of M&A, we're not going to comment on any specific deal. You wouldn't expect us to do that. I think we've always laid out that the group is open to M&A opportunities that enhance our strategy. So whether that is plays that could help support the reacceleration of the core growth of the business or whether that is in some of those new market growth areas. So we actively scan for opportunities within that. But I'm afraid, we're not going to be drawing on comments on any specific incidents.

Is just -- okay. So let me try that last question in a different way. If you consider the CMA's finding from the infamous review a couple of years ago, do you think there was headroom within their framework and their findings on price comparison in the U.K. that would allow for consolidation here? Do you think there's eventually trust headroom for it to get done?

Well, look, I think I'm just going to sort of revert back to what I'd always say on these things, which is, first off, you'd have to believe that there was an economic rationale that made sense for the deal. And then you'd have to believe that the deal is -- any deal is doable through an appropriate regulatory framework. I'm not going to be drawn further on that, I'm afraid. I know Scilla has sort of laid out our capital allocation framework in terms of how we would use our sources of capital.

Your next question comes from the line of Ross Broadfoot from Investec.

Two from me. First, just keen to understand the rationale behind the decision to go for sort of the auto compares which rather than the full automated Autoswitching. And I guess the follow-up to that is, is the full Autoswitching a later development we might expect? And the second is keen to hear your view on the mix within energy switching. I think Ofgem said about 60% of switches last year used the PCW. Clearly, that would have been higher in Q2, sort of latter elements returning? And do you expect them to return in the same way?

Okay. Let me try and talk to the propositional bit first, and then we'll get into some of the market data. And maybe Scilla, I'll ask you to pick up on that. So the propositional piece, this is an Autoswitch service, but the way we have done it and you'll recall, we talked to this a little bit at the prelims earlier in the year. We have deliberately sort of backed out of the first wave of Autoswitch as we haven't really liked. We haven't felt as though the propositions really work for the user and indeed for the provider. So we've been trying to work out how can we take this to the market in a way that meets the user needs, guarantees them the value that they're looking for in the market and that we would be happy to put our brands behind but also provide sustainable economics that you have the full range of providers that might appear on a comparison table into an Autoswitch proposition. Our way of doing that is by saying, actually, users, you tell us what you care about. And it turns out that most users don't just care about the price, some absolutely do. But actually, for the most part, users actually are making a balance in their considerations against things like service, against the energy -- green credentials of the providers, some want a big name provider and so on and so on. So that's really what we've done here. That allows it to be essentially Autoswitching to the deal that you would have chosen if you had done the search yourself, which is why at times, we will call it a sort of compare and Autoswitch. What that also means, and this is why it's quite neat, I think, is that it means that we're able to offer the providers a reason -- a way to appear in the Autoswitch proposition that is offering the same economics that they would if they were in comparison. And what we're seeing is that in some models, those economics are not sustainable for providers. And so they're not putting their ranges into those services which means that the user doesn't get the value. So quite a long answer, but that's an important part of the proposition. And that's what gives us the confidence to put the MoneySavingExpert brand behind it, which is a statement of customer value. And also, it's why all the providers in the groups mix have come on board with this proposition. So that's really critical. Scilla, do you want to talk to the sort of overall market dynamics in energy switching and how we have done within that?

Yes. I mean I think if you look at the total market data, I think you'd see particularly over some of the initial stages of lockdown a little bit of distraction, frankly, and we saw that across a number of categories. I don't think, though, in terms of the overall market, and Mark touched on this in relation to some of the answer on Decision Tech, we're still seeing within or -- as compared to our other verticals, significant headroom for penetration within PCW. So I still think that out of all of the verticals, there's more structural growth available in Home Services.

Your next question comes from the line of Roddy Davidson from Shore Capital.

I think most of the questions have probably gone, but a couple of maybe more slightly general questions, if I may. Firstly, just interested in whether you are seeing any initial sort of feedback on the new marketing campaign, whether that's gaining any traction? Just sort of initial thoughts on that? And also, just wondered if there is anything you can share with us regarding sort of evidence of customers using multiple categories or searching across multiple categories, whether there's sort of propensity to switch, you think, through the lockdown has changed at all? And finally, just wondered if with any of the working practices that have changed through lockdown, whether any of those are likely to sort of stick over the longer term and whether that might have any implications for costs?

Let me just make sure I catch that third question. Right. Intelligence from what we're finding with the new Moneysupermarket advertising, then a question around what we're seeing in the category mix and then something around -- I think the question is around, are we seeing that the working practices has changed our cost structure as opposed to broader societal changes on working practices. But Roddy come back later if we're misinterpreting what you're asking. We're really pleased with what we're seeing on the brand support for Moneysupermarket. You remember, we moved our branding forward about 12-or-so months ago, when we introduced a new corporate identity in the sense of Get Money Calm as a brand proposition. This was to support the services, which we've then taken to market under the personalization banner, so things like Credit Monitor and so on. So if we go back -- that was the repositioning work that we started 12 months ago. We're pleased with how that's gone. What you're now seeing is the sort of next iteration of that campaign, which features our hero, the Money Calm Bull which we have taken to market towards the latter end of the quarter. Again, we sort of kept things simple in the first stages of lockdown when our customers were very distractive at that time. Really pleased with what we're seeing. We've obviously flexed our media mix to match how consumers are now behaving. So what does that mean? Less people are going to cinemas, outdoor has a lower mix, and things like that. And obviously, the value that's available in the media market has changed, and we've taken full advantage of those opportunities. We're really pleased. I think we made a reference in the presentation around the Net Promoter Score of Moneysupermarket, which sits over 70 but also that the -- some of the softer sort of brand tracking metrics are also increasing through the second quarter. And I think that is a combination of what -- how people are responding to the advertising, but also just how much value they put on the services at a time of great stress for household finances. In terms of what we're seeing in terms of which categories and so on, well, obviously, you've got the overall trading dynamic. I would point you to the material that we shared at the prelims around when our users are on personalized services, how they come back more frequently and search across multiple categories. And I think we've said that, that has continued through the first half. So we're pleased with that. And then more specifically, I think that, obviously, one of the simplest areas to say has been one that's generated a lot of interest over the last few months, which is things in the home. And we've seen that obviously through our energy performance, but we're also seeing it through the broadband performance, which is a category where there's been strong consumer demand, not surprisingly, everyone is working from home, home schooling and the likes, putting demand, media consumption putting demand on the home broadband. But also one where the providers were very, very quick, I think, to get their operational activity in place and be very clear to the consumer, which services were available to upgrade to and switch to through lockdown, which ones required an engineered visit and weren't available temporarily and so on and so on. So that was a very, very strong category. In regard to our working practices, I'll ask Scilla sort of to pick up on the cost point. We have been able to move the team to full remote working. We thought it will be harder than it was. In reality, we were able to do that in advance of the full lockdown, and we're fully operational from home very, very quickly. Where we can track these things, we can track productivity rates, so for example, throughput in product engineering. And the teams have been incredibly productive. And I should underline, I couldn't have been more proud of how they have responded in the crisis. So that's how we're operating. I mentioned at the start, we are now sitting in our Dean Street office, and we are slowly reopening our offices on a voluntary basis for our colleagues who want to work in an office environment. But the vast majority of our operations remain remote at this stage. Scilla, do you want to talk about any...

Yes. I mean, really, just to build on that, Roddy, we already had a robust platform, and the tech has enabled us to work from home effectively. So there weren't any additional costs that we had to incur in that transition. Other than that, I mean, clearly, there are some elements of costs that fall out because as we're all traveling less and so on. But other than that, the occupancy costs certainly in the shorter term are relatively stable.

Thanks, Roddy. My understanding is that it's the end of the posted questions. So thank you very much for your engagement this morning. And I guess I should also flag that this is my last presentation. So thank you very much for all your support over the years. Who thought that we -- my last one would be updating on the impact of a global pandemic. But nevertheless, although the pandemic has had significant impact on our marketplace, I just do want to underline the point about the strength of our business model that it's proven to be robust. And I think as we -- that gives us the confidence that we will trade through it and come out of it very strongly at the end. I could not be more proud about how the business and indeed our brands have responded to that challenge. And I think the way they are serving their users at a time of great financial need is truly inspiring. And our cash generation remains robust with that, which is, as we've discussed, has given us the confidence to announce the interim dividend payment today. But look, as I hand over to Peter, I feel the business is in good shape. And let me sign out there with just one last thank you for your support, challenge, questions and commentary through that period. And I look forward to catching up soon.