MONY Group plc (MONY) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Moneysupermarket Group announcement of 2020 full year results conference call. [Operator Instructions] I must advise you that this conference is being recorded today. And now I would like to hand the conference over to your first speaker today, Peter Duffy. Please go ahead.

Thanks very much, Lynn, and good morning, everybody, and thank you for joining us. I'm Peter Duffy, CEO of Moneysupermarket. And also on the call with me is Scilla Grimble, our CFO, and we're very much looking forward to taking your questions this morning. Now just in about -- I hope you had the opportunity to take a quick look at the presentation online. So I'd just like to draw your attention to perhaps 3 of the main messages, which we are communicating this morning. And that's, firstly, our 2020 performance was really driven by exceptional market conditions. And I don't need to say that it was an unprecedented year and that some of our markets have clearly been heavily impacted by COVID-19. So as a result, revenue was down 11% overall. But if we take our travel-related channels out, that was 4%, and the EBITDA was down 24% to GBP 108 million. Secondly, we've updated the strategy. So we have announced an updated role change. And as a reminder, we're going to be focusing on 3 strategic objectives, which are: one, efficient acquisition; two, how we retain and grow our customers; and three, how we sensibly expand our offer. And then finally, I hope you heard a big message coming through this morning on execution. We need to make sure that we are delivering against the promises that we are making, and that is very much front of mind to us. A big part of that is how we're going to improve both our product and our data capabilities to begin to do that. So customer begins to get a superior experience. And I know we'll get into much of that for questions that you have. So I'll now hand over to Lynn, who I think will get the first question on the line. Lynn?

[Operator Instructions] And your first question comes from the line of Joe Barnet-Lamb from Crédit Suisse.

Excellent. And welcome back to the floor, Peter. I have 3 questions, if I may, but don't worry, they're all crackers. Firstly, this strategy is clearly going to entail some investments. Can you talk about how much investment is effectively being repurposed from other areas, i.e., net investment is 0, but what's gross investment and where is it coming from? Secondly, when we think about the aims of your strategy, it's really targeted at CAC, LTV and TAM. You've mentioned the industry getting back to plus 5%. Is your goal to match that growth or exceed it? And on margins, do you believe that CAC and LTV related gains can keep gross margins flat? And then thirdly and finally, you talk about energy split between Autoswitch, Pick Me A Tariff, and DIY Search. You mentioned you would explore this and other products and categories. Should we read this that you may launch Autoswitch products in other categories? Or the mentality behind Pick Me A Tariff will be repeated elsewhere?

Great. Thanks, Joe. I always love your crappy question, so thank you very much for that. So first one on investment, what's the growth and where is it being repurposed from? I think what I'd like to draw your attention to really is just focus. So we've shared what our tech spend is. And that for an organization, which is U.K.-based digital business, is a perfectly reasonable spend. So the question is how are we spending that money and what are we focusing on? So I spoke a lot this morning about what we're doing in the digital world. So yes, there are some relatively small reinvestments, which are being made, which I am hoping will sort of net out within a sort of 12 to 18-month period because we will find savings within each of those areas elsewhere. So I think the heart of your question is, are we stopping doing something that you would kind of notice? And the answer to that is no. It is much more about how we focus our existing expenditure, our existing resources on sort of -- on some key bets, which we think are going to make a significant difference to the business. In terms of #2, aims of the strategy, are we going to be looking to match or exceed market growth. So let's start by getting to match, which will be a sensible place for us to kind of get to. Let's see where we go to from there. So clearly, we're going to be comping in the short run against very low numbers for 2020. So you'll see statically some sort of artificial amplification. So we're talking how that looks beyond that when we get into a more steady state. But I'll be happy to kind of return to that in the first instance, and then let's see where we go from there. In terms of your question on energy, yes, it's a really good question. So energy, as you know, is not regulated in the way insurance products are. So what we can do with one product category isn't always the case that we can do exactly the same with another. But I think the principles behind it are really similar. So can a customer at renewal receive from us a pre-quote essentially of what their savings next year could begin to look like? And can we make that switch really easy for them? Can we make that as simple as possible based on what we already know about them? And if we ask them anything, it's kind of clarification and what has changed rather than going through the process as if you were a first-time customer in terms of how that works today. And I think that will be a step forward from where we are. So I think the principles of the sort of Autoswitch type products apply very generally, the regulation will sort of say how far down that line can we get for each products.

And your next question comes from the line of Andrew Ross from Barclays.

Great. My first one is following up on Joe. So Peter, you mentioned that you can get back to matching market growth in the medium term. But do you see that coming with margin expansion as well? And I guess, to extend that question, do you think the work you're doing around marketing, customer retention can mean gross margins for this business start to go up? Anyway you can quantify that would be very helpful. And then my second question is on the FCA review insurance. It sounds like there are puts and takes, as you see it. But if you had to had it a guess, how much of an impact do you think it will have on switching volumes in home and motor? And then thinking beyond that, is there anything else that you don't see fully recovering whenever the post COVID phase is? In your eyes, is there anything in this group that is structurally impaired because of COVID?

Okay. Brilliant. Thanks, Andrew. So first question was about matching market growth, does that come with margin expansion? So essentially, what I'm trying to say we're breaking the expensive marketing loop, is that we're going to have to try and stop re-recruiting our own customers, to use a very simple phrase. So if you're already with Moneysupermarket, can we get you to come back and buy future products, either a renewal of an existing product or a new product that you don't currently have with us without that expensive re-recruitment costs. So as a first objective, margin stabilization on that core part of the business is something that I would hope we can begin to achieve. Now in saying that, let's be clear that we're also expanding decision tech and B2B, and that operates at very different margins and we have different products that are delivering different margins as well. So that overall margin picture is sort of nuanced in terms of how that works. But the principle is how can we begin to get that expensive marketing loop focused very much on the acquisition of new customers and try as much as we can so we recruit existing customers through our own methods. And Andrew, you won't be surprised that I'm not going to put a quantification on that at this point because I think we have to kind of get some of that up and running and show you what that begins to look like. In terms of the FCA review, yes, what do I say on that? Look, the consultation phase was just finished in January. FCA is coming back in quarter 2. And clearly, we don't actually know how those proposals are going to be netting out at the moment. But I think there are, as I said in the presentation, 2 significant components. So #1 is we know something is going to happen on price walking. Now I'm not going to share internal data here, but there are multiple drivers to why people come to us with insurance, and price walking is one of them that actually changes in personal circumstances or just reviewing your situation on a regular basis are other reasons as well. And so my view very much is that insurers are always going to be competing with each other. They're always going to price risk differently, and there are always going to be price advantages for certain cohorts of customers. And fundamentally, the only place where you're ever going to be able to see that is on a price comparison website. So that deal was done and that we have a sensible place for customers to come and find out whether they're getting best value, when to begin to switch. And I think then the second thing, which perhaps hasn't quite had the same level of focus, is this potential proposal and auto renewal. So auto renewal is a real pain point for customers and that -- in the sense that you just find you've been renewed on some policy because you sort of did nothing about it. It does make me sort of smiling car insurance. When I last looked, I think you have to have 3 things to drive a car. You have to have a license, an MAT and insurance. And on the license and the MAT, we trusted to sort of add ourselves. But with insurance, we somehow think that, that has to be auto renewed on our behalf. And so I think this is an area where regulation will be very helpful for the customer, and I think that will begin to provide an opportunity. Now the question at this point is how does that net out? And obviously, that's what you're going to want to view on. Honestly, I think it's a bright person that calls back to this point. There are opportunities, there are headwinds and there are tailwinds, and I think I would really want to just begin to understand what the proposals actually look like when they finally are published in quarter 2 before we kind of call that one way or the other. I think it's still just a little bit early dollars in terms of that. And I can throw [indiscernible]. So we've got a point of view on that in a second. And then finally, anything which is not going to fully recover from the pandemic, I think the answer to that is no. If I look at what the most significant headwind is, it really -- it's all about the recovery of travel for both the travel insurance, but also the TSM part of the business. And when does that come? And at what rate does that come? When does that begin to get back at scale? But I think there is nothing which is fundamentally impaired, which is what your question was. Scilla, do you want to just add anything to that?

I mean the only point I'd build on FCA is exactly your point, Peter, that there are a number of different triggers, if you like, that drives somebody into switching market. And Andrew, we've discussed this before, whether or not that's a risk changing event or just as Peter saying, a change in your own personal circumstances, and that represents quite a lot of our visitor base that fall within those categories. And clearly, as we make some of our journey easier and we make the ability for us to prompt and nudge in terms of renewing your insurance, we should be able to, exactly as you're saying, drive long-term value and that, is it some self-help initiative, if you like, it should begin to offset whatever comes out of the FCA GI review.

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

Yes. So 2 sort of strands of questions from me. Firstly, regarding the strategy tweaks. So there sounds broadly similar themes that we've heard in the past in terms of better customer journey, cross-sell, better SEO, et cetera. To what extent this new expertise need to be brought into the business to drive this? And how complex a task do you see the SEO is, for example, and the natural search? And if I may ask, have you been in a similar position or a similar point in the road before in previous roles? And if so, could you give an example or 2? And the second question, really, the 60k sign-ups to the auto compare and switching to 70k Pick Me a Tariff. How many of those are new customers for Moneysupermarket rather than coming from Cheap Energy Club? And what are the plans for marketing the service more broadly? And I guess any thoughts on whether an Autosave style product plays a role with part of your proposition?

Okay, great. I'll do the first one, Ross. I'll throw to Scilla for the numbers, and then I'll come back and just talk about autoswitching again going forward. So yes, strategy tweaks. I think the question is around new expertise. So we've already brought in new expertise on the data side. I bought in somebody who I've worked with previously, Justin. He built the global data platform there, which essentially powers the product in -- yes, in everywhere from Canada to all of Europe to Australia. And he's ex Amazon, and he's ex Dunnhumby and already is making a very, very big difference to our overall approach to data. So just as an example, he joined in November. We've signed up Google Cloud platform as our major strategic platform in December. I actually saw first real-time data coming live yesterday, flowing through the system. And we're hoping to get the marketing platform sort of working for first customer contacts slightly at the end of Q1. I think probably it's now just tripped into the first week of April, so we start Q2. So I think in places we will need expertise and we will bring expertise in where that begins to make sense. But I think also, we've got great expertise on the inside of the organization as well. So one of the things that I touched on in the presentation is looking at the team of decision tech who I really do rate very, very highly, not just in terms of the B2B capability, but just as an engineering shop. And we have brought them already very close to the heart of the business because Mike Phillips, who set that business up and who run that business, is now running our Home Services vertical for us. And essentially, we're looking to sort of apply the decision tech model essentially to how that works. And I guess the question is, how more broadly can we begin to use that sort of internal talent in the right way? So I think we've got some really great people on the inside of the organization as well. And the question is, can we just improve the clarity and the focus of what we're trying to achieve and get them aligned behind delivering that in a way that they can do their stuff. So it isn't just about new expertise, it is about just actually getting the right talent on the right tasks and making that happen. How complex a task is all of this? So I think the comment about sort of a micro service or a componentized architecture is sort of quite important, really. So when you hear about companies that are struggling with their legacy tech, quite often, they have what are called monolithic systems and they're just one big box. And what micro services or a componentized architecture does? It's broken that up into a series of components. That means, when you want to change fix or update something, you're just picking a smaller box rather than dealing with the big monolith. And so it's quite important that we have got to that point because when it comes to sort of future proving or improving, that becomes a simpler task than it would have been if that wasn't the case. And that's why I can have some confidence around the numbers that I'm giving you in the -- it can just be managed in a much more sensible way. In terms of I being in a similar position before. Yes, I think I have. I think if you look at what happened at EasyJet, we essentially were a business when I joined that sold off lot of airline tickets, and we really began to look at how we could cross-sell into those customers, essentially in that case, ancillary services. And for those people who are close to that sector, you'll understand what an important component that became of the overall story. And I think when it comes to data and what we're talking about with data, this is very similar to what happened to Just Eat. So I've observed that when I arrive, essentially, people with tech stores [ to each other,] just go for same listings of restaurants. And the big thing that we did was to personalize that product, so you could see what you ordered last week, what was trending in your area, what was new, if you were vegetarian, and all that sort of good stuff, I think, is just about analyzing customer data and saying, how can you then create a product proposition on an app, on a website that makes it feel really relevant. And essentially, that's what we're talking about here, but just in a different category. And so yes, I do think that those things are relevant in this case. Scilla, do you want to just talk about Autoswitch and where we got to in 2020?

Sure. So as you remember, Ross, we launched it basically really in the autumn. So it was coinciding with when the energy savings levels were falling across the market. And the numbers that we're quoting to you with people who've actually done a switch. So within that, we've got 70,000 users who've done it under Pick Me a Tariff, and 60,000 who've done it under the Autoswitch or Pick Me a Tariff as per year service. So we're pleased with those numbers. And it is, I think, a mixture of people who are already existing money saving expert, users and also newer people to the site. And the interesting thing for me, now you remember we've talked in the past about how people are at different stages in terms of how comfortable they are with a guided journey or an autoswitch product, and if we look at our switches over that sort of final 1/3 of the year, they're pretty evenly split actually between people who are doing the old DIY journey that guided Pick Me a Tariff journey and then the Pick Me a Tariff every year. And then the final point I'd just point to is in the [indiscernible] or the nice thing that we've seen, of course, clearly, we're not at the anniversary yet in terms of people sort of auto renewing. But even for those people who've gone through that Pick Me a Tariff and the Pick Me A Tariff over year journey were seeing nice increases in conversion versus the standard DIY journey.

And I think just to close that off, Ross, your question there is sort of how many of these people are new going forward, which we're not sort of talking about directly today. But I think as a concept, it's one of the things that we're going to be very focused on in terms of when we recruit a customer, how do we then begin to develop that relationship over time rather than see it as a sort of single product transaction. So that's definitely a sort of area you're going to be hearing more from us about.

And your next question comes from the line of Natasha Brilliant from Citi.

And I've got a couple of questions on the strategy, if I may. So I mean, there are sort of the big statement, I think, is that this is an evolution rather than a revolution. And so I guess my first question is, is there anything that you've been doing up until now that really isn't working that you're going to sort of stop anything that you've been talking about over the last couple of years that you're really going to put an end to? Or is it really just about tweaking things for improvement? And then second to that, you've talked about not recruiting your own customers. And of your current customer base, have you got any evidence or anything that you could talk about where at the very best customers, they are coming directly and regularly, and therefore, it's about trying to replicate that across the wider customer base? Or is it really something new that you're trying to get across the whole base? Those are the first couple of questions. And then, finally, just on M&A, clearly, organic growth is first, but what's on your wish list in terms of M&A?

Thanks, Natasha. So yes, I think the way evolution rather than revolution do describe the strategy. But I think when it comes to implementation, when it comes to execution, it may be revolution rather than evolution because that might be flipped around in terms of how we begin to do things. So I don't think that then is about tweaking. I think, fundamentally, we'll look at how we are aligning resource. I'm sort of -- I'm not embarrassed about the fact that the strategy I presented to CET this morning is pretty simple, really. But I think that's what this business really needs to do. I think we have to begin to focus on how we acquire well, how we then cross sell to those customers, how we then retain them, and that is all then about how our product development, how our strategy is -- sorry, our product development and our marketing is kind of completely aligned behind that, not re-recruiting our own customers. But we've got a very broad church of customers. We've got 11.5 million active customers at the moment. And as you would kind of get, some are more engaged than others. And what we do is we use CRM today in a relatively simplistic way to begin to try and drive up that usage, that cross-selling in terms of where we are. And if you look at the product work today, it's like a Moneysupermarket, isn't it? We have a shelf with car insurance, we have a shelf with home insurance, the shelf of life insurance. I think going forward, we want to sort of make that a lot more customer-centric so it starts to say, Peter, you have this, and we think that you could have that. And I think as a first example of that, what I shared today with Credit Monitor is just really, really helpful because it demonstrates that if we can get content that customers actually find engaging and want to come back to and have a look at, then as a consequence of that, we can begin to drive value. So I think, yes. So if I'm going to be at the heart of your question, we do have engaged customers, they do vary, but I think the strategy needs to be much more focused on how do we make more groups that those customers look like the best of our customers. And that's absolutely what we're going to be doing. In terms of M&A, you understand it very little. I can sort of say -- to say we're open. We're very interested. Adjacencies would make sense, logical adjacencies. We've done well with logical adjacencies I would observe as a group up to now. But also capabilities, I think, are quite helpful. So when you look at organizations that just do things really smartly and you think what that begins to add to how we do things kind of overall. So you'd expect I wouldn't sort of have any specifics on that. But I think I'm just saying that we will do horizon scanning all the time. And if there's something sensible to do, then we'll have a look at it.

Our next question comes from the line of Malcolm Morgan from Peel Hunt.

You've spoken a lot today about your intentions with regard to marketing skills and in terms of technology. I wondered if you had any comments about the -- your view of the commercial teams and the position you think you are in terms of commercial relationships with providers. So for example, with decision tech and B2B, are you happy with the terms that you've been negotiated so far? And as you face FCA review, how engaged are you at this stage with insurance providers in terms of approaching that? So it's just a question of the commercial teams, what's your view of what you've inherited there, please?