WORLD TELEVISION
DMGT
Investor Briefing 2014 Growth through Digital Innovation
Investor Briefing 2014 Growth through Digital Innovation
Introduction
Martin Morgan, Chief Executive, DMGT Good afternoon ladies and gentleman it’s my very great pleasure to welcome you to the DMGT Investor Day. We have I’m sure a full and varied afternoon for you which hopefully will provide a useful distraction from worrying about how the vote’s going to go up north.
Our agenda today is going to continue the tradition that we established a little while ago, to not to try to present all the businesses across DMGT, but to focus on a few very key businesses which are very important to us and we know from conversations with you you’re really interested in.
But this year with the successful IPO of Zoopla and the near completion of the disposal of the businesses within the Evenbase digital recruitment business, the completion of the £100m share buyback programme and the announcement just this week that we are going to embark on a new share buyback programme we felt that we would start this afternoon with a presentation from Stephen Daintith talking about our approach to capital allocation.
Following that we’re going to hear from Hemant Shah the founder and CEO of RMS and he will be joined by Matthew Grant and there will be a panel discussion following that. Following RMS we have Euromoney who hasn’t presented for a while so I’m sure you’ll find that particularly interesting and led by Christopher Fordham the Group Managing Director and his team. And finally we’ve got a tremendous presentation as you will expect from last time, from MailOnline to round out the afternoon.
Just a few words from me on the topic of DMGT’s strategy and in the middle of this chart you will see that little graphic that we usually present. And just as a reminder our long term ambition and hopefully today is as much about the long term as about the short term, is to become an ever more global and growth company. And the three companies presenting this afternoon are already global businesses with a lot more global potential.
It’s also the case of course that we’ve been making the transition in parts of the business from a print world to digital world and you’re going to hear more about that and the success that we’re achieving on that front. And also from businesses of course that were born in the digital world and are themselves going transitions through to the newer technologies and the growth opportunities that that represents.
And I think you’ll also find this afternoon there’s something as very close to our DNA, there’s three presentations that are very representative of the kind of innovative spirit that we so cherish at DMGT and of course is the foundation for our long term growth prospects to which acquisitions have their part. But I’m a passionate believer unless you have that gene of innovation as the foundation for acquisitions then you are the less for it.
And finally and coming back to Stephen’s presentation all this is enabled of course by the fact that DMGT is in a very strong position financially and allows us to invest for the
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Investor Briefing 2014 Growth through Digital Innovation
future. And on that note it’s my pleasure to ask Stephen to come up and talk to us. Thank you Stephen.
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Balanced Capital Allocation
Stephen Daintith, Finance Director, DMGT Thank you Martin. Good afternoon everybody and just repeat Martin’s words of welcome again to you to this afternoon’s briefing on DMGT. So I’m going to run through in the next sort of 15 to 20 minutes or so, capital allocation and then just to sort of recap on RMS leading into the RMS presentation that will follow immediately there afterwards.
So DMGT balanced capital allocation, our capital allocation approach is a balance approach, we don’t have one particular area that we sort of you know it’s all in that one thing, we like to look across our shareholder base and come up with a package of capital allocation activities that we think best fit the way we approach capital and how we can best use it.
Our priority is to invest in organic growth, I’ll talk about that a little later, then we look at targeted acquisitions after that. Real dividend growth remains very important to us, pension fund contributions, share buy backs and then finally bond buy backs. And I’ll just run through those each in order.
What drives our amount and how we determine how much capital we have, well we target to finish at each year end no more than two times EBITDA and throughout the year in fact to operate broadly at that level. And there isn’t sort of any massive great science being applied to get to that number, it just kind of makes sense to us, we’ve been a lot higher in the past. It certainly helped us get back our investment grade status, S&P have told us that one of the key reasons why they returned us to investment grade was the fact that we had this sensible level as far as they were concerned and we stayed within it for the last sort of three/four years so that helped us in that respect.
So what we do is we target to finish it no more than two times at the end of the year and from that we work backwards looking at our operating cash flow, which remains very strong, as we’ll see in the full year results and look at our cash conversion. And then this particular year we’ve benefited from the Zoopla proceeds, £197m has come in from Zoopla, if you’ll recall we used to own 100% of the digital property group, we merged with Zoopla, we moved to 53% of Zoopla and we’re now at around 32% of the public company Zoopla after having floated the company in June of this year at £920m and it’s trading very nicely.
Evenbase proceeds we sold over our digital jobs business and expect the final receipts from Jobsite to come in in the month of October, that’s £150m in total. Acquisitions during the year now at £175m in the current financial year and I’ll show the breakdown of that in a couple of slides.
This sort of run rate is the sort of run rate I think that we’re now at within DMGT having for quite a few years been around sort of no more than £100m or so and certainly if you go back four or five years we were, well not really in a position to make any acquisitions.
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Investor Briefing 2014 Growth through Digital Innovation
So to Martin’s earlier comments we’re well placed now to drive acquisitions going forward and I’ll talk about those a little later as well. We completed our £100m share buyback programme and that cost us £31m this financial year, just announced the second one I’ll talk about that a little later. And then we bought in some of our bonds at the start of this financial year as well and there was a premium attached to that of £24m.
So as we look at where we are today with our balance sheet when we think about the sort of the two times EBITDA level that we set ourselves as the level we don’t wish to go beyond, we’ve got around £300m of capital available to us, at least £300m of capital available to us for these sort of activities, we’re very much organic investments and the M&A remaining our key priorities.
So on that note what are our investment preferences. We do favour organic investment over anything else and indeed the businesses that you’re going to hear about this afternoon are putting this into practice in the initiatives that you’ll hear about in MailOnline in RMS and Euromoney. We target around 5% of our revenues in organic investment, we’re comfortably exceeding that number at this stage particularly with the investment going into RMS.
Bolt-on acquisitions is our next preference, you’ll see on the following slide how much we’ve done these things over the last few years and we get good synergies out of them. We tend to get good management talent coming in as well and that’s worked particularly well in businesses like Hobsons and Landmark and in fact in Genscape in recent times as well. Then we look at adjacencies, business in the same sector but not necessarily bolt- ons that complement the businesses that we have.
And then finally we remain open minded to new sector so you should not be surprised if DMGT makes a move one day into a brand new sector like for example we did back in 1998 with RMS, we may do that in the near term, we’re particularly well placed now to do that so you shouldn’t be surprised if we choose to do that. And when we’re looking for a new sector that displays the characteristics for the sort of growth that we look for, the high growth levels that we look for from early stage businesses.
Portfolio management, going back to my earlier comments in fiscal '10 we were really in a position where we could spend no more than £37m on acquisitions, you can see how that number has crept upwards to the £175m that we’ve spent in this current financial year. And that’s the level that we’re at I think that we can, as long as we find the right acquisitions we can run at that sort of run rate on a go forward basis. You can see there the bolt-ons are the ones in this sort of lime green colour and red are the adjacencies.
Dividend growth, dividend does remain a very important part of the investment case for DMGT. Over the last 20 years we’ve delivered a compound annual growth rate of 9% per annum, we hope to continue that over the next 20 years. Of course it won’t be the case every year that we see that 9% growth and it will be very much targeting to be between sort of 5 to 7% real growth in other words ahead of the rate of inflation.
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Investor Briefing 2014 Growth through Digital Innovation
Pension fund, the deficit that we have for our pension fund we have a recovery plan agreed with our trustees, we agreed that in the early part of this calendar year, £34m to 2020 and then less than that in subsequent years through to 2026. And the recovery plan is in respect, it’s a 12 year plan as you can see, in respect of the actuarial deficit that was calculated in respect of the 31st of March 2013. The accounting deficit which is calculated on a different basis is just £162m at the last half year end.
So the point that I’m trying to get across here is that we understand what our commitments are in respect of the recovery plan for our pension deficit and we’re very well placed to meet that schedule of payments and therefore eliminate the deficit over a period of time.
Share buyback, we announced back in November of 2012 £100m share buyback programme; we’ve just completed that in the early part of September. We buy on market and we prefer it that way it gives us a lot of flexibility, M&A does remain our priority so it gives us the chance to turn it on and off when we wish.
And I was asked this question yesterday about the time it took to finish the programme but we had quite a fee closed periods in between particularly with the RCL transaction if you call, Rothermere Continuation Limited buying in the voting shares, that was a long closed period. So it took a long time, we don’t mind about that, we ended up buying at a pretty good price of £7.09p over that period that was the average price.
And we announced yesterday a new £100m share buyback programme, again don’t be surprised if we take our time over this, M&A remains our priority but we do intend to complete it and we’re already in the market buying shares. You know we look at DMGT as we’re long term investors, when we look at our businesses, when we do our sum of the parts calculations we see good value in DMGT stock and that’s the best reason for doing a share buyback in our minds and that’s why we invest in DMGT. The preference of course remains organic investment and acquisitions.
Net debt, so this really tells the story of where we’ve come from over the last sort of five years ago and you know 2009 was a pretty precarious time especially when one looks at our bank covenants and we’re now going to comfortably finish well below two times at the year end. So we’ve been able to buy businesses along the way, we believe we’ve sold the right businesses, we’ve returned cash to shareholders via the share buyback, we have grown our dividend and we’ve been able to bring our debt down as well so it’s a good balanced approach.
On our net debt position this is how we’re made up, we have bonds that mature through to 2027, £568m and we recently extended our facilities to 2019 and we in fact increased our bank facilities as well to £480m. So we have quite a few options open to us in our sort of area of debt management as to how we might forward with this picture so lots of flexibility on debt management with this picture that we have in front of us.
That’s it on DMGT, let me just go back one slide here, so that’s it on our sort of approach to capital allocation. I’d like to run through now RMS very quickly just a recap of the numbers that we talked about yesterday just because it’s important I guess that we just have a refresh of those in anticipation of this RMS session that’s about to follow.
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Investor Briefing 2014 Growth through Digital Innovation
So the balance sheet carrying value of the RMS(one) asset at the end of September 2014 will be around prior to any impairment around £85, that’s the software developer, time and spend that we’ve capitalised over the four fiscal years of ‘11, ‘12, ‘13 and ‘14. ’11 was quite a small year but ‘12, ‘13 and ‘14, particularly ’13 and ’14 have seen the rump of the spend, you can see £35m of which in fiscal ’14.
We announced yesterday there will be a material impairment of that number and you should use up to a half as the guide as to what the final number will be. And clearly we have to go through the process with our auditors but I think up to a half is the sort of number you should have in your mind.
At the same time we’re going to have a materially lower amount of capitalisation in fiscal ’15. So as we approach the end of the development phase of RMS(one) but many of the software developers remain employed within RMS carrying out the very important work as we prepare for the launch and we test the software for the launch, or I should say the staged releases that are taking place during 2015, clearly the capitalisation spend becomes less and we’re guiding to a less spend that’s being capitalised in fiscal ’15.
So how that affects the outlook for RMS over the next year, significant revenues and amortisation costs are not going to start until 2016. So the bulk of activity during 2015 will be those staged, incremental releases with the six joint development partners of which Hemant will be talking a lot more over the next half an hour or so culminating in that broader release to RMS clients on at least the high definition models during 2015.
As a consequence we’re going to have a reduced capitalisation and increased data centre costs in fiscal ’15, I mentioned this on the call yesterday, the data centre capability that we’ve built up, cost is being incurred but without at this stage the revenue flows to offset them. So putting those two things together, reduced capitalisation, the increased data centre costs, we’re in a situation whereby the total operating margin of RMS next year is likely to be between 10 to 15%.
So in summary we have a strong balance sheet, we have a balanced and flexible approach to capital allocation, plenty of opportunity for organic investment in M&A, at least £300m that I mentioned. But we have had set backs in RMS, we’re confident of the long term prospects, we’ve got a diverse portfolio, if you look around the portfolio there’s lots of good stuff around DMGT that’s going on, lots of exciting stories, we’re going to hear about a few of those this afternoon.
That’s it from me on capital allocation and the RMS recap and now I’d like to welcome Hemant on to the stage to talk about RMS, thanks Hemant, and Matthew Grant as well is joining him.
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Risk Management Solution, Inc.
Hemant Shah, President and Chief Executive Officer, RMS Good afternoon I’m Hemant Shah the Co-founder and CEO of RMS, I’m joined in this presentation by my colleague and friend Matthew Grant who is Global Head of Client
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Development. And during the Q&A Bobby Soni will be joining us, Head of Platform at RMS; we’ll also be joined by Stephen Daintith for the Q&A session of this presentation.
Now catastrophe risk is increasing and doing so on a global scale. This is a secular trend, it’s being driven by an increase in exposure in flood plains in coastal areas, exacerbated by climate change, the rise of the mega city and economic development in emerging markets and in particular in Asia, and ever interconnected inter-economic systems increasing the correlation of consequences regionally and globally of these events.
We’ve been thinking quite deeply about catastrophe risk for 25 years, I was a kid when we started the business out of graduate school at Stanford University and this is actually our 25 year anniversary as an organisation. We incorporated in June of 1989.
And this photograph is a bit embarrassing but this is a picture of me and my Co-founder and Professor Wiemin Dong in the corridors of Stanford University proudly showcasing our first product and that baby shipped on five and a quarter floppy inch diskettes.
If you look at the progress we’ve made, one measure of progress I guess is the quantum in sophistication of the models. Our first product shipped on 17 of these five and a quarter floppy’s, if we were to ship version 13 of Risk Link on five and a quarter it would need a cargo container to hold all the media and we’d be installing disks for a very long time.
Now when we started with that version one product all it could do is quantify earthquake risk in three cities of California - San Francisco, Los Angeles and San Diego. Today after 25 years of innovation we have a catalogue of 176 models covering 50 countries throughout the world against a wide range of perils from a range of natural hazards to terrorism risk to pandemic diseases and even to longevity risk and for wide range of classes of exposure throughout the world.
We also as a business now have a global footprint, 25 years ago it was five of us working out of my apartment in the San Francisco Bay area, we now have over 1,100 colleagues and a global footprint that faces our global client base which does business in North America and Latin America, across Europe and throughout Asia Pacific so truly a global market facing business around the world.
We lead the industry we helped created; we started by adding customers and actually defining the very market that we now serve. Today we have 300 institutional clients and thousands of users who interact with our software on a daily basis.
We are very penetrated and robust in our core markets and growing there but also seeing opportunities in Asia and emerging markets as well. And even as we continue to deepen our understanding of the perils we model today, we do do research and development and are extending view into new classes of risk such as climate change risk, supply chain risk and other categories. And are investing significantly to deliver RMS(one) as a platform to this global market place to increase its efficiency, innovation and ability to add value to our global society. A very innovative company, driving change, 25 years after we started this business out of Stanford University.
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The core business of RMS as we’ve discussed before is quite resilient, showing modest growth with strong business fundamentals. The heart of the business model as a subscription based business model where clients licence on an annual basis, increasingly with multiyear contracts, our suite of underlying analytics and intellectual property expressed as catastrophe models and related data. Our subscriptions rates remained at 95% plus indicating the underlying resilience and strength of the business.
Our business has very significant client relationships, 75% of our revenue comes from institutional clients paying us annual fees of $1m per year or more. However we are diversified, our largest single client is less than 3% of the business and we’ve a number of large clients who inform our business and drive our priorities.
As you know our focus is on the insurance and reinsurance vertical market which increasingly includes alternative risk capital in the form of hedge funds and institutional investors deploying capital to this sector. And it is, as we said, a very global business, 40% of our revenue comes from customers outside North America, a very global footprint, not only the models we build but the customers we serve.
The core business continues to be a very significant priority from RMS as we invest, we have as Matthew will describe in more detail in a few minutes, we have a significant release coming in 2015 with RiskLink 15 delivering upgrades to two of our most significant models. We have a very robust pipeline of high definition models which will be coming to market for the first time by the end of 2015 and then thereafter. And we have a significant amount of underlying model research and development to expand our ability to articulate exposures and risks across a range of perils.
So I’d like to just ask Matthew to deepen our collective understanding of this core business. Matthew?
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Continuing Strength in the Core Business
Matthew Grant, Group Executive, Global Client Development Thank Hemant. Well as an engineer I’m delighted to be back here again this year talking to you about something that is very close to my heart and very important to the future of the RMS business. And we’re going to be looking at a three year period of model releases, this is probably the richest catalogue of models we’ve had in any one time at RMS.
But first of all I just wanted to just talk to you about the people that are building these models and as you can see we are continuing to invest in our model development organisation and these are people that are dedicating their lives solely to building out models.
Now they’re not only important for building the model themselves but with increasing requirement that insurance companies have to truly understand their own risk they themselves are employing more technical people in their own organisations.
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Investor Briefing 2014 Growth through Digital Innovation
And so our modellers have also got to develop very close relationships with our clients to help them understand the models. And they do this through seminars, workshops and publications such as the white papers that we produce through our Horizons publication.
So starting with 2014 in February this year we released our severe convective store model more commonly known as tornadoes and you may recall over the last five years there has been a very active series of tornadoes in the US. In fact tornadoes are the second highest catastrophic risk in the US, very difficult to model but from a modelling point of view we do now have the benefit of very good claims data particularly for these extreme events. And the model we release in February has been incredibly well received by our clients.
We’re also delighted to be able to work with China Re, the largest reinsurance company in China. And by working with them and using their own loss experience, when we released this model we were very confident that it aligned with the expectations of the market for the risk and the risk of typhoon in China is not just wind but 80% of the loss actually comes from flood.
We also this year are releasing a new type of product and this is aimed at markets that don’t quite justify building the full probolistic models but nonetheless when we hear demand from our clients for tools to help them underwrite. So this year we have released a global tsunami footprint and are also starting to release a series of flood maps to help our clients in Asia.
So looking forward to 2015 but not too far forward because work is already near completion on these models, we are releasing in two territories that are particularly important to our clients. 70% of the global property premium insurance incomes come from Europe and the US and with the benefit of the loss experience from Hurricane Sandy which I’ll be talking about in a minute, we’ve been able to bring out the ninth generation of our North Atlantic hurricane model which covers the US and Caribbean. And also we extended the lines of business that this covers to areas such as auto and marine so we’re extending the addressable market for this particular model.
Europe is very important, European windstorm is going to be upgraded again in spring this year and we already work with the majority of European insurance companies and are generally recognised as having the best windstorm model in Europe. Again we have the benefit of these relationships to give us very good claims data.
But Europe is also important because of the Solvency II regulations and these are now finally starting to make an impact and we’ve already seen increasing demand from medium and smaller sized insurance companies in Europe that we’re not already working with. So we expect to see a continued demand in growth from our licensing of European windstorm. And as you can see in terms of support for existing revenues are a key part of our subscription model, this related to 25% of our licensing revenue.
Now looking forward to the end of 2015 or later in 2015 we are very much looking forward to the release of our high definition models, these are one of the key reasons for bringing out RMS(one). HD represents an entirely new category of models, to give you a sense as to why these are important if you think about flood and you may already be
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seeing a theme through this of increasing relevance of flood in the insurance market, if you think about flood a few metres there can make a very big difference in terms of underwriting a loss.
And it’s only really possible to get that kind of resolution with these types of high definition models with very significant computing power to be able to get the results that people need to be able underwrite with European flood. We’ve got 13 countries coming out, the model will measure the correlation between those countries which again is a key area that we need to have the high definition models for and of those 13 models only three of them are already models that we have. So you’ve got an opportunity to sell ten more models and with the majority of these there is no existing credible flood model out there.
We’re also releasing an upgraded model for Japan typhoon, again working very closely with the insurance companies out in Japan with all of whom we have relationships, and then finally taking advantage of claims data from Christchurch to upgrade the New Zealand earthquake model.
And work is also going on just now, so we don’t wait until next year, work is going on for our releases in 2016, one of the great nuts to crack in modelling for insurance is the US flood for which there is no model today out there in use by the insurance market.
So work is well underway for our US flood model plus an important update to the US earthquake and in addition expanding our footprint in Asia for both earthquake and typhoon, consistent with the expansion that Hemant mentioned that we are making into Asia.
Now one thing as we look at those model releases is if you think about what’s happened with RMS(one) we are actually still on track for the release of the models so despite the delays we are still releasing these models against the original schedule. Now to support the models we need to have a very robust team in place behind that, we’ve extended our presence in Singapore, we have increased the number of people that we actually have responding to our client’s questions and as I mentioned these questions are getting more and more technical.
And so we don’t try to solve a problem just with bodies on the ground but we’re also giving our clients access to our knowledge database through a self-service portal called Owl and we’ve already got half our clients using this, we get about 300 enquiries a day and we’re increasing the turnaround time on what are actually pretty tricky questions to be able to address.
So we thought it might be useful to give you a case study to sort of bring to life how these models are used in practice by our client and use Hurricane Sandy. Now Hurricane Sandy was quite an unusual event through the culmination of the storm track, the winds that actually made land fall south of New York were quite low, it was barely even a hurricane but it already had a significant hurricane when it was offshore. And this culmination of high wind speeds offshore and the shore conditions created this very strong storm surge which was actually about 4 metres of storm surge in Lower Manhattan when it made land fall.
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And one of the things our clients need to very quickly when an event occurs is to work out what their loss is from this event as your colleagues who are following the insurance market phone up and ask them for their loss numbers.
So we work closely with our clients after an event providing them the key information they need to be able to make those assessments and in turn we get back from them a lot of very useful information about the kind of losses they are experiencing. And in many ways this is when RMS is at its best, we’re sort of on standby 24 hours a day to help our clients, we’re sharing information, we’re building up the aggregate information to be able to support the industry.
And it meant that within two weeks of Sandy we were able to release our one and only loss estimate for Hurricane Sandy of between 20 and 25 billion and subsequent to the event as real claims were coming in we had a very high correlation between the work that we helped our clients with to be able to estimate their losses and their actual losses on the day.
One of the areas that has come out from that, I mentioned earlier on we’ve been using the actual losses to help build the most recent release of the North American hurricane model, but this is increasing recognition of the impact of flooding in hurricanes and typhoons, but particularly in hurricanes where we can actually make up about 50% of the loss. And so the outcome from this is not only to be able to have very good claims data for the new models but also to continue working with our clients for many years afterwards to help them assess their own claims management and data gathering work but actually now we’re seeing more and more work outside of the insurance industry.
Hemant mentioned last year the work we’ve done with the Metropolitan Transport Authority in New York helping them with the catastrophe bond for storm surge. More recently we’ve been supporting the risky business initiative sponsored by Michael Bloomberg which is looking at the impact of climate change and increased hurricane activity on the US coastline and the material part of the analysis they’re doing for that.
So we hope you can see as we look forward into the next couple of years we expect to see more opportunities to apply our innovation in this core modelling area. We’re seeing more and more collaboration with our clients and it’s generating more opportunities for business across this area of modelling for RMS.
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RMS(one)
Hemant Shah, President and Chief Executive Officer Thank you Matthew. Our original goal was to release RMS(one) in April of 2014 and following the postponement of the release we made a commitment to our clients that we would not rush RMS(one) to market and we would take the time to get it right. We absolutely intend to fulfil this commitment and in order to do so we have decided to simplify key elements of the design in order to improve the performance, the functionality and perhaps most importantly the openness of the system so that it can fulfil its full long term potential.
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We are now implementing a revised plan for RMS(one) which will have four key implications. First as Stephen mentioned we do not now expect any new meaningful revenues from RMS(one) until fiscal 2016. Second our immediate focus is to meet the needs of our six joint development partner clients; we are working closely with them on an agile programme of incremental deliverables throughout 2015. In addition we expect that this lower risk approach will subsequently meet the needs of our broader client base.
And we anticipate that these clients will explore and then adopt RMS(one) in stages over time. We know that many of our clients are going to continue to use existing RMS products that are in market such as our RiskLink product for years to come and we’re going to be supporting these in market products accordingly.
The specific schedule on what capabilities will be available when are still being determined more broadly, but at a minimum RMS(one) will be delivered in a way that enables us to enable our first high definition models, as Matthew mentioned, European flood, Japan typhoon and flood and New Zealand earthquake broadly to our client base by late 2015.
And finally as we deliver our HD models via RMS(one) in 2015 and then thereafter we will ensure continuity with existing modelling relationships. Clients who wish to licence and pay only for accessing and running our catastrophe models will be able to do so. And we are going to be providing further information and updates to our broader client base inclusive of packaging and pricing options in early 2015.
Now we are confident that RMS(one) will, over time, deliver exceptional value. You’ll note that this slide is exactly the slide that I used last year to summarise the value proposition of this very significant undertaking. If anything over the past year our work has further reinforced the relevance and the value proposition of these capabilities and our clients' interest in realising these benefits.
RMS(one) is going to enable us to innovate in new ways and deliver high definition models, such as the one that Matthew described, to our customer base. In addition it’s going to enable our clients to take control of their own view of risk, that means not only running our models but making deliberate modifications that reflect their own proprietary insights. It also means the ability to develop and implement their own proprietary models and access a growing ecosystem of third party modelling capabilities from third parties in an ever richer ecosystem of capability for this vertical market.
In addition with RMS(one) clients will be able to embed these analytics deeper into their business, driving real time decision support that allows them to allocate capital more efficiently and drive increased returns for their shareholders through better decision making from point of sale to capital. And finally it can serve as a system of record for all exposure and all risk enabling innovation and risk management across the business not just in catastrophe exposed lines. There’s a very powerful and compelling value proposition that has been reinforced by our work with our customers over the past years.
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Now as we’ve articulated our new plans our clients and our partners remain engaged. We continue to work closely with our six joint development partner clients and are increasing our level of collaboration to make sure that we meet their needs. Over the past few days and weeks I’ve had the personal opportunity to meet with senior executives from each of these joint development partner clients and our teams have been briefing them in great detail about our new plan.
And from here on out we will demonstrate concrete progress over tight cycles and splits and our development partners will have the visibility they need to determine when RMS(one) will be right for them and how they should be best staged in order to optimise for their requirements.
In addition with respects to the broader plan for our clients we have begun to inform them about our renewed plan for RMS(one) and we have indicated that we will be providing further details about the plan in the coming months about what they can expect and when, inclusive of how we will package and price the product.
Many of our clients have been very happy to hear from us that RMS(one) will now be offered on a more modular basis. If a client wants to use RMS(one) solely as an environment to run our models we will make it easy for them to do so in a matter consistent with our existing relationships. If the client wants to embrace the broader value proposition of RMS(one) say as an exposure risk management system of record of course they will be able to do so and do so in stages, it will be their choice.
In addition we remain committed to ensuring that RMS(one) delivers a wide range of third party models and software application that enables a true ecosystem of capability for this industry. In April of this you’ll recall that we announced agreements with nine partners inclusive of 100 third party models that will be available over time via RMS(one) in addition to our own.
In late June we additionally announced a partnership with United Nations and World Bank to make RMS(one) available to a broader risk management community of interest throughout the world. And throughout this summer we had a whole series of heavily attended what we called construct seminars focussed on the needs of developers and showing them how RMS(one) could be a platform to enable them to build models, applications and tools for this industry.
We’ll be working with our ecosystem partners in the coming months to plan for the availability of their models and applications as we complete RMS(one) and our goals remains to make our partner’s models available on timelines that are consistent with our own.
We did not deliver RMS(one) when we said we would and I know that I have let down many of my clients, my colleagues, my partners and my investors who are counting on us to do so. We are engaged in a very ambitious and very innovative journey, it will take time and we will get this right, the prize here is not incremental improvements, but a fundamental ability to make a positive impact on a trillion dollar global risk management industry and contribute to a safer and more resilient planet.
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And as we make progress know that our core business catastrophe modelling remains vibrant, has never been better resourced and continues to deliver market leading models that are highly valued and respected by the global market we serve.
And with that we’d like to take your questions and hopefully provide you with some answers so I’d like invite my colleague Bobby Soni up and Stephen I think you’re going to join us as well.
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Questions and Answers
Martin Morgan, Chief Executive Okay William
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William Packer, Exane BNP Paribas Just a couple of questions from me please. Firstly obviously there’s been a disappointment with the delay but that hasn’t existed in a vacuum, could you talk about how you see the competitive environment has developed, AIR are developing touchstone product, others are making moves, could you kind of update us where you see yourself versus the peer group and whether that has moved unfavourably for you?
And secondly you mentioned in the presentation customers now have the option for a more modular choice, shall we think of that as materially reducing the addressable revenue opportunity?
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Hemant Shah, President and Chief Executive Officer I thought there was a third question coming?
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William Packer, Exane BNP Paribas No, thanks.
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Hemant Shah, President and Chief Executive Officer On the second question no it represents a diversification of our opportunity to add value to our customers. On the former point we are the market leader but we do have vigorous competition and the problems we are aiming to solve are problems that are top priority problems for our global clients all the way to the C-Suite of these institutions.
That being said the reason our clients have said take the time and get it right is that they want this problem solved fundamentally and not incrementally and that’s what we’re doing with RMS(one). And we do believe that with the improved plan that we have in place we are going to be able to deliver the kind of fundamental innovation that doesn’t just deliver an incrementally better cat modelling product, but delivers the kind of exposure and risk management platform the industry needs to remain innovative and
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competitive itself and extend its relevance. Matthew do you want to add to the competitive landscape.
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Matthew Grant, Group Executive, Global Client Development Can I just say we continue to get a very strong support from our clients and from a competitive point of view we of course take it very seriously, but from a material point of view I wouldn’t say at this point we’ve seen anything that has very serious concerns for us other than just keeping us focussed.
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William Packer, Exane BNP Paribas And just to come back on one final point there’s been talk of you obtaining some outside help to assist you of certain elements of the project that you found challenging can you kind of talk ups through the implications of that, what kind of areas you’re getting help with from third parties?
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Hemant Shah, President and Chief Executive Officer We are always on the lookout for talent, we have brought in as part of some of the changes we made this summer some additional talent into the organisation to help us with this simplified approach and to make sure that we get it right. The bulk of the resources that are building RMS(one) remain RMS employees and we’re going to continue to search out the best talent we can. But yes we did bring in some additional expertise in order to help us develop this plan and execute it through its duration.
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William Packer, Exane BNP Paribas Thank you.
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Analyst, Goldman Sachs A couple of questions, your articulation on the core business in this sort of high release of new models, should we be thinking that you might accelerate from that 5% organic growth you’ve done in the 11 months this year? That’s my first question.
The second one is back to this model of pricing point, are you stepping away from the usage based price then for RMS?
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Hemant Shah, President and Chief Executive Officer Matthew do you want to take the first?
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Matthew Grant, Group Executive, Global Client Development
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Yes so we definitely see more opportunities in terms of the growth out there, to a certain extent the speed of growth is determined by the size of the growth in the insurance market in these areas beyond where we’re already providing coverage. I think it’s too early to put a specific figure on whether or not we have any different guidance around the actual numbers themselves.
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Hemant Shah, President and Chief Executive Officer On the usage pricing we are committed to offering pricing that is commensurate with value. We are continuing to think very clearly about what kind of packaging and pricing we need and we’re going to be updating our clients in 2015. There will be some element of user based pricing that continues, but there will be more packages and configuration on the pricing alternatives that we offer our customers.
Ultimately we need to ensure that what we offer, the value is aligned with what we’re delivering and the pricing reflects that and we arrive at a fair outcome. So we are going to continue offering usage based pricing but we’re considering more packaging and pricing options to give to our customers. And that will become clearer over the next few weeks and we’ll be able to discuss that with our customers in early 2015.
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Nick Dempsey, Barclays Capital I’ve got three questions please. So just to follow up on Will’s question about competition, when you listen to the risk talk about AIR they’re talking about A, gaining share and B, they talk a lot more than you guys do about the cat bond market, so it that somewhere where you’re missing the boat and they are cleaning up in the capital markets business?
Second question just on the £35m that is capitalised in this past year I just wonder if you can help us out to understand a bit more how that breaks down. I guess it seems to us like quite a lot of money, in terms of headcount, tech and how that is spent?
And the third question is just on the core business, you talked about multiyear contracts, does that give you very good visibility on this coming year or put another way what proportion of your expected revenues this year is already done?
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Hemant Shah, President and Chief Executive Officer Okay, on the first point I think our competition is misguided, you know we have great visibility into our relationships with our customers and we are growing our core business. With respects to the capital markets we have a slightly different perspective as they do as to how to think about delivering real value to that market. We’ve been emphasising not counting the number of transactions that we’re hired to support which has a kind of competitive dynamic driven often by price, and thinking very clearly about how to deliver software to the actual institutions that are underwriting these bonds and managing growing portfolios of these contracts.
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So we are emphasising and growing relative to our competition in providing software and solutions to help them underwrite and manage these bonds as opposed to just a count of how many transactions one supported with a 144 A placement.
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Matthew Grant, Group Executive, Global Client Development Question two okay capitalisation well we employ over 200 software developers now in RMS that over the last two or three years have been helping us develop the RMS(one) software. And in fiscal ’14 the vast majority of the £35m is their time and salary costs and bonus costs and so on and they do not come cheap in Silicon Valley so that’s that.
And then we’ve also added on to that the third party consultancy software expertise that Hemant mentioned this over the course of the summer, the time and the fees from those as well. But the bulk is the people that we employ and then you’ve got that piece added on top which is the consultancy expertise.
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Hemant Shah, President and Chief Executive Officer And Nick there was a third question that I have to confess I lost track of.
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Nick Dempsey, Barclays Capital Yes so just about the core business you said you have an increasing number of multiyear contracts, does that mean that increasing amounts of the next year revenue are already done so you can have higher confidence on the growth rate for that year?
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Matthew Grant, Group Executive, Global Client Development Well certainly we’re maintaining the multiyear contracts, they give us visibility going forward, there are things outside of those contracts particularly as you start looking towards RMS(one) that we expect to see the growth on. So I mean yes it gives us certainty up to some point but there’s always the uncertainty beyond that in terms of the future growth.
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Hemant Shah, President and Chief Executive Officer One of the dynamics is because we’re fortunate to have a high renewal rate we always have a fair amount of visibility whether it’s a multiyear contract or not we work very hard to retain our clients' business and renew the relationships. A lot of the future outlook on revenue comes not only from the renewal and whether that’s contracted on a single or multiyear basis, its clients' decisions on what additional models and products they take on.
And as we release new capabilities there’s always uncertainty in our projections around how much take up there will be, say in the new European flood model next year, or what the upgrade to the Japan typhoon and flood model might mean. So that’s where I think it’s less about one year or multiyear because we have the 95% plus renewal rates, it’s
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more about the product pipeline and clients' appetite to licence more models as part of their package from us.
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Matthew Walker, Nomura It’s really just on trying to size the valuation of this business so the question is if this project is successful could it generate revenues which are the same size as the core business or higher and what kind of margin profile will it have, is it below 30% or is it above the core business margin?
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Hemant Shah, President and Chief Executive Officer Well it’s difficult this time to provide long term forecasts. We are certainly investing in RMS(one) to enable us to sustain and grow our core business by delivering ever more powerful models to our customers. And because we believe that this platform will also fundamentally expand the value we can add above and beyond the models themselves and offer a larger addressable market over time.
So there is a fundamental and pretty compelling long term investment thesis behind the scale of the investments we’re making. Stephen do you want to …
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Stephen Daintith, Finance Director Yes I think that’s right I think it’s too early to call, I mean we believe in the long term investment proposition and are confident about that and it will depend on sort of you know the rate at which clients move over to RMS(one), Hemant talked about that earlier, it’s a lot more sort of flexible approach now. But we expect this to in time be a very attractive you know part of the value of RMS.
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Hemant Shah, President and Chief Executive Officer Way in the back with the glasses on the forehead head, you’re easy to spot.
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Patrick Wellington, Morgan Stanley Couple of questions, RMS the core business looks as though it’s slowed down in the second half and actually your growth is about 2 to 3% so can you talk a bit about that?
And then secondly there’s still this perception of RMS(one) being a different business to RMS but of course it’s the same clients and your answers point out that this is the future if you like of RMS. Now given that your clients appear over the last 6/9 months to have rejected your RMS(one) product architecture and to some extent to have rejected your pricing structure what does this tell us about your relationships with your core RMS customers?
And in that context if you go back to last year’s presentation you had at this stage, 16 I think, clients testing beta testing the product and then 30 by December and this year
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your efforts are going to be focussed on the 6 core development partners. So what are those other customers, 24 or so of them doing right now, have they said we’re not interested, we want to go away, what’s happening with them?
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Hemant Shah, President and Chief Executive Officer Well we are very close to our customers, we’ve very significant relationships, they go all the way to the top of these institutions and we talk to them almost daily. They are clearly telling us that what we have undertaken is very important and valuable and we should take the time to get it right.
The focus on 6 development partners is actually greater than the number of joint development partners we spoke about a year ago and our focus is to make sure that we meet their needs, deliver to them in staged incremental releases in 2015 and then we will be subsequently be making this more available broadly to our customer base in this modular approach.
The customers that we’re talking to, which are many, are telling us that yes take the time, get it right, deliver it in stages and ensure that it fulfils the significant capabilities that they needed to in order to be their platform for how they managed exposure and risk and this is the plan that we formulated to do so.
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Stephen Daintith, Finance Director Yes of the first question well you’re quite right we reported 6% growth for the first 9 months and then 5% growth for the first 11 months of the year. And we shouldn’t forget that there’s a portion of RMS revenue that is consultancy revenue and it so happened that in that first 9 months we’ve had a decent chunk of consultancy revenue that wasn’t repeated in the next two months after that.
So you take a little bit of a blip from that, I mean we guided at the start of the year in November of last year at mid-single digits which is where we’re going to finish so I wouldn’t read too much into that slight difference between the sort of 6% and the 5% over those 9 and 11 month periods.
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Patrick Wellington, Morgan Stanley But are saying that outlook for core RMS is unaffected by what’s happened to RMS(one) or is so much effort and customer focus gone into RMS(one) that - does this dilute the prospect for if you like core RMS over the next year or so?
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Stephen Daintith, Finance Director I don’t think so I think the mid single digit growth we’ve seen this year we expect that to be a regular part of RMS’s core business performance. But was we get to those RMS(one) releases and clients start adopting, I think the changing mix will - approach to your earlier point that RMS(one) will become part of the way of effectively using RMS
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models and the core models so there will be a shift there in the revenue mix, that will happen over the next five years.
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Steve Liechti, Investec Could I just carry on a bit in terms of the customers who are working with you, you’ve referenced the six, am I right in thinking this time last year it was four, can I just ask that first?
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Hemant Shah, President and Chief Executive Officer Yes.
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Steve Liechti, Investec And you gave a much broader spread of customers last year in terms of numbers and you said that approximately I think over 40% of your business overall, of those customers, how many of them rejected the product now? And can you give us any comparable figures that you’re working to now?
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Hemant Shah, President and Chief Executive Officer Well no one has rejected the product because we haven’t delivered it yet, so the relationships we have are driven by our core modelling suites and those are in market products. And we decided not to release RMS(one) because we felt it wasn’t ready and we didn’t want to deliver it until we really felt confident that it would meet their needs.
We are taking a more cautious approach, we are very focussed on the needs of these significant joint development partner projects, we’re working very closely with them to make that we get this right.
We have an agile - and very detailed plans we are developing with quarterly staged deliverables and as we deliver to them we will then be in a position to articulate our broader release plans for our customers, which we expect to be able to do in early 2015. And as we discussed we know that at a minimum those broader release plans will include the availability of RMS(one) for our first three high definition models by the end of 2015. But we will providing an update on what more we expect to be able to provide in early 2015.
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Steve Liechti, Investec So in terms of your beta partners have any of them dropped out and said we don’t want to be a beta partner any more?
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Hemant Shah, President and Chief Executive Officer
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I think the question is we have decided to focus on the joint development partners and that is the right focus for us right now. And the clients that participate in the beta programme remain very vibrant clients of ours and they’re keenly awaiting when we will be ready to deliver RMS(one) to them. And we’re going to make sure that we don’t deliver it until it’s ready and that will be determined as we work through 2015 with our joint development partner clients.
They remain customers of us, we have not just those beta clients, they all remain RMS customers and they are keen to ensure that when we do deliver it meets their needs and we’ll be getting back to them in early 2015 with those staged and incremental release plans.
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Steve Liechti, Investec Thank you. Last question just on the HD products that you mentioned, just to be clear those HD products do they work without RMS(one) or are they dependant on RMS(one) as a delivery system?
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Hemant Shah, President and Chief Executive Officer They are designed to be delivered in RMS(one) which is why we feel very confident that saying at a minimum RMS(one) will be ready by the end of 2015 to deliver the first three high definition models, Euro flood, Japan typhoon and coastal flood and New Zealand earthquake by the end of the year.
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Alex DeGroote, Peel Hunt Thank you, just one question on the financial model please. Best guess on operating break even or when this business will be margin accretive taking the starting point as being the 25% margin that you just announced for FY'14?
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Stephen Daintith, Finance Director I think I was asked, well I was asked this yesterday, 2018 is what we’re looking at now we’re adopting, as to Hemant’s earlier comments, a more cautious view than perhaps we were previously. And recognising the fact that there will be sort of, there won’t be a big bang approach, a lot more client flexibility and therefore that does affect the adoption rates so I look to 2018 to get that improvement in margin.
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Chris Collett, Deutsche Bank Hi, I wonder if I could just ask some technical questions. One was just about the 200 developers - who it sounds from what you’ve been saying have been working very much on a waterfall basis previously and now they’re moving much more towards an agile development with quarterly sprints. Is there a risk that you’re taking effectively a group of people who’ve been sort of trained one way and then repositioning them for a different way of developing?
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And then second could you just give us a little bit more detail about some of the architecture of RMS(one) particularly around the database, the extraction layer, what the G… is?
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Hemant Shah, President and Chief Executive Officer I think this is probably not the right time to talk about the architecture. But to your question we are shifting yes from a waterfall approach to an agile approach, we are already implementing that approach through the summer biweekly sprints, scrum teams defined, dedicated resources per team, embedded to the architecture.
Many of our engineers have had experience in these methodologies before, we’ve brought on a whole new agile practices team including extra consultancy coaches and new expertise that has a lot of experience in building in this much more progressive way. And we’re already on several iterations in on that methodology and it’s already yielding results.
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Ian Whittaker, Liberum Just one question just for Hemant, maybe a bit of an unfair one - but how confident are you that there won’t actually be any further delays in this scheme and that this essentially is now the final timeline? I think most people would be willing to accept your view that RMS(one) adds long term value, the question has been of course there’s been delay after delay after delay. So what reassurance can you provide to people that actually now sort of this is the final schedule that you’ve got and there won’t be any more significant delays?
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Hemant Shah, President and Chief Executive Officer Well we’re going to show people not tell them, this is about starting to deliver to our joint development partners on this agile programme of development. And as we do we will demonstrate that we are delivering and then we will be in a position to make clear broader release plans that show how we’re going to be rolling this out to our customers. But we are very focussed on execution and demonstrating concrete progress for every quarter here with those JDP clients and we will be showing people that we are making progress rather than taking about it.
And as you’ve seen we are being prudently cautious about making bold statements about precise functionality as to when with an exception that we will be able to deliver our high definition models by the end of 2015 to our broader client base.
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Ian Whittaker, Liberum And just a quick follow up question, just in terms of your new plan sort of is there anything baked in there for potential delays just in case you encounter some other problems?
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Hemant Shah, President and Chief Executive Officer The plan is a process; there are always possibilities for unexpected surprises. We are we think being prudently conservative with our view that we can deliver, at a minimum, our high definition models by the end of 2015 on RMS(one) and as we execute into 2015 we’ll be able to communicate what other capabilities we’ll be making broadly available to our customers and when as we continue to execute.
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Martin Morgan, Chief Executive Time for one last question anyone, no okay. Well we’re going to break for coffee now - see you in about 20/25 minutes, thank you very much.
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Coffee Break
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Euromoney
Christopher Fordham, Managing Director Well good afternoon everybody. I am Christopher Fordham from Euromoney Institutional Investor. And at Euromoney we’ve been on a journey into the digital world for many years now, so we thought we would use the opportunity of this investor briefing to share with you what we have been doing, and to show you some of the products that we have been launching.
So after a brief introduction from me, I'm going to hand over to Ben Jones on the far right. Ben is our Chief Technology Officer who has been with us for about three years, and Ben is very much the brains behind our Delphi platform which you've been hearing about for quite a long time now. And he is going to tell you all about that.
Ben is then going to hand over to Bashar AL-Rehany on my right who is the CEO of BCA Research. BCA is our largest business based in Montreal, and it accounts for about 20% of our operating profits. And Bashar is going to tell you about how we’re using that Delphi platform to totally transform his business into a very much more sexy and interactive business.
And finally Simon is in the middle there. Simon is the CEO of Digital at Institutional Investor, and Simon is working on I think the most exciting launch that we are doing right now. Two interesting things about Simon, the first is he works on the - comes from the events side of the business which shows that Events and Digital very much can work hand in hand. And secondly what he is doing is not being launched on the Delphi platform, so not everything at Euromoney is about the Delphi platform.
Now today is very much not about showing you numbers. We will be giving you a full trading update on 30th September, but I just wanted to show you one slide to capture how our business has been transformed over a decade or so. If you go back then,
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advertising was our largest source of revenue. Subscriptions accounted for only a quarter of our revenues. And now the subs are over half the revenues and advertising is much less important. Events makes up most of the rest of the business.
People often ask me whether I can see a day when Euromoney is going to be entirely a subscription business, to which I think the answer is probably no. We very much like events, and you may have seen that we recently acquired the Indaba event in Cape Town in February. If you happen to be in Cape Town in February please come along, it is a fantastic event.
Digitally our revenues are growing from 10% to over 50% in that time, and I think the quality of earnings and the quality of cash flow in Euromoney has been transformed over that time as well.
So we’re now really two years into our investment in the Delphi platform. And BCA and Global Capital both launched on the programme in the spring. And so far our results have been very encouraging. But this hasn’t been done blind; every step of the way has been guided by user groups, by our clients, by lots of research to ensure that the products that we are building do meet the needs of our clients.
We see investment in Delphi as absolutely at the centre of the future of the growth of Euromoney, and we now plan to roll it out across the rest of the organisation. So far our investments have been on time, on budget and meeting the expectations of our clients in terms of quality. We’re now launching a whole series of products across the - on the platform itself, no fewer than three at BCA. But we’re also launching things in telecoms, in law, insurance as well, and we launched our database of RMB bonds in April. It’s early days but so far that is doing pretty well so far too.
Our investment in Delphi so far is about £10m and the cost annually of that platform is about £4m, of which half is opex and the rest is depreciation. The future cost of Delphi is dependent in many ways on the quality of the ideas that come through from our businesses. We are very ambitious to use it to launch lots of new products, but the strength of the investment is dependent upon how strong those ideas are.
We believe that we are building a sustainable advantage through Delphi, because if you think of a business such as BCA it has a myriad of competitors, certainly none of them have invested up until now, and I don’t think many of them actually have the scale to make this level of investment.
The value of Delphi to us is going to very much come from increasing the value of our content for our clients. We know that increasing levels of personalisation leads to increased user engagement, which in turn should lead to increased levels of retention, and in turn that should also lead to increases in prices as well. This is why we are actually very excited about the Delphi platform. It’s going to help to break down some of the silos in the company and dramatically increase our speed of launching new products and bring down the cost as well.
I'm not going to embarrass ourselves by saying how long it took us to launch Steel First, a product that we launched pre Delphi, just to say it was too long and it was too
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expensive. One of the difficulties of Ben’s job is he has to manage a whole series of legacy content management systems across the entire organisation, and once we’ve got most of our content on the Delphi platform, they can all be scrapped. But ultimately if we can embed quality new products into the workflows of our customers, that’s the way we will increase the value of Euromoney.
And now I'm going to hand over to Ben Jones. Thank you Ben.
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Transformational Technology Investment
Ben Jones, Chief Technology Officer Thank you Chris for - it’s nice to attend a presentation where I don’t have to crawl under the table and plug in wires myself for once.
So what is Delphi? It’s an ambitious and innovative 18 month programme that involved over 300 people across four countries to deliver both a new global platform as well as two new products for our group. The platform enables the creation, manipulation, presentation and storage of all our content in one place for the first time. Journalists now have an intuitive authoring interface to create content and have greater control over its presentation. There is an improved discoverability through semantic tagging and search, and our customers can now personalise their content through configurable alerting and dashboards. Mobility is also key. The content is now designed to adapt to whatever devices our customers use, much to my dismay even Blackberries.
Delphi has furthermore been a significant internal vehicle for change. It’s shown we can deliver large scale projects to time and budget. It’s enabled the introduction of an agile methodology and iterative product development. Furthermore I've also been able to bring in enterprise class toolsets, and to attract and retain high class technical talent.
So what is the semantic web? Pretty hard to describe in the two minutes that I have, but it’s part of Tim Berners-Lee’s original design for the internet. It’s a key part of Web 3.0 and essentially semantics provides the web with context and meaning. It’s essentially tagging and linking what was once disparate content. For example, when we write about Janet Yellen we understand her position in the role of Chair of the Fed.
Bashar will talk in a moment about BCA, but I just want to spend one minute talking about the other product we launched which was Global Capital. This was the merging of EuroWeek, Asiamoney and several other existing products into a single new brand. Midway through the project we were also able to adapt and actually launch a new channel called RMB. Unlike Steel First this didn’t take us six months, we were able to do this in less than six weeks.
After six months the early signs are very promising. As with all tech products or projects, one of the keys is actually getting internal buy-in. We’re seeing the editors already really happy with the authoring interface that they have. Traffic is up by more than a third year on year. Trials have nearly tripled. Mobile usage has gone up from
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virtually nothing to represent nearly a quarter of all visitors. And the RMB product is already being upsold.
Over the next two years our aim is to horizontally roll out the rest of the products. We’ll be rolling out both the authoring interface and the search component to all of our publishing titles by the end of FY'15. There will be further product launches for II, Euromoney and MB, and we aim to have all of our products live by the end of FY'16. Interestingly we’re also working with the FT, Bloomberg and Reuters to try and establish a common financial publishing data model for linked data. We really do believe that this is a truly innovative investment.
I'm now going to hand over to Bashar who will take you through the BCA product.
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BCA Research - A Digital Transformation
Bashar AL-Rehany, CEO Thank you Ben. Good afternoon ladies and gentlemen. You heard from my colleagues with perfect accents and easy names to pronounce. I have the most difficult name of the executive management of Euromoney, the thickest accent. Don’t blame me, blame my parents. I hope you will understand.
It’s great to be here to present the innovation and what we’re doing at BCA, and also to note we’re celebrating our 65th year in business. The outline of my presentation will be to give you a background of BCA. I’ll talk you through what I call the three phases of the journey of BCA, the innovation, I will discuss with you what does Delphi mean to us, then share two product examples and explain to you those two products. And close with what does all that mean for us in the future.
We were established in 1949, based in Montreal. So Montreal is Quebec, so I appreciate was going north of border. We had two of those in our lifetime, but Canada prevailed.
BCA is the leading provider of global independent macroeconomic and investment advice. Christopher called it sexy. I don’t know what’s sexy about research, but we are a global independent macroeconomic research and investment advice. We employ 150 people in eight offices around the world. We have around 70 in the editorial team headed by 16 managing editors, or for the industry our chief strategists, economists. We produce 17 services and products and for the people that know us and read us and our clients, we produce the equivalent of a book, 300 pages, every week. We are globally diverse with clients in 90 countries, 54% in the Americas, 36% in EMEA and 10% in Asia. We are a resilient company, 66% of our revenue has been with us more than five years.
The journey, what has the journey been? The journey is the beginning, it’s all about content. We used to write the content by hand, actually do the charts by hand, and somebody actually runs to the mailbox and drop them in the mail. And when fax came in we went wow fax came in. What I term the transition phase is all about understanding our clients, creating relationships that understand our clients. And then I
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will talk a lot about the innovation, what does innovation mean for us at BCA, i.e. using the latest technology and providing more content and more in depth content to our clients.
So we’ve got our two best assets at BCA which is the content and client relationships. And what I mean by client relationships to help us do the innovation is that we went and had face to face client meetings. Before we launched any of the products that I'm going to talk about, we had face to face client meetings, we had extensive electronic surveys, and 30% of our revenue, which is statistically very significant, said what they wanted. We went to work and we are developing what they said they wanted to develop.
So our two philosophies, one is the content products where are two areas now, emerging markets - three areas, equity sectors, and marrying our global macro views and themes with quant models to produce stock trading strategy. So the three areas of the content products are emerging markets, equity sectors and stock trading strategy, all encompassed by Delphi.
Delphi provided us the ability to create three products, BCA Edge, BCA Analytics and interactive websites, and I’ll walk you through those two products.
The impact of Delphi, it allowed us to unlock the BCA content. What do I mean by that? I mean that we can deconstruct our research with semantic searches, okay. Remember before that it was all PDF; we can’t do anything with it. It enables us to ease of discovery, ease of use, and intuitive user interfaces. It allows us to increase interaction. Before you read a PDF, and that’s it. Now you can interact with the content, you can interact with our charts and you can design the content of the charts as you wish. It creates new products; it will help us to create new products in the future easier and faster. And obviously the long tail, i.e. using those products to produce revenue and ultimately profits.
This is what BCA looks like today. It’s just a PDF, you read it and you do nothing with it.
The first product that I’d like to walk you through is BCA Edge. What is BCA Edge? BDA Edge is a dashboard content, i.e. it’s a content dashboard, i.e. you can create your own dashboard of all of the content that is available in BCA, whether it’s research, whether it’s charts, whether it’s our views, whether it’s our trades. Everything is flexible, the way you want to create it. How can you achieve that? We can achieve that through powerful semantic tagging and search. What do I mean by that? Because the content if you recall is reconstructed according to our five research methodologies and research elements.
There are themes so at BCA we have - we follow a theme, say a theme about a certain asset class or a geography. By views, we have views on those asset classes or the constituencies of those asset classes. We have trade, we recommend trades to clients so we recommend clients to buy/sell gold for example, buy/sell a foreign exchange contract for example. And then we advise clients on their asset classes allocation within their own particular portfolio. And also being a shop full of economists, you can’t have economists and research without obviously charts.
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Search, what does search allow us to do? We can - entire content, over 120,000 tagged research elements. And why do I put 2008? Because as you know the severity of the financial crisis in 2008 changed all our models, all our data sets, all our thinking. So we go back all the way to 2008 to include the severity of that financial crisis.
Obviously the system, thanks to Ben and his team, gives us auto suggest. So as the system is used more and more it provides the user intelligence and it suggests what other users - what that particular user has been searching for.
And obviously the last is extensive semantic filters that you can do the search according to your own particular filter. As an example bear in mind these screen captures that I'm going to show you, perhaps they’re not clear here, they’re clear in your books, and obviously this system is designed for - to be shown on desktop screens rather than on a large screen.
So this is for example a semantic search. So these are the filters, so you can filter them as you want. This is where the automatic autosuggest, and these are the results of your search depending on your filters, all in one page.
Benefits of a content dashboard. You can create your own views and themes on a particular dashboard. What do I mean by that? You can create your own personalised views. If you manage economists, you know it’s very difficult to get 17 economists to agree on a particular view. So there is a lot of views on a certain particular asset in BCA. The clients wanted us to say how easy it is to visually identify the BCA view on a market or in the economy. Now with BCA Edge you can do that and you can see that all in one page. Obviously it’s automatically updated whenever there's an update on that particular view, on that particular asset class. And clarity and transparency, so we are very clear now if we have different views within a certain particular asset class. And always, always we developed it as to one step away from the actual research report.
Clients also wanted to know how did we change our view through time. So we provided that and I’ll show you a screen. So it’s a visual representation of view analysis on a market or an asset class. Clear and easy illustration of historical changes over time. And the ability to export to - to download all those views to your own particular applications at a user’s space. And ability to compare views on different markets and asset classes. Obviously immediately available is that you access the research report with one click.
So you have a personalised views page that you, the user designed that particular page. For example the theme is US economy. It tells you when we went bullish, it tells you the actual reports about the US economy, it tells you how many reports are written about the US economy, and as I said you can annotate it, you can clip it, you can put it on your own applications. And I just did an illustration of what a personalised views look like at BCA.
The other benefit is the view evolution. Again, clients wanted to know when did we change a particular view on a particular asset class or a particular economy or a market. So we give them the actual services that talk about that particular asset class. We tell them when did we put down that view, how has that view changed over time. So if we
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are strongly bullish, it’s a thicker colour. If we were less bullish it’s a thinner colour. Always, always you've got this blue dot which is if you have your mouse over that blue dot you go back to the particular research report that I wrote about that view immediately again. We always want it one click away from the report.
And then clients wanted to know how can I easily access BCA content? I've got lots of emails, a lot of people sending me emails, I don’t get to read your email, I'm very busy. So we created through the semantic ability, the semantic web ability, the ability to create your own investment recommendations page. All the investment recommendations that BCA talks about that you are - the user is interested in, you can have it all in one page. Same thing with research. All the research that you’re interested in from BCA you can have it all on the same page, all that customised per user.
And ultimately as you know there's a lot of interconnection between views and themes around the world. And the clients wanted to know how does BCA interconnect all these themes and views about all these asset classes. And again thanks to Delphi we can create what we call the semantic search graph. Again it’s very clear in your books. Here you can create all those connections between these different views and themes. And again one click on the button, on that blue dot, and you go back to the original research report.
Interactive charting. It’s fully interactive and customisable. Powerful set of functions you can add your own data sets and you can add your own timelines, you can change the timelines. You can interact two or three charts from BCA. You can create your own chart book from BCA. All because now the charts are interactive and semantically available. And obviously it updates automatically as and when BCA updates the charts. And they’re designed to fit into the client workflow in the sense it’s downloadable, it’s - you can cut and paste it, you can annotate it, you can send it within the organisation. That’s an example of the interactive charts.
What does it all mean for us? So we’ve got the three assets. We have the domain expertise; we have the customer relationship and backed up by technology based innovation through Delphi. We can achieve growth through improving retention rates. We can increase new sales and new clients. We can increase revenue per client and we can create new products. We are first to market. We have an opportunity to have new vertical chances that consolidates our position as a sector leader. And finally as in North America we say, the proof is in the pudding. Thank you.
And now Simon, the most interesting product.
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Investor Intelligence Network
Simon McLoughlin, Managing Director Thank you Bashar. Good afternoon everybody. I’d like to talk to you about an online network. This is an online network that brings together institutional investors from around the world and asset managers. It does so through two separate online
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communities, one for investors and one for managers. And it allows members to do three things, collaborate, share information but most importantly put capital to work.
If you’re an investment manager it allows you to win business from asset owners all around the world, and when I say asset owner what I mean is pension funds, sovereign wealth funds, foundations, endowments and insurers. And if you are an institutional investor, an asset owner, the network allows you to find the best managers and the best direct investment opportunities worldwide. This is a huge market and it’s an incredibly inefficient market.
The platform has an interesting background. It’s evolved out of institutional investors’ conference business. And when we say conference, it’s always misleading to describe institutional investors events business as conferencing because it’s not, it’s more like a private events business where we invite the chief investment officers from some of the world’s largest institutions together to meet asset managers. It’s a very controlled environment. It’s peer to peer. We bring these people together at roughly 100 events in 23 countries. And that face to face access which has been built up over a period of 30 to 40 years has given us a degree of trust and access to some incredibly hard to reach individuals.
This is a disruptive technology and in an incredibly large global market. And it potentially displaces intermediaries such as consultants and placement agents. When we first started on this project back in 2010 I think we were all seized with sort of ambition but kind of disbelief, can we really get these people engaging online? These are super busy people running huge funds, an incredibly hard audience to please. We spent six months working with 48 funds around the world, 20 in the US, 20 in Europe and 6 in Asia. And we went out to them with a concept and we said help us colour this in, help us build something that’s genuinely useful for you. And that groundwork paid off very quickly.
What we found was that DCIOs didn’t just want to connect with each other internationally with their peers; they also wanted to connect with investment managers. Today the investor intelligence network which serves CIOs of billion dollar plus funds has got 1,633 institutional members. They’re all CIOs. The average size of a member fund is $27bn. And altogether the members control assets of $24.4 trillion. That seems an extraordinary number, but you need to bear in mind that just one of our members, which is the government pension fund of Japan, itself is a trillion dollar fund. There is huge concentration of wealth in the institutional market in a handful of players.
The Manager Intelligence Network which is a separate network, it’s designed for heads of global distribution at big money management firms, now has 744 members from 32 countries. The Manager Intelligence Network is a great example of how this platform has allowed us to scale our business. Our legacy business which is our membership and conference business did business with around 300 managers. And in a few years we’ve managed to double the number of managers we have relations with. And in particular we’ve brought on a lot of boutiques from around the world, a lot of boutiques based in emerging markets.
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And the two networks allow investors to place capital with managers. If you imagine that you’re the head of global distribution for a very large investment manager such as State Street, what IIN represents is a unique channel to a worldwide network of capital. And what’s particularly attractive about it for managers is that it’s got very heavy exposure to the fast growing markets of Asia. In fact there are $9 trillion worth of assets controlled by members in Asia. We’re very proud to have as members Temasek, GIC, SAFE, QSuper in Australia. The thing that makes IIN special is the seniority of the members, the individual users. There are 2,500 individual users on IIN, and 69% of them are chief investment officers. And these are incredibly hard to reach people. If as a manager you want to get in front of the head of the Saudi Arabian monetary fund, which is a $700bn fund, it is extraordinarily difficult. This is a network only for people at the top of these funds.
I think what we’re most pleased about, given that we’re trying to please an incredibly difficult and sophisticated crowd, is that the customers love the product. The usage rates are really impressive. These are full metrics that show how it’s grown over the past year, but the statistic I’d like you to bear in mind is across the 5,000 accounts 63% of the accounts are used monthly for at least seven minutes, and users come back at least twice a month. Looked at in a different way, one in four asset owners in the world who owns more than $1bn in assets, visits this site monthly.
The reason it’s got such high usage figures is that it offers genuinely unique content. It’s the only place in the world you can go to find out how other chief investment officers are dealing with problems, are tackling the challenges you face. Imagine you’re running the Berkshire County Council local pension fund; one of the UK’s most sophisticated pension funds. It’s run by a guy called Nick Greenwood who is at the top of his profession. The people he wants to network with are the people running the most sophisticated funds worldwide who reside in Sweden, Canada, Singapore, Australia. Nick tells us this is the only place he can go to find out what his peers worldwide are doing.
It’s not just a talking shop. This is the part of the network that has surprised us most. About a year ago the investors came to us and said build us a tool to help us allocate capital to managers. One of your great problems as an asset owner is if you’re based on the west coast of California and you want to invest in let’s say Asian Pacific equity, it’s very easy to find managers based in Boston, Chicago, New York. It’s very hard to find someone based in Hanoi. Just last week we placed capital with a firm called Dragon Capital based in Hanoi. We’re connecting people internationally across borders of investment that traditionally have been quite hard to break. The institutional investment sector is very regionalised. This is a product that globalises it.
We’ve got two products. The RFI service allows pension funds to advertise mandates anonymously and invite managers to send in proposals. The private market service allows the very biggest investors in the world better access to direct investment opportunities such as infrastructure and real estate.
The benefits of our online community approach are very simple. It means we know which asset owners are interested in which asset class and when, so we can introduce relevant content, we can introduce relevant deals, we can introduce relevant managers.
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We’re going to monetise the network in three ways. We’re going to charge on capital placed. We’re going to manufacture data products. Online communities provide a fantastic opportunity to harvest and gather together data that you can then turn into benchmarks. I’ll give you one example which is a fee product we’re working on which shows the fee spread charged by different managers for different asset classes. And we’re also proposing to charge third party digital services a tenancy, so they can distribute their services through our platform. To give you one example we’re working with a couple of hedge funds at the moment who have come up with a genuinely innovative product that aggregates the short selling signals from CTA hedge funds, and allows institutional investors to hedge certain kinds of risk without any management fee.
We launched the RFI service a year ago, on June 30th. Since then it’s been used to place $15.6bn worth of capital. Of this we know $6.7bn has actually been awarded to about 25 managers.
We’re pricing for adoption. We want to get as many managers using this service and as many asset owners using the service as possible. This is a very rich industry. It’s a measure of how rich it is that even when you’re pricing for adoption you can get to substantial six figure placement sums on each transaction. A sovereign wealth fund doesn’t write a ticket for less than $200m.
Asset owners use the service because it allows them to identify managers they can’t find on their own. The traditional consultant process means you only get six names and they tend to be big obvious candidates. Investors want access to boutiques. The service allows these big institutions to remain anonymous, so they don’t waste a week taking lots of phone calls from investment managers.
This is how an asset owner creates an RFI. You can have the form as short or as long as you want. This is what a manager sees. What’s unique is that the manager can use the platform to talk to the official at the investment institution running the search. Traditionally as a manager you've only been able to talk to the consultant. This is a service that disintermediates the consultant. And the service also allows asset owners to aggregate large amounts of data and to sort it very quickly.
I'm just going to skip that slide. The asset owners who use this tend to be the largest and most sophisticated. The world’s most successful pension fund is arguably Ontario Teachers, and they’re our number one user of the service. They’ve used it five times to redesign their hedge fund portfolio. And what they say is fundamentally it allows them to identify managers all around the world that they don’t know, and they can sift them and remain anonymous until they choose to reveal their identity.
The basic platform we’re offering free of charge, but we’re manufacturing various data products that we allow members to buy. The first is a product called FeeScan. It aggregates the fees from all of the RFIs that we run and allows managers to see the highest, the lowest and the median fees. It’s a very high value product. A difference of just one basis point is worth an extra $10,000 a year in profitability.
The lesson from our conference business is that if you get the asset owner, the asset managers follow. We’ve got a really good opportunity with IIN to bring asset owners
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from all around the world together in one digital venue. There is a tremendous amount of competition in this space, almost every month a new platform springs up so we can’t afford to be complacent. But we feel that we’ve got a highly scalable business here and we feel that it also lends itself to multiple product extensions. It’s quite easy to see how an education business, a training business and an index business can be built on top of it.
Thank you very much.
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Christopher Fordham, Managing Director Well thank you Simon. I hope the presentations this afternoon have given you some insight into our digital strategy, how your money is being transformed by it. Delphi of course is right at the heart of that, but the presentation from Bashar I think illustrates very well how he is using that to totally transform his business. I hope you've also been impressed by IIN which I think is a genuinely innovative and exciting business. And I think both the passion of Simon and Bashar came through very strongly in their presentations. We are very excited about both of them.
That’s us done, but we’d be very pleased to answer any of your questions. Thank you.
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Questions and Answers
Nick Dempsey, Barclays Capital A question for Bashar. So I guess over the last decade we’ve seen a lot of publishers do quite a lot of much better stuff to their content using workflow tools, all kinds of different software, and have very rarely actually seen much of a change in their growth rate, as in the customers just take that functionality and don’t really pay any more for it. Have you seen post Delphi a sort of step change in your growth rate revenues?
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Bashar AL-Rehany, CEO Yes we have. The first product, the BCA Edge has not been launched yet; it’s going to be launched in October. But the BCA Analytics has been launched and it’s on target. And we already have clients for that, yes.
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Christopher Fordham, Managing Director I mean it is still very early days, we only launched in the spring. But we’ve certainly got big ambitions in terms of growth in revenues.
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Steve Liechti, Investec
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Just on the cost of Delphi, you said it’s £4m a year and you’re - well I think it was 2016 you'll be able to migrate all the other content platforms, I think you referenced ten different platforms if I'm right, and correct me if I'm wrong. I just wonder what is the cost of those ten platforms that are almost running simultaneously with Delphi now, and should we think about this as a potential good cost saving measure on a two year view, as well as clearly a revenue generating platform?
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Christopher Fordham, Managing Director I think most of the upside in Delphi comes from growth in revenues. There is certainly something gained from a declining cost, but Ben perhaps you can help on that one a bit?
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Ben Jones, Chief Technology Officer Yeah, we probably spend just over a million at the moment maintaining the - so that’s seven legacy CMS platforms at the moment. Where the issues come in is where we look at having to maintain for example a lot of classic ASP code. It’s very hard to find classic ASP developers on the market now, so some of those old systems are certainly a burden. I have to keep people around just to make small changes and kind of keep the lights on. So there is a significant sort of a weight dragging with us every year that we have them still alive.
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Gareth Davies, Numis Just going back to the BCA example and sort of following on from Nick’s question, can you talk a little bit more about the revenue models and how the revenue model will change in the new environment? Is this just going to push pricing power on the core subscription, or is there going to be a usage based element? And sort of how are you thinking about revenue models?
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Bashar AL-Rehany, CEO Both. We’re hoping to increase our retention rates through providing obviously better products, but those two products that I shared with you today are user based and service based. So we attach a separate revenue stream to those new products that are coming out of Delphi.
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Question On BCA can you give us an idea of what your retention rates are and what the average revenues per customer are, just in broad terms?
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Bashar AL-Rehany, CEO
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We run about 90% renewal rates on a dollar weighted average. And what’s your second question, sorry?
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Question What’s the sort of average revenue per customer? How much do people pay for your products?
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Bashar AL-Rehany, CEO We have an average rate per customer of $38,000.
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Question $38,000 per annum?
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Bashar AL-Rehany, CEO Per customer per annum, yes.
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Question Very nice.
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Christopher Fordham, Managing Director Well thank you very much ladies and gentlemen. I have two daughters and they spend most of their time as far as I can see on MailOnline, so I'm now going to have the great pleasure in introducing Martin Clarke to you. Thank you.
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Martin Clarke, Publisher, MailOnline Good afternoon. It's been I think over 18 months since I was invited to present to one of these gatherings. Well, that's probably putting it slightly politely - dragged kicking and screaming down to one of these gatherings - would be more appropriate. But 18 months, that's about a decade in internet years. And since then, we've done quite a lot.
We've maintained our growth, both in terms of revenue and traffic. We've made ourselves a serious player in America. And we've begun the task of taking MailOnline to more geographies. And now, MailOnline really is a global contender, with a growing scalable footprint that we can monetise on multiple contents.
MailOnline revenue for fiscal year 14 will, as we announced earlier this week, and predicted last year when I stood here 18 months ago, hit £60m sterling. That's an
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increase of almost 50% - I've got down here 46, but I think we said 49. I think one of us is wrong.
So what's driving that? Well, obviously, our traffic has continued to grow, and contrary to what you may have read from most other publishers in the world about homepages dying, for millions of people around the world, the MailOnline homepage is increasingly one of their must-reads of the day.
In fact, we get 8.6 million visits to one of our homepages or apps every day, a number which represents 43% of our 20 million overall daily visits, and which is still growing. Now that's an incredibly high proportion of direct visits for a new site or any content site, come to that.
And what's driving that growth is our content, because we continue to invest in digital journalism. Good reporting, unparalleled photos and great video. In the past four years, our editorial headcount has grown from 149 to 324. Much of that editorial investment has been in the United States, and that's where I'd like to take you now.
No English speaking company can hope to succeed globally in digital media unless it makes its mark in America, which is why we first entered that market four years ago. Now four years on, MailOnline is one of the biggest news sites in America. Newest traffic is up 32% year on year with more daily traffic that USA Today, the Washington Post and the Wall Street Journal.
We've invested in some experienced news-braking reporters, and they're out on the ground every single day, breaking exclusive stories, exclusive angles and getting exclusive pictures and video of the bigger stories around America. Now these are stories which are religiously followed, day in, day out, by the US media, all of whom we know from first-hand chats with our American colleagues, that they're glued to day in, day out.
And to accommodate our growing team, we've leased new, much larger premises in Astor Place, Manhattan, and we'll be moving there from our old offices in a couple of weeks.
Now I'd like to introduce you to our US Editor, Katherine Thomson, who's going to show us the new space, thanks to the wonders of our video conferencing facility. And I'm halfway here, 'cos we can at least see her. Now we're going to find out if we can hear her in which case somebody won't get fired.
Hi Katherine. How many news journalists will you be bringing to the new office when we move in there in a couple of weeks?
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Katherine Thomson, US Editor Well with all of our reporters, and we have our social and features, our Female Tech reporters, plus our picture desk - and everybody else - we're bringing about 80 people over here.
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Martin Clarke, Publisher, MailOnline And how many more are you budgeted to hire over the next 12 months?
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Katherine Thomson, US Editor Hopefully about 25 - 30 more. We want to get more people on the road doing original content. We also want more people doing House and Tech and Female and everything.
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Martin Clarke, Publisher, MailOnline And can you give an idea of how many stories you publish out of New York every day?
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Katherine Thomson, US Editor Right now we do about 100. Some of it will be breaking news, and then we do some original features, couple of big exclusives and we do do Female Tech and a few other stories like that now, but we do want to do more.
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Martin Clarke, Publisher, MailOnline And on any given day, how many reporters do you actually have out on the road around America - you know, boots on the ground?
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Katherine Thomson, US Editor Right now we have about five or six on a busy day. That's sort of where we max out currently. But we want to get closer to ten. These stories are great for us; they're really good for brand awareness; we do them better than anyone else; it’s the Mail. We do them the Mail way, it's kind of the American way. And they're picked up on morning shows and evening news, and they get really well read too, so -
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Martin Clarke, Publisher, MailOnline And give me an idea - I'm a bit out of touch being down here - what are the big stories in America today?
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Katherine Thomson, US Editor Another NSL player got arrested yesterday for domestic assault, so we're on that. Our best-read story is probably the missing college student who seemed to vanish off the street at 1.00 a.m. last week. Surprisingly well read is actually the Scottish Referendum. Most Americans, myself included, count ourselves a little bit Scottish.
Laughter
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Martin Clarke, Publisher, MailOnline So which way would you vote?
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Katherine Thomson, US Editor No.
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Martin Clarke, Publisher, MailOnline Oh good. And as far as you're concerned - sorry - what else do you want to do more of next year?
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Katherine Thomson, US Editor We definitely want to do original video, but we want to do more quick hits via video write-ups, Health, more Femail, more Fashion. More -
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Martin Clarke, Publisher, MailOnline And from your point of view, what's the best thing about those new offices?
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Katherine Thomson, US Editor The best thing is obviously just space. We've been in the Soho office for over three years and we've outgrown a long time ago it in every way; we're squashed. And the space, as you can see, it's huge and it's bright and it's light - has really great views. The best falafel is a couple of blocks away. It's really wonderful.
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Martin Clarke, Publisher, MailOnline Can you just get him to point the camera out the window? What's just over the road? Can you tell us where we are?
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Katherine Thomson, US Editor Across the street from us is Facebook and AOL and my old boss, Arianna Huffington, and Huffington Post.
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Martin Clarke, Publisher, MailOnline Oh well, hi Arianna. I'm sure she'll be delighted we're moving in. So now, I'd very quickly also like to show you our LA office where we employ another 27 showbiz journalists. We only really do showbiz out of LA, and introduce Natalie Trombetta, our US Showbiz Editor.
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So, hi Natalie. Can you tell us exactly where you are in LA?
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Natalie Trombetta, US Showbiz Editor Our office is here in Venice Beach, which is emerging as quite a digital hub actually. We have Google's LA headquarters, just a block away, and Twitter is setting up an office in nearby Santa Monica. And we also have Snapchat just down the road. So it's an exciting place to be.
We do just Showbiz out of this office, and our editorial team includes words, pictures and video. And we also have Linda Villani heading up our West Coast Sales team.
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Martin Clarke, Publisher, MailOnline And Katherine was just telling us how many news stories she publishes out of New York each week. How many stories do you do a day in LA?
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Natalie Trombetta, US Showbiz Editor I'd say we do around 80 to 100 stories a day out of this office, and that ranges from breaking news to celebrity picture sets, red carpets, TV shows, all the big award ceremonies, and of course all things Kardashian.
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Martin Clarke, Publisher, MailOnline Oh definitely. Now Natalie, how do you think things have changed since we set up the LA office, what, four years ago - just over four years ago?
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Natalie Trombetta, US Showbiz Editor Yeah, look I was part of the original team of just a handful of London staff who brought the MailOnline to the US. And it was a stealth operation really. We just quietly set about improving and increasing our US content without any fuss or fanfare. But we pretty quickly found a sweet spot in the market, and I think we caught many off-guard.
We ramped up the team as quickly as we could, and now there's more than 40 people who work out of this office on staff and as freelancers - celebrities, publicists, and of course our rivals - are pretty quickly forced to sit up and take notice. And now I know the people who we write about are the people who read us most obsessively.
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Martin Clarke, Publisher, MailOnline Well, thanks, Natalie. You're doing a great job. I'll see you soon. Thanks.
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Now those new offices in New York and the people we're hiring in New York and the expansion we're doing in LA obviously represent a considerable investment on our part. But we feel confident that it's justified.
As I showed you, MailOnline is already the second biggest newspaper site in America, but what you may not realise is we're actually the seventh biggest news site in America overall, including all news providers. Our direct traffic growth has been particularly impressive in America as more and more Americans make us their go-to news site several times a day.
And yet so far we've barely scratched the revenue possibilities that that traffic represents. And it's that massive potential that allowed us to attract our new North American CEO, Jon Steinberg. Jon helped make BuzzFeed such as success as their President and COO for the previous four years. And his challenge now is to give MailOnline the brand presence with advertisers in America to match our massive user base. Jon.
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Jon Steinberg, CEO Daily Mail, North America Thanks, Martin. Thanks, everybody. It's great to be here today.
What drew me to the Mail was the size, the scale, the volume of publishing, the giant homepage. I like to think of it as oil in the ground. There's very few cases where a product, and the size of that product is bigger than the actual brand. And that is actually the case with MailOnline. We are absolutely huge in the United States, and yet the brand there isn't quite as pronounced and isn't quite as strong.
And for someone who does what I do, that's just delectable. I mean, it's beyond exciting to be able to take something which is giant and just tell people about it.
We've been doing this for 120 years. The MailOnline website is 120 years old. In fact it doesn't look that different from there except that Martin puts pictures on it now. And in fact, Lord Northcliffe pioneered web journalism with the quizzical, interesting stories - important stories, told interestingly. I mean, Lord Northcliffe in the interests of correspondence wrote articles about "What do divers wear?" as well as the gossip and news of the day. And I think that's why we're so good at it is because we've got so much deep history in basically doing a publication like this.
We have the audience and the traction that makes this all work. We've got growth in video' we've got the affluence that advertisers like. We're killing it in mobile right now, with 53% of our engagement there, and growing. And a heavily engaged audience as well. So the audience is very much there in the US.
This is another cut. This is just a group of slides that I put together. There are really two types of sites in here. Celebrity and Entertainment and Gossip, which is a huge opportunity for us in an area where we are very dominant in addition to breaking news and important reporting. And what you can see, which is almost staggering, is when you add up some of these sites, we're still bigger than them.
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What's also amazing is, when you look at the hot sites, the ones that are getting the venture capital, like the Vice, which just raised $500m from A&E and technology crossover ventures at a $2.5bn US valuation. They don't even register in size compared to where we are on comScore multi-platform in the US.
We’re known for the homepage. That's what makes us our special source. People come to the Mail to find out what's going on in the world. But this is actually a report that NewsWeb put out. I actually just cut and paste the graphic 'cos I want you to see that it's unadulterated. This is comparing our social engagement from January to April to other newspaper sites and other celebrity entertainment sites, as you can see here.
We did 32 million Facebook interactions - shares, likes, all of that stuff, during that period. Look at us compared to the New York Times, Washington Post. Look at the bottom row where you see eonline in all of those different publications as well. We're crushing it in Social, and it's not even what we put our biggest emphasis on, which of course is the homepage, the big giant homepage.
Video growth is substantial as well. This is the global video number. You can see here that we're the number two biggest newspaper video website in the world, according to comScore. The only one bigger than us is actually a Turkish site. And in the US you can see that this growth is substantial as well.
We don't have a user challenge in the US. We have what I like to call a Madison Avenue challenge. We just have to tell people how great the site is and how engaged our audience is, and how much they love it, and about all the stories that we're publishing, and why the people like the Mail. We don't actually have to get more people to like it, which is sort of a very interesting problem, and one that is challenging and daunting and requires tremendous work, but is much better and much easier than making somebody love your product.
And we've started this already. We started this last year with an outdoor campaign, an air cover campaign, where we talked about how we are both serious and substantial - Seriously Popular. These are the two Popes. Olivia Pope is a character from the show, the ABC show, Scandal. And then of course - this was my personal favourite and the one that everybody liked the most - the Kims. One of those Kims has more longevity than the other.
That was very much air cover in the broadest sense. Where we are now is more tactical trade coverage. The great business economist, Donald Trump, said that if you don't tell people about your success, they have no way of knowing about it. And that's precisely what we're doing now with Ad Age and Digiday and Michael Wolff - all of these people in the US that only about a few people read these publications, but the ones that read it are the ones that buy the ads.
I want to show you a sizzle reel now about how we've gone big at events like Cannes, where all the ad buyers in the world are; how we've gotten our press people out on television, because television is again something which creates that halo around ad revenue dollars and media buyer engagement. So let me just roll the sizzle for you now.
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Sizzle Reel
We're actually bigger than those numbers now; those are outdated - outdated in the past few weeks.
The other thing which is really important and probably, if you ask me - what am I most excited about in terms of our branding and sales effort - is the brand. People don't know what to call us in the United States. You're MailOnline? Daily Mail USA? Dail Mail? It's a muddle. And Daily Mail as a brand is exciting, it's very much, you know, dress British, think Yiddish - it's hip.
Laughter
People view it as aspirational like Burberry. And it's simple. And it has a heritage, an that's something that we have. I love being at the building; I love putting on Instagram pictures of Lord Northcliffe. It's something we have that they don't have, so we have to lean into that. And in the US we will be Daily Mail, Daily Mail, Daily Mail our email addresses will be dailymail.com. The site will be dailymail.com. And I think that will have a profound simplifying effect in our marketing message. People will know what to call the site that they love.
What I would say to Martin is - it's like we're selling iPads, but they can't call us Apple. That's how people feel about our product.
We're making good traction. I've been at the company about 90 days. We've put together ad packages which are very simple, which have native, high impact display - by native, you know, advertorials, our content driven advertising; high impact display and video. It's a simplified, well-rounded package which is part of what I think is the idea- centric approach that advertisers are asking for now. No one wants to buy a specific product. They come to us and they say - or the media agency comes to us and says - what should we do with you? How do we harness what you do well for editorial? How do we do that for our brand?
And these packages are ideally situated to do that. Our homepage in the US sees a million people. So for high impact display on a given day, to put a tune-in message in for a BBC America show or a Comedy Central show works great. And for a client like Cisco, to tell a story about the internet of things is perfect with native.
W'e're also creating original video now for brands. Let me show you a quick 15 second one that we did for Dr Who, which you'll be very pleased to know is big in the US now.
Dr Who video
So the three arrows in our quiver - high impact display, native, video. And every package that we put out to market now includes those three pillars. Not every brand will buy every one of them, but it's very simple and we go to market with a few set packages around that.
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Mobile. We're in a great position with mobile because of the puff. The right rail puffs. I didn't know they were called puffs until about three months ago. But they're how we lay out in mobile. We can run them on desktop and we can run them on mobile as well. They're ideal for native; they perform very well. And when we sell a package right now, very similar to how Facebook and Google did, we sell puffs. We don't distinguish between mobile and desktop. Now if a client pushes and they want to buy one or two, we will do that for them. But most are very happy to run cross-platform at this point.
And as you can see these are just a selection of brands that we've worked with in the past several months, a very broad cross section. CPG, entertainment, B2B for-profit education - all humming along.
This business is all about tactical execution. It is a phenomenal grind. Hard work is what makes you successful in the advertising business, and it's all about the bench.
So you can see here the level of talent that we're getting now in the sales and sales support area is spectacular. One person I'd like to pull out is Josh Richman. He's a CMO for the clients. He's not a CMO for Daily Mail, although he'll help us with that stuff as well. Big integrated marketing packages that he brings to customers when he was at ESPN and Maxem and WGN America. He's helping us do those now as well. He's the one that's going to help us with the ideas in his team to really win the business.
I want to leave you with one final thing. I probably shouldn't show you this, but I just can't help myself. We're going to do original video this year. This is very much a beta anda prototype. Please do not call us Stephen next week and say - when are they launching all of that stuff? I'm just giving you a little bit of a sneak peek. We will get there, but we're working very hard on - what does it mean to take Daily Mail into video? What does it mean to bring the right rail to life as a video part that we can sell against?
So here's a sneak preview of that.
Preview
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Martin Clarke, Publisher, MailOnline Thanks very much.
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Jon Steinberg, CEO Daily Mail, North America Thanks, Martin.
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Martin Clarke, Publisher, MailOnline You know, as you can tell, with people like Jon on board, MailOnline now feels a lot less like a UK newspaper website with some US web offshoot, and much more like a genuinely transatlantic digital pure play. And opening those New York offices - you can
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only see half the New York office in that shot - I think is going to be another game- changer for us.
But right now the UK remains the backbone of our revenue under our UK and Rest of the World CRO, Mel Scott. And also, incidentally, I should mention at this point that, although we'll be using dailymail.com as the brand in America and probably the rest of the world, we will be retaining MailOnline as the brand in the UK, to maintain our separate identity from the UK newspaper.
Now at this point I should also mention - and sound a note of caution - that switching URLs is not without risk, and there's a possibility that our traffic may well dip slightly in the short term, just for a month or two. But it will come back. And we think whatever short-term pain we have to go through is well worth it for the long-term gain in America. And, as Jon said, simplifying our brand proposition in America, which has been hanging over us for a long time, and we just need to bite the bullet.
Now the brand isn't an issue in the UK because MailOnline remains the undisputed newspaper website champion, with more daily visits, according to Hitwise, than the Guardian, Telegraph and Sun put together. And that dominant position is increasingly bringing with it a winner's premium. This year UK revenues are expected to be - sorry, are up 47%, and MailOnline is finding itself bracketed in pitches, not against other newspapers, but against MSN, Yahoo and people like Facebook.
Now Mel - I'll introduce Mel - this is Mel Scott, our UK Rest of World CRO. And she's going to tell us how she's going to grow the UK revenue even further next year.
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Melanie Scott, UK and ROW Commercial Director, MailOnline Yes, thanks. Hello, everybody.
Martin is right; we do have a winner's premium in the UK, where essentially the top sites take about 80% of the revenue. And I'll tell you why we think that is.
Firstly, and undoubtedly, our scale. As we've grown in the UK, we compete less and less with other newspapers and now more with Facebook and Yahoo, MSN and the likes of. Our 10X traffic growth has put us in an entirely different league to all of the other British newspapers. And in fact, we're significantly larger than all other news sites; in fact, second only to the BBC. And we are also the eleventh biggest traffic fight in the UK overall.
But if our position is the sixth biggest ad driven website in the UK, that allows us to command this winner's premium - and in fact when we have started to compete for revenue, declining revenue from print in magazines, our message is clear - this revenue previously was FMCG and beauty clients. Our female audience in this arena is as big as all other magazines put together on comScore.
But it's our engagement that is our second reason we can command this winner's premium. More time is spent on MailOnline than all of these newspaper sites combined.
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And MailOnline users view more pages than Yahoo, MSN and AOL and have the most visits per person.
MailOnline's audience is definitely more likely to engage with advertiser content and format. They visit more frequently; they spend more time and they view more pages. And after Facebook, YouTube and Yahoo, which includes all of Yahoo Mail, MailOnline has the fifth most engaged audience in the whole of the UK.
And you'll also see that the MailOnline homepage ranks higher on engagement than both Yahoo and YouTube combined.
And while I'm talking about the homepage, you may recall some of you that were here last year, that I told you how we're able to sell high impact takeovers across this giant homepage at a cost of £65,000 per day. Well today this is sold as a multi-device takeover across desktop, tablet and smartphone, including our apps, at a daily cost of £90,000 per day. And this delivers advertisers about £3m browsers across desktop, mobile and apps.
Last year about 13% of MailOnline UK's revenue was attributed from these types of takeovers. This year 36% of our revenue is generated by these high impact takeovers.
And in the UK we have a flexible, multi-skilled staff of about 84 in the ad sales team, and they have a wide coverage of all ad agencies and key clients. And this sales team really do understand the digital business from end to end. And that allows them to innovate ad products, and in most cases allows them to buck some of the internet trends too.
You've probably heard that internet display CPMs are in decline - and by that I mean banners and buttons, and that there's a downward pressure on these CPMs. Building on the success of the homepage takeovers, which I just showed you, we've been able to develop and innovate these products across our other big channels, running them across article pages, across channels like TV, Showbiz, Femail and Sport, costing £55, £35 and £40,000 per day respectively.
And these formats have actually allowed the UK team to increase internet CPMs, bucking that trend by about 46% year on year. And this ability to innovate products without US parent approval is definitely the third reason that we're able to command this winner's premium in the UK.
And while we're talking about bucking trends, it's probably worthwhile talking about mobile. It's been widely reported that mobile monetisation lags audience growth; not at MailOnline. Our mobile monetisation is actually starting to surpass our mobile growth, up 157% in the last 12 months. And we've done this through continued development and product innovation in the format of these high impact placements. Using our million addicted app users and 1.7 million tablet browsers, we've enhanced that homepage takeover offering with table skins. We've added high impact, full page ads into galleries in both smartphones and tablets, as well as serving inline ads in both of these devices too.
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And as well as enhanced functionality to allow article sponsorship, where we're able to group articles together like something like the X Factor, and offer them to sponsors because we know MailOnline users are second screening while they're watching television.
And new products have also given rise to new monetisation opportunities. This unique picture screen in the new iPhone app has allowed to offer a daily sponsorship of £20,000 per day. It's a screen that allows users to consume news in picture, via purely images in the same way they do on the world's fastest-growing web picture sites, like Instagram, Pinterest and Snapchat. And in the week since its launch, it's been embraced by about 15% of our daily app users and growing every day.
And outside of mobile our continued drive to innovate products has also given rise to other editorial ad products that we now effectively monetise, like Fashion Finder, Last but Not Least and native offering, already trialled with some success, offering a guarantee of 450,000 page views at a price tag of £65,000 per article.
And our last value card in commanding this winner's premium in the UK is not only having the metro.co.uk in our remit, but also our link with Metro and Mail newspapers, which offers us today the highest incremental reach of any print and digital publishing audience in the UK.
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Martin Clarke, Publisher, MailOnline Thanks, Mel. Thanks for a great year. That's a fantastic performance in the last financial year.
Now with our rest of the world hat on, Mel was also instrumental in building the partnership that we have now with Channel 9 in Australia that has allowed us to launch down under as the Daily Mail Australia, a presenger [sic] to that domain change that we mentioned earlier.
Now we decided to do our first joint venture, rather than go it alone in Australia, because 9 were able to promise us access to their existing salesforce, traffic from their number one property, ninemsn.com, and also the promotional backing of their TV assets. We now have a dedicated, default Australian homepage, just like we have in the US and the UK for those countries, and since then MailOnline has gone from being the tenth biggest news site in Australia to the fifth. And our sights are firmly set on being number one. As you can see, we're not that far away from it.
Overall, Australian traffic growth is running at 91% year on year right now, and to tell us more about that, I'd like to introduce another one of our editors, Luke McIlveen from Sidney.
Hi Luke, thanks for getting up in the middle of the night or staying up, maybe, in the middle of the night, to talk to us. It's not a bad office you've got there, is it? We can't see the lovely view right now.
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Luke McIlveen, Founding Editor of dailymail.com.au No, no, I wish I could show the view. It's horrifically early though, so you'll have to take my word for it. We're perched right above Circular Quay, which if you know Sydney, is a really spectacular part of the city. It's in the heart of our financial district, so the ideal place from which to base Australia's most exciting new digital newsroom.
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Martin Clarke, Publisher, MailOnline And how many staff has you got there now?
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Luke McIlveen, Founding Editor of dailymail.com.au We've just hit the 50 mark. That includes editors, photographers, video desk and reporters. So, you know, we've come a long way in a few months. But as you may be able to see behind me, there's a lot of scope to grow. We've deliberately inhabited this office with a view to expanding very quickly.
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Martin Clarke, Publisher, MailOnline And what's been the response like from the local competition? I believe some bloke called Murdoch owns a few papers down there?
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Luke McIlveen, Founding Editor of dailymail.com.au Yeah, he does. I used to work for him. Look, it's been absolutely ferocious, which - I mean, I'm a fairly contrary individual, so it's a very good thing I think that, you know, we've had two old newspaper companies for the last hundred years really run the media scene here. The arrival of the MailOnline has been met with unprecedented panic. And I think that's purely because they've seen what's happened in the US and the UK, and they see that we do digital news faster and better than anyone.
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Martin Clarke, Publisher, MailOnline So we must be doing something right, then?
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Luke McIlveen, Founding Editor of dailymail.com.au Well, look, as they say - the only thing worse than being talked about is not being talked about. So I think we've achieved that.
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Martin Clarke, Publisher, MailOnline But what do you think we offer - or you offer - in Australia that the local websites don’t?
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Luke McIlveen, Founding Editor of dailymail.com.au I think what we offer is the country's really only truly digital newsroom. You know, we're starting more and more - we have a team of really experienced reporters who are breaking stories out on the road alongside the sort of younger digital natives, who are able to mine social media and really get on top of those stories that are breaking around the nation really quickly. So the combination of that means that our competitors, who are sort of held back by print in many ways, are holding back stories for the next day's paper. We're not doing that; we're going live as soon as we have the story.
And I think we're just able to produce the best content locally and the best of the international content that the MailOnline does really well. Combination of those two things is going to make us very difficult to beat.
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Martin Clarke, Publisher, MailOnline All right. Thanks a lot, Luke. I trust you won't be late in the morning. Anyway, now there's another advantage to having an Australian office in that it gives us a strategic base from which to cover the Far East both commercially and editorially. Which brings me to another big editorial investment we'll be making next year.
Now one thing that has struck us over and over again over the last few years as we've expanded into new countries is that the sweet spot for MailOnline, at least editorially, are the big global stories that transcend national boundaries. Now just like showbiz - I'm not talking about showbiz here; I'm talking about the serious stories - stories like the missing jet, MH370, the shooting down of MH17, the rise of Isis, Ebola, Gaza and those missing girls in Nigeria. They get read voraciously around the world, over and over again. But we only have to write them once.
These stories fascinate people everywhere, and MailOnline spots them early and owns them. But we need more boots on the ground, just like we've got in America. And just like in America where we've grown the team by hiring experienced, hard-bitten reporters who can travel to the bigger stories of the week in the States, so we're going to start sending reporters to the biggest world stories wherever they happen in the globe.
And that will involve hiring more reporters, not just in America, but in Australia and in London, as well as obviously utilising the brilliant resource of the Daily Mail's experienced reporters.
And to make the most of MailOnline's global appeal, we'll also be launching a new default homepage for the rest of the world that showcases the best of our material from the UK, US and America [sic], but loses quite frankly the slightly parochial content that's only really of interest in those countries.
Now to tell us more about it, I'd like to introduce by video, from not that far away - only Kensington - Danny Groom, our UK Editor.
Now, hi, Danny. So tell me - how with this rest of the world page work? I mean, give me an idea of the stories that will feature and the stories that won't.
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Danny Groom, Editor, MailOnline Well, one thing that's become very clear to us is that the type of stories that people are interested in round the world, whether they're in Tunbridge wells or Timbuktu, are broadly the same. Obviously they're interested in the big world stories that you mentioned, and I think the serious news global agenda is converging fast and we're fast becoming the go-to serious news website for the global market. But also the Science and Technology stories we do Health, Showbiz - they're all universal. And of course the readers love our weird and whacky stories and the great human-interest tales we do as well.
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Martin Clarke, Publisher, MailOnline And how will we decide which of those - which of that kind of content will get the most prominence on the new page, the default page?
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Danny Groom, Editor, MailOnline Well, I think that's the secret of MailOnline's success. It's not down to me or to you or to any of the other page editors to decide what the big story of the day is. Ultimately it's down to the readers. And obviously as journalists we decide which stories to cover, but once the story is on the page, we use real time analytics to very carefully monitor what the readers are engaged in, and to use that information to mould the page and to develop the right stories.
So we're as much about technology as we are about content.
But it's not just about chasing heads. I think the real skill of MailOnline editors is the ability to identify stories and story angles that people wouldn't normally be interested in, and to make them work. And I think that's why we have such consistent success with our stories being shared across the web.
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Martin Clarke, Publisher, MailOnline Thanks, Danny. And I'm really excited about this rest of the world venture. The point Danny makes about getting people to read stories they normally wouldn't read - he's definitely right; that is the most satisfying part of the job.
But there's also a sound commercial reason for launching a world homepage. It gives us a geoneutral property with which we can roll out a bunch of cheap and easy local partnerships with foreign publishers. Basically, we can give them traffic, and they can sell our local inventory. And it's a very low cost way of rolling our product out into new markets. And obviously some of those relationships may develop into much deeper editorial partnerships, down the line, once we get to see which markets are most productive.
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Now to explain more about it, here's Rich Caccappolo, our global COO. And as you might tell from his name, he's not from around here either.
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Rich Caccappolo, Chief Operating Officer Well, thank you, Martin, and hello, everyone. Hello, global colleagues in four different time zones.
Let me pick up that thread on our international activities. As Danny was saying - actually today - every month, currently, about a third of our traffic comes from countries outside the UK and US. I'm going to show you on this map - sorry, I went back too far. The countries are shaded here in green, are those with over 250,000 readers each month. I'll save you from counting- it's about 50 countries, including nations like Kenya, China and Egypt. Those with over a million readers each month are featured in the blue box - about 18, 19 or 20 of those. They range from a million visitors to, as John described, 60 million.
And then there are countries that don't make our top 20 list, but where we're the biggest non-local news and information site. We hold that crown in Finland, of which I'm very proud.
Now today, as I said, our traffic is sizeable and it's growing. Now today, we have counted on the ad networks, the global ad networks, to bring demand for our ad inventory in these countries. But this year we're going to enhance that strategy. We're going to start looking for partners, local media companies, local great publishers, to represent our ad inventory. This will increase our yield, increase our revenue. And in return - along with the rev show - we're going to offer these partners, we're going to offer them the opportunity to integrate their content into all the pages that we serve in their markets.
This is great for their traffic, and this will be great, we think, for our local readers as they're going to get a broader content offering.
Here's an example of what it might look like. In this case we're representing the experience of reading the flight within India and seeing content from what would be an Indian partner. Now you can imagine this idea, this product offering, is getting great traction, because, as I said, so many countries - not only are we the largest international site, the biggest they've ever seen, but we're also continuing to grow and they want to get on board with that.
Now to make this happen, to deliver for all you've heard about the editorial teams, the commercial teams, international partners, we need great infrastructure. We also need that great infrastructure to deliver for our readers. And we want a 100% reliable site, so that they can access us wherever they are, whenever they want and however they want.
And increasingly for us, as for all publishers I think, that means on mobile. In the past year, visits to our site from mobile devices surpassed those from desktop each month, and that line continues to go up. And to give our users the best experience possible on
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the devices they choose, we've worked hard this year and will continue to do so to improve both our mobile web experience and our already greatly successful apps.
I have them both here. On the left you'll see what we launched - our mobile optimised web pages. They echo the experience that people had on our aps, but this is again happening on a smartphone browser. And one thing - so it renders better - they can read it more easily, our great article content. They can use the photo galleries, which is something people don't like on desktop, but they love on mobile. And it's great for commercial; it allows us to put in ads, interstitial ads, that are desired by advertisers, that work really well for them.
On the right, although it's scrolled through, is our newest iOS app. It looks better, it sinks much faster and it's much more data efficient. And again, as Mel described, we're able to integrate advertising messaging much, much more effectively. And that's allowed us to increase our monetisation, as we said.
So mobile's been working out well for us. We're very happy with what we've done there. Meanwhile - and that's good - another important thing for us is video. As I think both Jon and Mel and Martin, we've all described, our video metrics have exploded, both in number of videos streamed to our readers, the request in the stream to our readers each month, which is the dark blue line that just keeps going up, and what really - what I really find - the light blue bars which show the number of videos our video team posts each day. We now average 250 individual videos posted to the site each day. And this is clearly working. People are coming to our site to watch videos. Our readers are becoming viewers. They're very valuable visitors that way, and as Jon showed, we're now the second biggest newspaper provider - according to comScore - of video streams in the world - behind that Turkish media company.
So, all the things we've heard about today - everything that people have described, what I've talked about - this is what requires I think operational excellence and it requires great tech, solid tech.
It's an area that we've invested in and will continue to increase in, now to support what we showed and what you've seen - four offices in three continents around the world; over 600 employees in these offices, and many of whom are now working from the road. All of these employees need access to the systems they use to do their jobs, 24 hours a day, seven days a week, they have to be reliable.
And our journalists need to access systems like our very differentiated, I think, great competitive advantage providing content management system and our tremendous photo systems.
So to support this, we're going to increase our investment in tech in fiscal year 15. We're going to increase our headcount, as represented by the line, and we are going to increase our overall tech spend.
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Martin Clarke, Publisher, MailOnline
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Thank you very much. Now there's just one last thing I should mention in terms of a change we've made lately, which you may be interested in, which is the integration of metro.co.uk into the MailOnline team.
Now there are a tonne of new competitors in MailOnline space, which have shown that the way legacy news organisations think about content has to change. As Jon noted, there's nothing new about this. Lord Northcliffe built an entire empire by providing content that other people didn't consider news.
Now we need to be in the business now of providing any content that people want to read and share, not just the content that traditional newspapers happen to have been in the business of providing for generations.
Now MailOnline, quite frankly, has already stretched the Mail newspaper's traditional brand values and traditional kind of patch to accommodate much of this content. But there's only so many places you can take something with the word Mail in the title.
But Metro is a much younger brand. It has very different tolerances. So for most of this year, we've been quietly re-engineering the Metro site from a run of the mill news site into something different - something far more viral and social.
And so far it's going pretty well. Traffic is up 222% year on year. And I think the new tagline on the site says it all: "It's news, but not as you know it". Now Metro still has its own team of digital journalists, and they work independently. But we can learn and feed from each other in terms of ideas. So in a few weeks' time they're going to start sitting alongside MailOnline.
And now I'd like to go back to Kensington, not to introduce Danny's sex change operation, but this actually is Deborah, who is - Deborah Arthurs, who is the Editor of Metro. So, tell us how you came up with that tagline, because I thought it was so good, I thought you must have stolen it from somewhere. But I couldn't find it anywhere. So where did you get that from?
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Deborah Arthurs, Executive Editor at Metro.co.uk It does ring a bell. Yeah, it does ring a bell. So we wanted to sum up the essence of Metro in a one-liner that let readers know as soon as they landed on the site what they were getting. So it's not just a news, it's news with benefits.
So we do cover the main stories of the day, because we know our readers like to be well-informed. But we've added this layer of social, friendly content around it using lists and breakouts and quizzes and games. So we've got, for instance, a Bieber game where you've got to throw eggs at Justin Bieber, which went down quite well. And a Flappy Bird clone, that lets you fly Boris Johnson through the streets of London. I think you can see on the screen.
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Martin Clarke, Publisher, MailOnline
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Yeah, we can see that here. Amazing.
So what makes a successful story for Metro?
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Deborah Arthurs, Executive Editor at Metro.co.uk So the team is just excellent at spotting potentially viral stories early and getting them up quickly. So our brevity's our friend really. We've got most of our stories come in at under 250 words, so it allows us to post fast and helps us rank well in Google.
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Martin Clarke, Publisher, MailOnline And the new homepage that we saw a minute ago looks very different from MailOnline. Tell me how it actually works differently.
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Deborah Arthurs, Executive Editor at Metro.co.uk Well it's not as long for starters. I know MailOnline's very long. But we do know that size matters, so we've got an infinite scroll on our newsfeed at the bottom of all our articles. And we've gone for a much brighter look. It's bolder, it's more picture led. You've got shorter, punchier headlines and we use one-liner pay-offs for those.
So the team's a lot smaller and we've got a lot less content to play with. But we want it to look as fresh as possible all the time, so we've got - while MailOnline's page is entirely hand drawn, we've gone for a cherated (?) top - just the top six, and the rest is ordered using an algorithm that uses real time data that pulls in page views and social interactions to order the page. That allows us to get our trending stories up higher and our new stories up straight away.
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Martin Clarke, Publisher, MailOnline Now you used to work for MailOnline before you went to Metro. How do you think Metro's different as a place to work or as a journalist?
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Deborah Arthurs, Executive Editor at Metro.co.uk Well, we've got a cat section in conference for starters. I don't think you had one of those for MailOnline, so it's a touch less serious. And that small team that I mentioned that seemed quite daunting at first has turned out to be a benefit. We've actually got the desk team sitting with us on editorial, so we've got the hacks and the hackers together. And that allows us to build tools fast and get them out on a whim. And fail fast and move on.
So we're a lot more agile, and we get delivered fresh fruit to our desks. And I don't think we had that when we were back here, so -
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Martin Clarke, Publisher, MailOnline No, no you didn't. Anyway, thanks Deborah, thanks very much.
Now incidentally, Mel's team are now responsible for selling Metro alongside MailOnline. But we're not rolling the traffic figures into MailOnline, nor are we rolling their revenue numbers into MailOnline's P&L.
Now 18 months ago I told you that we were looking to achieve £100m in revenues by 2016. And that hasn't changed. That's still our target. We're just that much closer to achieving it, because - as I hope you've seen from myself and my colleagues - we're showing no signs of slowing down. We're the biggest beasts in the UK digital news jungle and increasingly making it pay. We're now one of the big players that everyone is watching in the US, particularly now that the shy, retiring Jon Steinberg has joined us, who is I think going again to make a step change to both our profile and our revenue in the US.
We're a brand with a well-deserved global reputation and audience to match. And our next challenges are simple. We need to reach the top five in the US - top five news sites, that is, in the US; become the number one in Australia, as I said; and take money from every other country in the world where we have a meaningful audience. And to do that we just need to keep on doing what we do best - produce brilliant journalism, that's fit for the web, fit for mobile and now, increasingly, fit for video - all on a technical platform that's fit for purpose. And above all, never, ever lose sight of our audience, because once any company does that, it's in trouble. And that's the one thing we hold on to fast.
So thank you very much. Thank you to my colleagues for fantastic performances. And also thank you to our avian IT department men online for making happen what everyone told me I was crazy to even try. So thank you very much.
Applause
So we'd be more than happy to take some questions, if you have any.
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Questions and Answers
Will Packer, Exane BNP Paribas A couple from me, please. Firstly for Jon. You gave a convincing case for the US monetisation issues. The audience growth seems very impressive - it's more of a Madison Avenue problem. If we were to look at where the MailOnline is today, and compare it to let's say a BuzzFeed, what quantum of revenues should the MailOnline be producing with its current audience?
So that's the first question for Jon, and just as a follow-up more generally for Martin, could you perhaps - the presentation today was very much focused on the audience side of things and the growth there. Could we have a comment on the monetisation side
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around what particular elements you're changing to try and help on that side, and the performance this year looks encouraging. Thanks.
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Jon Steinberg, CEO Daily Mail, North America Yeah, sure, so in terms of quantum of revenue - I don't know exactly how I would answer that. I would say that the opportunity's obviously massive, and this is very much, you know, a one week or one month at a time, going out there and getting the new packages in front of what are really only the four large holding companies - and three of them are inordinately larger than the fourth. And going brand by brand and signing them up to discrete campaigns and always on programme.
So I guess I'm punting on giving you and answer on that.
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Martin Clarke, Publisher, MailOnline In terms of changing monetisation strategy, we're not changing. I mean, Jon puts it very well. First of all, the secret is not some magic bullet, not some turning lead into gold or, you know, some trick. It's about largely hard work, hard graft, incremental improvements week in, week out. Building new clients, coming up with new ideas for clients, coming up with new products for clients. And Mel showed you how we've innovated so many advertising products in this country.
And then you have a whole quiver full of arrows, as Jon puts it, all of which you have to use. And you know, you use whichever one's most appropriate to the pitch that you're selling. But particularly - and this is what I think - both Mel and Rich flagged this up - obviously mobile is an increasingly important revenue stream, and one that we're increasingly making work. I mean, we are making mobile catch up with desktop display really aggressively. And obviously video, where at the moment the yields are fantastic and the challenge for us, quite frankly, is providing enough views to cope with the pre- roll demand.
But there is no great trick to it. You just have to keep plugging away, day in, day out.
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Jon Steinberg, CEO Daily Mail, North America And the only thing I would say about look back - you know, what I did in a prior life - it's all about innovating in the ad products. And I really do think there has been a step change. When I started doing native four years ago, nobody wanted to buy native, everybody told me native wasn't going to work. Two years in the market and flat did, and every brand wanted to do native.
In the three months I've been at Daily Mail, every single brand has said to me - come to us with some ideas. It's so - it's so consistent. It's obviously been such a change in the market. And I talked to my peers at the other digital companies as well - everybody's hearing it.
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Now the challenge is - how quickly can we move ahead? And own that and dominate that, and over-service and exceed their demands? And then as soon as that starts penetrating all the other digital media companies, how can we listen well enough that we see the next thing coming?
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Martin Clarke, Publisher, MailOnline And, you know, most clients think you're offering them a combination of products. You're offering, you know, it's broken down into so much for mobile, so much for native, so much for desktop display, so much for video. And you know, there's very few people just want one kind of advertising these days.
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Will Packer, Exane BNP Paribas And is it right to think that prices are increasing for these products across the board?
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Martin Clarke, Publisher, MailOnline Our CPMs are going up.
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Jon Steinberg, CEO Daily Mail, North America I think that unit economics, and I think CPMs are a red herring. And I think that it's very much about budgets, over-delivering on that budget, getting a renewal at a higher budget level. Wall Street analysts are really the only people that think about CPMs as the drivers of these businesses. If you talk to every agency holding company and every digital media executive, they'll tell it's about outperforming for the budget, and then delivering.
Everybody thought that Facebook was going to implode because the CPMs were lower in mobile, but they offered a dramatically better advertising product and they crossed the chasm.
For us, you know, I think the native puffs in mobile are one thing, mobile video is another, and continuing to outperform for the budget.
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Will Packer, Exane BNP Paribas Thank you.
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Nick, Barclays So the first one just on your unique visitor numbers. When you look at comScore, it's a hell of a lot lower than ABC, and I'm guessing that's because ABC has lots of different
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mobile, tablets, PC, etc. added together, while comScore's a survey. So which one of those do advertisers tend to look at, the ones who do care about CPMs?
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Martin Clarke, Publisher, MailOnline To be honest, neither, okay. The comScore numbers and the ABC numbers - Omniture - they're just, that's just a benchmark for buyers to know which are the big sites. And whichever way you cut it, whether you looks at the comScore number or whether you look at the ABC number, we're a big site.
But what they really care about is what you deliver. And they can - if an advertiser takes advertising with us, whether it's native or display or video, they can see - once they've bought and we've run it - they can see exactly how much traffic we deliver. They can see how many people click their ad or whatever the engagement KPI that they've chosen to use.
And that's what really matters, and - as Jon said - that's what decides whether they come back a second time. And that's the most important driver of a successful business is making sure that, whoever you sell a package to, get whatever they pay for and come back and book with you again.
And I think, certainly in the UK, and increasingly in the US - well, actually starting from further back in the evolution of our site, that in both the UK and the US, our rebooking rate is fantastic.
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Nick, Barclays And, sorry, I have one more question which is - the US side has got a lot more of its own content now, it's starting to have more of its own identity. Could you ever look to sell a stake in that to an investor to establish its value, establish its difference?
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Martin Clarke, Publisher, MailOnline I mean, to be honest, that really not my call. But I would very much doubt it. I would very much doubt it, Stephen, wouldn't you?
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Stephen Same answer.
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Nick, Barclays Okay, thank you.
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Rachel Malone, Bank of America Merrill Lynch
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I was just wondering, in a world of programmatic ad buying where advertisers are buying impressions rather than audiences, does that diminish the value of this strong homepage audience that you've been talking about?
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Martin Clarke, Publisher, MailOnline No, because you can't buy the homepage programmatically. If you want to buy the homepage, you go to Mel or you go to Jon and you write them a cheque.
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Melanie Scott, UK and ROW Commercial Director, MailOnline You can, but at a price that people would pay directly for it, 'cos we're able to [inaudible] programmatic exchange, set floors at the value that we choose. So we would set the same floor for our homepage as any direct buyer would want to buy it. But generally speaking, you'd want to -
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Martin Clarke, Publisher, MailOnline Not the homepage takeover?
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Melanie Scott, UK and ROW Commercial Director, MailOnline No. You buy an audience that visits the homepage, so the segment of users that are homepage users. And for us in the UK, that's more than 80% of our traffic. So -
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Martin Clarke, Publisher, MailOnline But not wish to correct Mel, but I think you're talking about the big homepage wraps and the expensive high value. That we don't - you can't get that on a programmatic exchange. If nothing else, I have to approve every one of those homepage takeovers to make sure it's not too tacky or unpleasant.
So the only way you can buy that - and that fantastic high impact format, particularly with the bars now that scroll down the side of the pages, which means the visibility goes on forever, the only way of buying that is directly from us.
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Rachel Malone, Bank of America Merrill Lynch I suppose it's more to understand that you believe that the destination site's value is still relevant in a world where -
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Melanie Scott, UK and ROW Commercial Director, MailOnline And I think programmatically that will continue. I think in a world where there's so much inventory programmatically, I think destination sites as large as us with such premium inventory almost stand out in a programmatic buying space.
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Jon Steinberg, CEO Daily Mail, North America Advertising, at its essence, is innovative. Advertisers need to do innovative things. And what happens is in the programmatic layer, the thing that's become de rigueur always gets commoditised. And then can you do something next which is not programmatic, which is custom and exciting that you can only do on a direct basis.
At BuzzFeed we had no programmatic, and we were able to get that to a substantial revenue level because we were offering something which the machines had not yet caught up to. It's almost like large block trading. People still do large block tradings, because you can only get a block of that size at a price that you want if you do it one to one. That's effectively what a direct buy is like.
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Rachel Malone, Bank of America Merrill Lynch Right, thank you.
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Paddy, Goldman Sachs I've got a couple of questions. The first one is - you've got a TV partner in Australia. Does it make sense to have a TV partner in the US to kind of speed up the monetisation, you know, given the issues with recognising advertisers?
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Jon Steinberg, CEO Daily Mail, North America I think that we think about video, period, as a massive opportunity. And wherever that video may go, obviously you look five or six years down the line - it's all going to coalesce around - the video will show on your cable. What will be cable? What will be television? And I think we all know it's all going to be the same thing.
That's why we're focused on the creative and the editorial. We're focused on over the next call - you're figuring out - what is MailOnline, what is Daily Mail in video? And then the opportunities will come from that.
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Paddy, Goldman Sachs Okay, so you wouldn't do a sort of specific partnership with a broadcaster in the sort of near to medium term?
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Jon Steinberg, CEO Daily Mail, North America I think that at the earliest stages, the kind of partnership stuff that Rich spoke about makes sense to get going. And then you supplement and build out your own team and your own sales effort, because nobody can do it like you - at the level where you're really going for the big leagues.
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Paddy, Goldman Sachs My second question is on risk management. I think you've had some sort of issues with plagiarism in Australia or accusations of that. Can you talk a bit about how you deal with risk management as you're growing so rapidly?
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Martin Clarke, Publisher, MailOnline Well, legal cases are part of the day-to-day risk of running editorial, whether you're a newspaper -
As it happens, I'm not sure if I'm allowed to say this, because there is a confidentiality agreement to that - that case has been settled. And I'll just say we won it 3-1. Okay, that's all I can say really, but that was settled very much to our satisfaction. I think, as Luke mentioned, you know, we walked into - as they call it in Australia - a good bluey in Sydney. You know, there are some pretty hairy-arsed incumbents in Australia at News International - or News Corp and Fairfax - and they really weren't happy that we showed up. So, yeah, it got quite unpleasant.
And we're not the kind of company that reaches for our lawyers. You know, we let our product do our talking; we let the traffic do our talking. We don't really go in for that kind of thing. But we can give as good as we get, and as I say, we gave as good as we got. That case is settled, and I'm very, very happy that it was settled in our favour.
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Tom, Citigroup I think last week the Guardian started soliciting sort of donations from its readers. I don't suppose -
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Martin Clarke, Publisher, MailOnline We won't hand the hat around at the end of this.
Laughter
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Tom, Citigroup But have you got any aspirations, presumably medium term, to try and monetise the very heavy users beyond just their eyeballs and their personal data?
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Martin Clarke, Publisher, MailOnline I've always thought it was pretty weird, which is why presumably the Guardian are now asking for voluntary contributions, to try and penalise your most loyal users with a pay wall. That seems pretty unfair, to say to people who just drop in now and again - you can have it for free, but if you want to use it every day, we're going to screw you.
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So we've never gone down that road; we've no plans to go down that road. I think, you know, every publisher's looking for new sources of revenue, and the Guardian's - I think the Guardian's thing is quite interesting actually, the idea of forming a club and then asking people to join it, and then offering them kind of real world benefits on top of the virtual ones. But it's not something, you know, I think is on our road plan any time soon. We've got too much else to do.
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Tom, Citigroup Is there any scope to try and push registration at least in a way to get more - as a way of viewing more data?
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Martin Clarke, Publisher, MailOnline Look, I would - what I'd say is that News International tried this at the Sun, and you might want to watch that space in the coming weeks for an answer to that question.
One more, I'm afraid - I'm told.
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Matthew Walker, Nomura Two questions, please. The first is - where do you think your - you know, now you've gone into video - where do you think your budgets are coming from when you go and talk to the ad agencies? Are they coming from other newspapers like the Daily Mail or Guardian, etc? Or are they coming out of TV budgets?
And the second question is - what the hell is that Turkish site showing?
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Martin Clarke, Publisher, MailOnline I'll answer the first one - sorry, I'll answer the last one first. It's a big Turkish newspaper, and it has incredible traffic both, you know, in terms of clicks and video - I think because there's such a Turkish diaspora around the world. And maybe it's the only newspaper in Turkey. I don't know. Turkey's a big place, by the way. So that's what that is.
But on terms of the other question, I'll let Jon and Mel answer that.
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Melanie Scott, UK and ROW Commercial Director, MailOnline Yeah, I think it's probably different in the US and the UK. I think in the UK most of video revenue currently sits with the four big broadcasters. But increasingly the demand for it is outstripping the supply. So I think premium websites like ours are seeing increasing amounts of demand for pre-roll video, you know, to short-form content, as well as the long-form content that the broadcasters traditionally offered. So we're definitely seeing the revenue coming from television.
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Jon Steinberg, CEO Daily Mail, North America Yeah, it's interesting. There's the emarketer stat where, I know in the US, internet consumption time across devices has now eclipsed television, right. And they say, I think, by 2018 or 2019 internet budgets, digital budgets will surpass television. So I'm not even sure that in our revenue ramp we even need to get the television budgets, because I think so much budget will have moved from television to the internet by the time we're at like a Facebook point or a point where you say - oh, we have to get television budgets to really be able to grow our piece of the pie.
To answer your question now - I think there are just digital budgets; I know there are just digital budgets with the media agencies. I know that the creative agencies do not want to do that kind of video; they want to make television commercials, right. And when they come to us - we have a digital budget, come to us with innovative solutions. And what's staggering for me really is - when I first started getting RFPs from media agencies four years ago, they didn't ask for that; they asked for what units do you have?
Now every single RFP - and I think it would be amazing - I mean, I could never send you one, because they're confidential, but you'd go to someone you know and say - send me an RFP - to read it, it's truly a request for proposals: how do you solve this problem? And here's the digital budget, and what can you come back with in terms of inventory and the ideas and the production?
So I think they're firmly digital budgets and I think that those are ever growing.
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Matthew Walker, Nomura Thank you.
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Martin Clarke, Publisher, MailOnline Anyway thank you very much and thank you very much to the editors around the world. Thank you.
Applause
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Martin Morgan, Chief Executive, DMGT Well, thank you all for listening to all those presentations. I know it's getting very warm in here. Just to conclude - let's face it, it's still all about great content, whether you're RMS, whether you're Euromoney - content that's innovative, that's engaging, that users want, can do things with.
And of course it's all about digital, it's all about global. It's all about innovating, and I think crucially, yes, it's been very close to customers, but also it's having the imagination and the courage to lead. And perhaps to do some things that the customers
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haven't anticipated, and surprise them and delight them, and that's the fundamental way we're going to grow our revenue, our profits.
So I hope you've both enjoyed it, been very well informed and can stay on for a bit and join us for drinks, as I imagine there's still lots of questions and things you would like to go to the speakers with, and those of us from DMGT and the other companies that will be available for drinks, which I believe are downstairs - is that correct? Yes, downstairs. So I hope you can stay for a little while longer, and thank you for coming.
Applause
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END
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