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Edited Transcript of GOCO.L earnings conference call or presentation 25-Jul-19 7:30am GMT

Half Year 2019 Goco Group PLC Earnings Call

NEWPORT Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Goco Group PLC earnings conference call or presentation Thursday, July 25, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lee Griffin

GoCo Group plc - Founder & Chief Revenue Officer

* Matthew Crummack

GoCo Group plc - CEO & Executive Director

* Nick Wrighton

GoCo Group plc - CFO & Executive Director

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Conference Call Participants

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* Bridie Anne Barrett Schmidt

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Malcolm Morgan

Peel Hunt LLP, Research Division - Analyst

* Silvia Cuneo

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [1]

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Good morning, everybody. Good morning. On this wonderfully hot day, I thought I'd oblige this summer with the color of my jacket, which was picked on by our friends at Deutsche Bank here. So welcome to the -- this morning.

Here to my left, Nick Wrighton, CFO, who is always up here with me. And also today, we've invited along Lee, employee #1 at GoCompare, one of the founders, and he will be talking us through our GoCompare business this morning.

We have quite a lot to get through. I'll talk through some highlights and also what we're doing in our AutoSave segment. And I'll cover off some of the acquisition news today, too. Nick will go through some of the financial reviews and numbers. And then I'll ask Lee to come in and talk a little bit about what we're doing on our core business on price comparison and some of the news there, too. We've been busy there as well.

All right. So let's -- let's get into this. What I would like to do is sort of refer back to those of you who were at the Capital Markets Day, and those of you that weren't, you can go have a look at what we've done, what we've said on that day, but we set out an ambition to be a technology company.

Within that though, there was a discipline that we set out that we needed to exhibit, which was all around in discipline at the core, and that was around driving cash that could fund, and we could invest into innovation. And this is what we think we are doing here. We've been stabilizing our marketing margin despite a very competitive environment, and I'll talk about some of the -- some of those dynamics and so will Lee through to today. And with that stabilized marketing, we've delivered a stable revenue and profit picture.

What that has done is positioned us well for the second half. And we have a number of initiatives, including something we launched just a couple of days ago, on our GoCompare core business, with all those customers who do a switch on car insurance, from here on you'll be receiving a free GBP 250 excess, should you need to make a claim. And Lee will talk to you about that a little later on because when it matters, GoCompare. And Lee will tell you why.

Of course, we're continuing our innovation journey. We had a very busy first half on weflip. We learned a lot. On the back of all that we learned, it validated our thinking around AutoSave. And it validated our thinking to such an extent that we wanted to invest in a second brand and the acquisition of Look After My Bills, which we'll tell you about as well.

And finally, we continue to invest into a platform that we talked about at our Capital Markets Day, which is SaveStack, and what SaveStack enables us to do and the services that it provides, not only to the core brands like GoCompare, and weflip and the new brands like Look After My Bills, but to other people's environments as well, like banks.

Without a doubt, this is probably -- having talked with Lee about this, he's been around the longest here. It's probably one of the busiest periods we've ever had as a business. One of the busiest period of outputs. And so we're certainly all asset here over the summer and excited to get through to that and tell you about all that.

What's important to reflect on are our strategic goals? And we set out at our Capital Markets Day that we wanted to transform the group into a higher, more sustainable EBITDA margin business. We actually think that many of the propositions that have been around in the switching market for many years. Many of those propositions talk to minority of people. Because it's actually a minority of people who are really interested in saving money. It's not the majority that wake up every morning and say, "Today is my day for saving money on insurance." It's generally the minority.

And so we knew, because it was such a big market, and I'll talk more about that, that we needed innovation. And the innovation comes through in what we've done in AutoSave. Now whatever the consumer preference, though, whether they want to do it for themselves because they're interested or whether they can't be bothered, we believe we have it covered. Because we've been building propositions for those people that want to do it themselves and those people that aren't interested or need help. And we're covered across the spectrum, and we think that makes us unique.

Now what Lee will do today is talk about price comparison and about how we've maintained our financial position in what's been a competitive market. Current insurance premiums have been on the decline in recent times, which led to reduced switching volumes. And in a market which is contracting, of course, marketing costs tend to go up, it's purely supply and demand based equation. Within that type of market, we would have -- always maintained that we'll maintain discipline in how we approach the business, not only in how we spend, but also in how we drive goodness through conversion in that business.

But as we look forward to the second half, we're excited because we do believe now we're launching with a differentiated proposition, whilst at the same time, maintaining the focus on those basics. The better we are at improving conversion on the base business, the more options it gives us either to invest more or to take the cash. And we take a different philosophy based on the cycle that we're in, which brings me on to the fact that we think the cycle is turning. We think that switching will improve, and we see some specific data points around that, and we'll talk a little bit about that later.

Finally, we recognize that we need some simplicity in the way we operate. And so we have some clear accountability, which is why I've asked Lee to come back and take full accountability for the GoCompare brand, and that's what he'll do with you, shortly.

Now in terms of this opportunity I talk about, we outlined the market in some depth at the capital markets day on March 20. I'm recognizing already that there is a core market, which is very valuable. But as I said, that core market talks to a relative minority of people in this country, and there's a huge opportunity to address the unaddressed needs of the millions of people that don't switch. And so therefore, we think the opportunity for the market could be 3, 4x what it actually is today, if we could address those unaddressed needs.

When we look at energy specifically, staggering 23 million households in this country have not switched energy providers in the last 12 months. It's extraordinary, and 15 million households, roughly, are still on standard variable tariff. When you see the amount that's written in the press every day about this, there is still that many households out there that still haven't switched, we think that's an incredible opportunity. And we think, automating parts of these processes, automating the saving is a way of addressing this.

The size of market and the size of opportunity is why we felt, because there was such a big opportunity, that the addition of the second brand could be very accretive and very consistent with our approach and our thinking. And that consistency of approach and thinking has been very important to us not only on the core, but how we approach innovation.

So today, I'm very excited to announce the acquisition of Look After My Bills. If you hear us call it LAMB, forgive us, but that's the shortcut. Look After My Bills. For those of you who are not aware, Look After My Bills appeared on Dragon's Den last year. And given the equity deal they secured, classifieds, and that's probably one of the most exciting prospects in the program's 13-year history.

The founders have done a great job of accelerating customer growth and for that we agreed, an acquisition of a total price of 8.5 million, of which GBP 6 million upfront and GBP 2.5 million deferred, and the potential for a further GBP 4 million depending on strong performance measures. All the work we did on weflip through this year, validated our thinking around the opportunity and the growth opportunity and the opportunity for the consumer. And the decision to add the second round is absolutely in lockstep with what we communicated previously and in line with our strategy.

Now Henry and Will, the 2 founders are pretty busy this morning as you can imagine. But I did ask them to record a couple of words, because they've been on TV before, so they can do it again. So I'll ask you to play a short video, please, so they can do an introduction for themselves.

(presentation)

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [2]

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There we go. So thank you to -- that was Will on the left and Henry on the right. So -- and at some stage, I'm sure we'll hear more from them. But what we outlined at the Capital Markets Day was that we have multiple brands, if you recall, in the group sitting on a common technology infrastructure, and we're building that infrastructure to be able to feed the brands with intelligence and with data.

And so essentially, what we're doing here is adding another brand into that ecosystem, which is consistent with the way we've designed. And indeed, in this instance, we've got 175,000 -- more than 175,000 live customers at our group by 2022.

Equally, as you heard Will say there, what we want to do is also extend some of the services that we have from SaveStack and also some of the administration, that we can provide to let founders be founders. And from there, to go after growth and not have to worry about some of the basic things that are involved in running a business.

Now indeed, our early investments earlier this year into weflip proved critical, I mean, valuable really, and there's understanding and learning about this evolution and this innovation in auto saving. We tested the concept, both through many different marketing channels. We ran some TV. We worked with the press. We extended out incentives, we communicated directly with people. We talked to people. And so we learned a lot through that time, and that was invaluable because it validated the hypothesis that we've previously had because we think this is a concept and a proposition that can be extended out.

When we met LAMB, we appreciated also what they had done and what they were able to do in different marketing channels like social media and the innovation that they were bringing to acquiring customers at dramatically different costs, and how powerful that could be on our goals to accelerate through this GBP 23 million opportunity. So we think we have an opportunity to innovate through different channels, through different marketing methods and means, not only in the technology and the operations that we have, but also in the marketing and the way we communicate. And with the two brands, we think we give ourselves that opportunity.

Now this is all about customer numbers. Now recall the economic model here, and that we're acquiring a customer in Year 1 at a certain cost. And then we're assuming that the customer stays with us and that there is a reoccurring revenue on an annual basis that takes place. Now you can apply a certain amount of attrition, or you can apply -- or that they don't switch, we think that they'll stay with us when they're getting a good service and they're saving money, and that it works for them, not against them. So acquire Year 1, recurring revenue model, which gives you a lifetime value. Today, we have 175,000 customers, and we're committing to a target by the end of year, extending that by 25%. And so for those of you thinking about modeling this, you can think about that number and how that extends through next year and beyond, and back to the economic model of cost of acquisition and retention and recurring revenue, GBP 3 million into administrative costs, which Nick will be talking to you about in a bit more detail, shortly.

But our ambition here is, along with the transformation of this group, our ambition is to have millions of customers. And that is dependent upon of course, investment. And ultimately, an investment where the cost of acquisition is lower than the lifetime value. And that is something we're learning about all the time. And of course, those investments level will vary depending on what we learn and how fast we can go.

Delivery is key, of course, execution and simplicity for me is key. And therefore, we've structured the company in a way which allows to focus on simplicity. With Lee here, taking up the CEO job of the GoCompare comparison business. We've also asked [Zoe], who was our Chief Marketing Officer, who some of you will have seen earlier in the year, to become CEO of the AutoSave segment, which wraps up both weflip and Look After My Bills. Those brands will be run side-by-side, independently. So we'll share some common architecture, but they will be ran independently as businesses. And so we will look after both of those.

Finally, some of the discipline and dynamism that we brought to GoCompare, we also want to see mirrored and reflected in our Rewards business in MyVoucherCodes. Our discipline of focusing on conversion growth, efficiency of spend. And to that extent, we appointed a new head of our business about 3 months ago, Stefano Perino, who came from Expedia, with a strong background in e-commerce, product development and business development. We're expecting to bring the same level of intensity to that business as we've been applying to the other parts of the business. And all that sits on, of course, this technology infrastructure that we've been accretively building over time with SaveStack, and that allows us, of course, also to test out what that can do for us.

Now we also think at some stage that different environments can power savings opportunities, and different environments might include people's bank accounts. And so we partnered early with CYBG, Clydesdale Yorkshire Banking Group. I think that's what it stands for, who will shortly be called Virgin Money to test some of these concepts and theories that we launched just recently. Very much, we're looking to understand what the customer thinks about in those environments and how they behave. So it's not the same as it would be as them going to a site or going to an app or doing something independently. So I'm sure we'll learn a lot. But interesting, nonetheless, as we expand out what SaveStack can do for us.

That wraps up my summary and my overview of AutoSave, what I'd like to do now is have Nick go and to talk to you about some of the financials. Nick?

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Nick Wrighton, GoCo Group plc - CFO & Executive Director [3]

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Thanks, Matthew. So just looking at the financials, so solid performance during the first 6 months of 2019, in line with what we said we'd do back in February, which is really a continuation of the disciplined performance in what's been a tough switching market. We see total revenue in the period for the group, flat at 77 -- GBP 76 million. Price comparison revenue in the period, flat at GBP 72 million, with revenue from Energylinx, offsetting a reduction in GoCompare insurance revenue. Adjusted operating profit of GBP 12.5 million is down on the GBP 21 million delivered in H1 '18, reflecting the investment in weflip of GBP 8.1 million, which includes GBP 6.7 million of marketing spend. If we exclude weflip, you can see on the right there that the adjusted operating profit of GBP 20.6 million is broadly in line with what we did in H1 '18.

Looking at some of the detail on the GoCompare business. We have continued to improve conversion on our core car insurance journey, and that was up 1.2 percentage points half-on-half. Improved conversion has translated into another improvement in revenue per interaction. And in the period, that was up 8% to GBP 5.19. And the marketing margin was stable, inflation on both generic and brand paid search.

The head count broadly flat in the period, from 292 a year ago to 300 at the end of 2018 and up to 301 at the half year. Adjusted admin costs, GBP 16.2 million in the first half. You can see at the bottom of the columns in the middle chart there, the depreciation and amortization has increased from 0.9% in H1 2018 to 2.2% in H1 '19. And that reflects the increase in CapEx spend that we saw last year. If we exclude depreciation and amortization, the admin costs of GBP 14 million are broadly in line with the GBP 13.9 million that we incurred in the first half of 2018. And what you see in there is a small increase in staff costs being offset by a saving on the premises costs, where we now account for that under IFRS 16 as a depreciation charge. The difference you see on the slide, there's been the GBP 14 million in H1 and the lower number in H2. The biggest reason for that is the FCA levy. We paid a levy to the FCA, that's accounted for each year in April. And finally, on that slide, CapEx, GBP 4.8 million in the period, as we said, back in February, broadly in line with the run rate from the second half of 2018.

We've continued to generate strong cash flow. And if we exclude the investment that we've made into weflip, you can see operational cash flow in the period of GBP 18.7 million. Clearly, that's been offset by the GBP 7.6 million of cash that we spent on weflip. Corporation tax in the period, GBP 3.5 million. That relates to the profits from 2018. So as we move into the second half of this year, we'd expect our tax payments to be lower, reflecting the lower profit delivered in H1 this year. CapEx, as I just said, GBP 4.8 million. And then we see the interest cost, a GBP 5 million drawdown on the RCF, which we made earlier in the year to fund the investment in weflip in Q1. Could have paid that back during the period, but obviously, we kept that with the LAMB transaction completing on the early July. As you can see at the end of the period, after paying the dividend of GBP 3.3 million, we ended with GBP 15 million cash. And leverage at the end of June, 1.8x versus 1.7x at the end of December '18 and 1.5x at the end of June.

Switching again, Matt has spoken about the outlook, but just to give a bit more detail on the outlook. Firstly, just to spend a minute, just looking at the revenue implications from the LAMB acquisition. If you recall, we bought Energylinx in June 2018. And Energylinx has relationships with a large number of U.K. energy suppliers, and it really works on behalf of affiliate partners, one of whom was LAMB. So LAMB generates the customers, Energylinx has the relationship with the energy companies and the way the model works is that LAMB -- sorry, Energylinx will provide the switching capability, has the relationship with the suppliers and, therefore, record 100% of the income that has been generating from LAMB. So ELX has already get all that income and then clearly, it pays out a large amounts of that income to LAMB, already with other partners, as a cost of sales.

So what we'll see from a group perspective, is this transaction will be neutral from a revenue perspective. But going forward, we will book the revenue that's been generated from LAMB in the AutoSave segment and not in the price comparison segment, where it is currently.

As Matthew said earlier, the acquisition of LAMB, puts us in a very strong position to grow the AutoSave business as we go forward. And we intend to spend an additional -- and invest an additional GBP 4 million into marketing in the second half of the year, and we will also incur an additional GBP 3 million of admin costs, primarily relating to the costs of running Look After My Bills. We expect AutoSave customers -- customer numbers to grow from 175,000 today by at least 25% over the next 5 months. And recall, and again, just to build upon what Matthew said earlier, this is an AutoSave model. These customers have delegated authority to our brands, LAMB or weflip to be automatically moved on to the best tariff. So we would expect a high retention rate, i.e., we'd expect a large number of these customers to be switched in future periods, thereby creating a recurring revenue stream. And importantly, the recurring revenue stream will be without needing to spend lots of money on marketing on reacquiring those customers. So to conclude on this slide, our goal remains for AutoSave to be transformative to group earnings by 2022.

Now I'll hand over to Lee now to talk around price comparison.

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Lee Griffin, GoCo Group plc - Founder & Chief Revenue Officer [4]

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Thanks, Nick. Good morning, everyone. I get to start to talk about price comparison. And really, I want to focus a little bit on the market itself and what we're actually seeing. I've been involved in insurance for over 20 years. And with almost 15 of those in price comparison, so I've been through a few of these cycles and seen quite a bit of change.

What we're seeing for me is quite typical of the market signs of turning to pricing, as we've seen over the last few quarters, it starts to increase our new business. And also, whilst the last 2 quarters have been quite difficult on switching as in the switching market seems to have contracted slightly. In the last 2 months, we've actually seen the market increase. So again, all good external signs on where the market is heading. Coupled with our internal measures, which we use, we're also quite encouraged by the fact that we believe the market is turning, as Matthew stated earlier. So we do think there is opportunity within the second half to grow the business.

So what we've done? Well, I think in the -- one of the main things, which we've repeated over time is that when there is a down cycle, we don't tend to overinvest. We believe in focusing and obsessing over the fundamentals, the opportunity to grow. And we believe that H2, all the signs are there for us to do that.

So what we've been doing for the last year. Well, apart from trying to maintain market share, we've also been looking at how we can offer new proposition to customers. We spent the best part of the year, speaking to our customers, asking them what it is they want from a comparison site, not just what they see as the cheapest price, but also what they see as value. And we found that consumers actually, the more we speak to them, the more value is more important to them over price.

From the information with the consumers, what we found was that they were actually more interested in how we can help them provide better insurance. So instead of actually offering extras, which are good and because there are no alternatives to give them, actually just helping them with their insurance and making insurance better for them actually came up better than giving away freebies.

And this actually plays quite well into GoCompare's history. We were set up with the idea of offering the right product at the right price. And so from the research we did, we have launched 2 days ago, a new brand proposition, which was under the strap line of When It Matters, GoCompare. And this is all about putting GoCompare, once again, back at the -- to the consumers help when they need it, so when it matters in places like when they need to compare, we go beyond comparison. GoCompare's always led the way on the information provided to consumers, whether it's product ratings, customer ratings, or just the information we show about insurance products. We've always led the way on that, but we feel we can go further on that.

I'm going to skip the middle one for a second and come back to that one. And then on the last one, using our ability and technology. We've also helped improve industry issues. So for example, looking at things like fraud solutions and pricing, and we are going to help insurers, which ultimately benefits the consumer when it comes through in price.

And then there's this -- the middle one. So when the worst does happen, we're going to try and be there even more for the consumer. And this is why we've launched our Excess Protection Cover. And if I was to summarize this in one sentence, this is when the worst happens and you have an accident, and it's your fault and unfortunately, you have to pay out your excess and you're left out of pocket, GoCompare will help cover up the GBP 250 to that.

So we believe this will resonate really well with consumers and allow us to push forward, not just on top of mind, GoCompare has always had a great top of mind awareness. We've always led the market in there. So we've always been able to bring customers to the site. As is always the case, these are very transactional relationships, and we want to move this more to a relationship-based relationship.

We spoke at the Capital Markets Day around that middle box, in particular, the after service came, we were quite vague on what we saw in that. Hopefully, now you can see this proposition plays into that area, where we will engage the customer more frequently throughout the insurance length. This allows us opportunities to maybe be in contact with the consumer more and offer a different propositions to what we currently do.

I think why I'm excited about this opportunity is that this is not just the opportunity to take market share, offering a good proposition, but is also the opportunity to grow market. This is not new customers into the market, but the opportunity for consumers who -- to use price comparison sites, but don't switch, and we think this is a good opportunity for us to add more value there and increase market size. And as I said, all of this plays into GoCompare's original conception of right product at the right price.

I'm also quickly going to focus on the Rewards business, MyVoucherCodes and what we can see on this is actually quite similar to GoCompare. It's a very competitive market space. And we spent a lot of this year getting the basics right, including a new platform but primarily trying to improve conversion. And this has led to a market, which has had fall in volumes, but allowed us to maintain our revenue. We've also, as Matthew said, brought in a new leader for this business. And with the strong fundamentals, we believe this is exciting time and an opportunity for the company itself.

So if I was to quickly summarize, we had a disciplined approach to H1, only investing when we felt it was right. The market itself, is showing signs of growth, which we see as a big opportunity for H2. And more excitingly, we have something additional to say in that second half. We believe we've got proposition at the right time to launch to a consumer for us to have the opportunity to grow. And as we've always been with our businesses, we've become obsess over the fundamentals and improving them, so that the business has a strong opportunity to grow.

Thank you. Back to Matthew.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [5]

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Thank you, Lee. Right, to summarize here, forgive me, but we are very excited at this particular moment in time, given everything we've got going off. And we're very confident about the actions that we're taking and also the initiatives that we've launched. Very excited to welcome Look After My Bills into the family as well. And if I wasn't standing up here being excited and confident you'd be a little bit worried. So yes, we are all in the company, are particularly excited today.

We do operate in competitive and demanding environments, which is why we believe the discipline that we've exhibited, and continue to exhibit in managing the financial position is important and remains important, going forward, so we can invest wisely to grow the business and transform this business over time.

I really like what the work the team has done in launching the new proposition on GoCompare, and we're excited to see how that works over time, I think, taking the business back to its core fundamentals of doing the right thing for people, help them on insurance, I think, will really resonate. And I think it's also just a very powerful proposition. But we do need to innovate, and we need to innovate to unlock the very sizable opportunity exists in the market. We think AutoSave is a way of doing that. And we think having more brands in that very sizable market, gives us a great opportunity to win.

Ultimately, it's about growing customers. And I know having talked to many of you and many investors, you want to put some numbers on that, which we have today. Where we are today, we're over 175,000 customers, and we want to grow that number. And we've made some commitments by the end of the year.

Overall, we've got a busy 6 months ahead again. But I think we've given you here today some proof points of maintaining discipline, but also some exciting innovation that we think we can drive through for the second half of the year.

That's it for the formal, but now we'll move over to some Q&A. So thank you for your attention so far. Thank you. We got one down in the front already. Malcolm?

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Questions and Answers

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Malcolm Morgan, Peel Hunt LLP, Research Division - Analyst [1]

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Can you expand a little bit on your intentions with regard to having the two auto switching brands? Is it is going to be a permanent maintenance of two separate brands? And can you also then discuss with your net incremental marketing spend, indicated there at GBP 4 million? Is that all ringfenced towards driving LAMB? Or is that -- is there going to be a more broadly based auto switching spend that will benefit? I think this is a little bit of that will be benefiting weflip.

And then just finally, on the infrastructure, because obviously, you got Energylinx, which powers this, and you've indicated that LAMB's GNO overhead is going to be ringfenced as sort of a winning process that works itself through.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [2]

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Sure, okay. So I'll -- we've got 3 different bits there, which is 2 separate companies. And I'll link 1 and 3, how does the infrastructure work around that. And then there's this GBP 4 million spend, how we think about that overall or maybe between you and I, we can manage that.

I think -- because of the size of opportunity of this market and just how big it is, having more brands on the shelf, digitally, I've always felt was a model that could work. I've seen it work elsewhere. There are other -- there are very classic examples in terms of our online travel where it works very -- pretty well over time. We'll come on to the sharing of architecture in a moment. But there were slightly different routes to market that each brand has chosen. Look After My Bills has been very successful in social media, done an excellent job there, and they also have a slightly different operational model as well in terms of how they service the customer. And so we just like to let them go on with that. I think there's a lot we can learn from them, and there's a lot we can help them with. So that -- we don't want to mess with that.

weflip has done well, but it's operated, it's tried different routes to market. And we want to let them continue to try that. The overheads in the scheme of things are relatively low, particularly on the weflip side, we've managed that as like a startup, like we've talked about before. So I think, keeping them separate for now is absolutely the right thing. And what I'd like to do is let that spirit of entrepreneurialism, let it come through and drive customer growth, which is really what this needs to be about.

Ultimately, when you talk about architecture. I'm going to split that down and talk about two things. There's core architecture and infrastructure. And then there's what is essentially a user interface. So user interface is the website and what things look and feel like. And underneath that are things like hosting, data lakes, data architectures, quite heavy, bulky things. Now I think there are things, certainly down at the bottom end, which can be shared and because I think that's not necessarily a cost savings, just a good thing to do, it's everything from protection to making sure there's stability and so on.

But when it comes to user interface, and this is the website itself, actually, what you want is some differentiation. If every brand is the same, when you don't get differentiation through search, through search channels like Google. Indeed, if your content is replicated, you get penalized. That's a good thing to do. So the architecture base and, I would say, at top level, different things. It's the same, we have a different user interface with GoCompare. It's a different experience, and we want that differentiated as well.

So in terms of the GBP 4 million, this really is about, may the best cost of acquisition win. For us, this is about if -- Look After My Bills have done a fantastic job in acquiring customers at a very good economic level. And doing that, which is a lot lower than the lifetime value, allows us to invest into that. And that's why I think we're looking to invest more, because it just makes great economic sense.

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Malcolm Morgan, Peel Hunt LLP, Research Division - Analyst [3]

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So we'll be focused on that. As I experienced at LAMB can deliver in terms of return on marketing, will that lead across the (inaudible) will vary or you maintain the level of (inaudible) marketing expenditure but just how to be [guided] on that for everyone?

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [4]

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We -- the teams will be sharing as much as they can in terms of how to approach and get the best cost of acquisition. Yes. And certainly, if they are not, I'll be very disappointed, so yes. They will be doing. Yes. Okay. Silvia

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Silvia Cuneo, Deutsche Bank AG, Research Division - Research Analyst [5]

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It's Silvia Cuneo from Deutsche Bank. First question, about the GBP 250 production offer in the coinsurance segment. Can you share some details about how that will work? Is it going to be a cash payment? And have you thought at all about leveraging your Rewards business? Clearly, you shared some thoughts earlier about consumers' view on the point, but just wondering if there is some sort of middle way solution.

And then second, on Look After My Bills, it sounds like they have a slightly different business proposition in auto switching, as in they only switch consumers once a year, while with weflip, you do it every time there is a potential to save GBP 50. Can you talk about the benefits of the two propositions? And are you going to move on to one only?

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [6]

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Great. So Lee, would you like to take the how does it work? How does it work?

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Lee Griffin, GoCo Group plc - Founder & Chief Revenue Officer [7]

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Yes. Well, it's a traditional insurance product. So the way it works for a consumer is, you will pay -- as part of the claim, you will -- sorry, the claim for your insurance, not the claim for the excess. For the claim for your insurance, you will pay your excess to get your vehicle fixed. If the claim is settled and you're left out of pocket, you will have -- so if your excess is unclaimed back, which generally means an insurance terms that it's a fault claim, then they can make a claim against the excess protection, and we will pay the money back. So it's actually fairly straightforward. It's only -- it's triggered by the fact that you make an insurance claim. So there are very few restrictions to it, the fact that you make a claim triggers of the excess. But obviously, you need to be out-of-pocket for the excess for them to pay it back.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [8]

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In terms of the -- did we consider that -- when you go back to what this business stood for and what we think is important for consumers, we think it's about insurance and not necessarily about two pizzas, things like that. So that's why I think we've gone down this way.

Now that said, we think, over time, giving people rewards for being loyal and being in an environment where they're trusting us to get them a service, could be very powerful. Clearly, as part of what we're doing with the AutoSave business, we expect to have many consumers in an environment where they're trusting us to manage a service, and it's quite possible over time. We will look to see how we can leverage that Rewards opportunity with those people. Anything else on that? No? Okay.

In terms of the 2 operating models. You're right, there is a difference. And look, we're learning, I would say, all the time on what we think the right level of switching is. The -- similar about all of that, they have to take a meter reading, a lot of them, smart meters are not there yet. So a lot of them have to do that. But we're going to try and hide the complexity. And so if you're switching some of them every month, it would be painful. And so we're having to think about how we minimize some of that noise, I would say, some of that complexity.

And that's not just about us, it's about the energy industry as a whole. And if we can get hold of good data flows, for example, from the industry, that helps us manage that flow. And ultimately, if it was a pure market where data was really accessible at every level, you could switch people every minute, and it wouldn't matter. But we can't do that today. So I think what we're trying to do is balance out complexity and a simple customer experience. And one -- there's one model and then a different model, and we're just going to learn all that, I think, through this year. Right. One more down front, across there, please.

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Bridie Anne Barrett Schmidt, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [9]

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It's Bridie Barrett from Stifel. And two questions, another one on LAMB. It's been running for 12 to 18 months, is that right now? The acquisition of Look After My Bills, I think I heard for nearly a couple of years. So can you just maybe share us some of the customer retention data and churn data, so we can sort of understand how that looks, given this is a retention model.

And the second question is just on the coal price comparison business, where gross margins went down by just over a percentage point. If you were to normalize the inflation in search, how would that look?

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [10]

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Okay. So core margins, perhaps you can take that. In the first instance, so Look After My Bills started ramping up customer acquisitions, spring of last year. Okay. So they started up the previous year and started acquiring customers at, I would say, a lowish level through the first half of last year and then started to really hit, I would say through the back end of the year, and they've maintained that healthy rate of acquisitions through that time.

So the quantum of data available to us on retention at the moment is we have some, but naturally, over time, we're just going to get cumulatively more. The retention numbers that we've seen from them, substantiate the assumptions that we had initially, which is that it would be high. Did we give a number in that question.

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Nick Wrighton, GoCo Group plc - CFO & Executive Director [11]

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Yes. We've said previously when talking about what to model, we said that we are using 70% retention as an example, and said it can potentially be a bit higher than that. We were looking at 70%, and I'll say the early data, albeit, as Matthew said, it's from a small cohort of customers because most of their growth is really from August onwards, and the small cohort customers have seen, I would say, it supports about what we've seen.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [12]

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Okay. Okay. On the margin.

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Nick Wrighton, GoCo Group plc - CFO & Executive Director [13]

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Yes, on the margin, when we obviously look at the marketing margins, we look at rather than the gross profit. We look at the spend across both cost of sales, which includes all the paid search and distribution, which is the above the line and the brand spend. So overall, I'd say that the margin was broadly flat. Clearly, there's inflation there. And it's difficult to strip it out because, I know you don't know what normal is really, I'd say, it continues to be competitive. In terms of bidding for keywords, that may potentially ease if there's more customers coming to market. So to get the switching market growing again, maybe there's less pressure, I would say, we just have to wait and see what happens here in the remainder of the year. But we'll continue to be disciplined in our approach and look to try the right balance between revenue and the margin.

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Bridie Anne Barrett Schmidt, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [14]

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I'd say that it's just surprising to see you've reported continued increase in conversion and revenue per interaction. I would have thought that translated into better gross margin. I don't know if I'm missing something.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [15]

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It's pure math. So if our conversion and revenue per interaction is growing, marketing inflation will be growing faster than that. So particularly in digital channels, which is what we're experiencing. So it's purely mathematics and they're already here. So I mean -- and we've seen -- we continue to see high competition in digital environment. And this is not just from other price comparison businesses but there are clearly supply side producers, insurers who are in the market as well, and they come in at us, and then there are times when the market is more or less competitive, but in a market where there are a fewer new customers out there, price goes up.

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Unidentified Analyst, [16]

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The first is on the GBP 250 premium cash back. Is there -- are there any expectations with respect to uptake or numbers in terms of expenses in future as it seems to me to be a bit of a deferral of the expenses associated with some of the acquisition of those customers?

And then the second question is on the AutoSave customers, I saw in one chart where you've quoted 5,000 customers currently, is that how many customers are on weflip now compared to the total of 175,000? I just want to know then what's the 20,000 gap between the 150,000 that LAMB has and the 175,000 that you're quoting in total.

And then the -- I guess, last question, just on LAMB and just -- I mean, it seems like I'm -- obviously, they're doing really well on customer acquisition, is it purely just they have some magic formula with respect to social media? And have you looked into that, to see exactly what's driving that success?

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [17]

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Sure, okay. So thanks, there are three bits here. Where's the magic? I'll take that, right? I think the numbers, perhaps you can clarify the number on that. And then -- so we have to clarify as well, the GBP 250 question was a cost of sale question buried within that. It's just worth because it's cost of -- it's an immediate cost of sales as opposed to being deferred or something...

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Nick Wrighton, GoCo Group plc - CFO & Executive Director [18]

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Yes. So I mean, the GBP 250 excess clearly is we're not underwriting that. We've got insurance partners to underwrite that policy. So we pay a premium to that partner. That -- cost of that and policy, we will expense every month, just in line with normal marketing expense. So that's what it is.

I'll tell you your other question. I think your other question was referring to a number of 5,000 on the slide, but I think that number of 5,000 is the number of customers on AutoSave at July '18. So at this time last year, I wasn't quite sure what the question was. Basically, what that slide is saying, that Slide 9 in the pack, we're saying that the 2 brands, so weflip and Look After My Bills at January '18, 0 start-up year. By July '18 at 5,000 customers. And by now, today, it's got 175,000. So that's what that slide is trying to illustrate.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [19]

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Yes. Just in terms of the expectations on GBP 250 and Lee and I could have a one-to-one here about the expectations, that's right. But what do you -- Lee what do you -- how do you think about responding to that.

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Lee Griffin, GoCo Group plc - Founder & Chief Revenue Officer [20]

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Yes. So I think, initially, the sign-up will be very high. I think we're expecting most customers to want this cover. In fact, we can't see reasons why they wouldn't do. So when they're eligible, we think they'll sign up, how we think it will play out it's -- as I said I'm going to go back to -- it gives us an opportunity to grow the switching market, which I think -- which is why I'm more excited about, and this will come down to execution of the -- of it, and we did mention on the slide, but there will, obviously, be adjoining TV adverts and things to come alongside this. But we'll be talking about the proposition, and they'll come in time.

But we feel there is a good opportunity, which we have seen in some of the other comparisons sites do, but not for a while now as there've been innovation to grow market switching.

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Matthew Crummack, GoCo Group plc - CEO & Executive Director [21]

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Yes. I -- this model is I -- as we traveled around and talked to many of you over time, I think the model has two simple components, one with how many people come to the site and how many people convert. And this has both components of that over time, at different moments, but that's what we're seeking to drive. And if there are more people coming in, we can expand the market at the same time, and that's a good thing for everyone, I think.

Just to your final, sort of where's the magic question, this I think, the whole AutoSave proposition is about understanding what you need to provide, not just in terms of that initial acquisition, which there is -- certainly, they're doing a very nice job in social media, right? And we're learning from that, and we'll continue to learn from that. But it's an acquisition channel. It's mathematical. It's highly dynamic, highly pacey.

But on top of that, with the service itself, they've taken a slightly different approach, too. We really like how they're being very proactive with customers, looking after customers, because it's all about retention. And I think it's about how they're working with them. I'm not just signing them up and leaving them to it, right? And so again, some of the administrative expense, you'll see here that we're running in the year is all around making sure that they have enough people and for the right people to make those interventions. And so we're learning about that as well. This is not just a sign-them-up-and-leave-them thing. You have to work hard at retention, and we think we're learning a lot from what they're doing. And again, that's I think that's part of the overall economic model. That's all, we've had all the questions already.

Thanks. Any other questions? No? Well, that's brilliant. Thank you very much indeed. Have a good day everybody, in the sun.