Over the last 6 months, the REA Group has made a series of interesting announcements. Last year the Group exited its allrealestate.co.nz business in New Zealand, reduced investment in HubOnline and sold the Clarke Computer business to Rockend. Now they have closed their European Corporate Development team, in their half-year report announced a "focus on profitable revenues", and last week restructured the business. With operations in 10 countries and historically a global growth strategy, do these announcements signal a change in direction?
Between 2005 and 2008, the REA Group executed a strategy that saw it expand its operations along two dimensions. It moved from its core listings business into related software products and services, and it expanded its operations internationally by acquiring similar businesses in the UK, Italy, Luxembourg, the UAE, and Hong Kong.
While these businesses have grown since acquisition, the current global economic crisis means the last 6 months have been tough. A review of their half year report shows that revenue growth has slowed for the business overall. In particular, the UK and Italian operations reduced revenues in the last 6 months – the UK by 8.6% and Italy by 5.1%. The result is that for the business to deliver continued growth for the shareholders, they will need to focus on extracting more value from their profitable Australian operations.
Sources tell Property Portal Watch that last Friday the REA Group internally announced a restructure around the concept of being an Australian business with international investments. It appears that the corporate and the Australian teams have been merged and all international operations are now reporting into the GM of International, Shaun Di Gregorio. (Management Bio's) These changes put into context the sudden departure of the Australian CEO, Jamie Pride.
This, plus other recent announcements, indicates that the global growth strategy is, at best on ice and more likely turning into a strategy focused on maximising value from the Australian business and eliminating any losses in the overseas businesses. The recent closure of the European Corporate Development team confirms this.
The question is what they will do with their overseas operations. There are generally three choices – continue to invest, cut costs or sell. It is likely that they will use a mixture of these. They will probably continue to invest in the market leading Italian business while other operations are likely to face cost cutting with management potentially looking for buyers. However, selling the overseas businesses will be challenging, as buyers may be limited and they may not a great price for them, especially in the current market.
From a shareholder perspective, this is all probably good news – especially in the short term. The continued reduction in costs along with driving more revenues from the Australian business should see a greater return to shareholders over the next 6 – 12 months. This will place the News Limited controlled Board in a good position to announce a maiden dividend with their full year results.
Whatever happens, we expect to see more strategic announcements over the next six to twelve months.
Simon Baker is the ex-Managing Director and CEO of the REA Group and continues to be a shareholder.