Nexity SA (NXI) Earnings Call Transcript

Good evening, ladies and gentlemen. Welcome to the call on Q3 2022 revenue and business activity for Nexity. [Operator Instructions] Information point, this is being recorded. Now I'd like to give the floor to Ms. Véronique Bédague, Chief Executive Officer. You have the floor.

Good evening, everyone. Thank you for taking part in this webcast. Most of you are familiar with everyone here with us, Géraldine Bop, Eric Lalechère. Nadia, unfortunately isn't able to be with us this evening. An information point, I want to say that Q3 is really very much in line with what we said to you back in July, entirely consistent with the strategic focus we talked about during our Investors Day. First of all, let's take a look at some of the key figures. Housing activity, broadly, were in line with H1 and what we said to you in July. The market in the first half has been strongly down, minus 21% in the beginning of the year. These are FPI figures. We don't have the next-period figures, look at it in November. Reservations minus 8% in volume, so we've outpaced the market, and that's good momentum. In H1, we've been minus 9%. When -- I'll show you later on in some slides that I'll give you some illustration of these various points. Let me say though that as per we said to you in July, we continued working through our commercial strategy, shifting over some of our launches to block sales -- bulk sales. We've also worked hard on service properties. We talked about these -- that there was great demand for service properties, and we are working on this [indiscernible] institutional demand. Now you'll see we refocused some of our sales to invest in institutional investors. Why? Firstly, because our view is that currently these institutional investors enable us to really help contain risk -- control risk. Furthermore, when you've got an institutional investor on board, you don't have anything left for sale at the end of the job site, the project. As soon as these kind of reservations we can sell, there is much better for WCR, which all of you individually have drawn my attention to when we met in September. Furthermore, we realized in addition to this, and during the first half, institutional investors, we've got some long-standing partnerships and they're going very well. And we can renegotiate prices with them as we did in the first half when construction prices went up quite significantly. So our option right now is to refocus some of our production to institutional investors, as we said during the Investor Day. Basically, our ability to do retail or bulk sales is a real strength of ours, thanks to our size, and we're demonstrating that strength. Sales prices continue an upward trend on all types of clients. Revenue, same trend as in H1. Stability in group revenue, excluding the base effect in commercial real estate services and still dynamic up 9%. Our backlog is still high, containing 2 years of development activities. The pipeline is stable, stand at EUR 21 billion. After the approval, as you saw in the press release last year, we got to go ahead from the antitrust authorities. So we finalized the acquisition of the Angelotti Group. We already talked to you about this in July. They are a family group with the DNA of urban planning. They're really boosting residential real estate. Their footprint is very complementary to ours. They are strongly entrenched in Occitanie, good local foothold. They're -- they have a good number of building permits. Their presence in Southern France, and they're going to be developing further. We've got big ambitions for this beautiful asset, which is around EUR 200 million in revenue for the full year. A reminder, we acquired the first section, 55% of the share capital, the first tranche. Acquisition will be consolidated in our financial statements as of 1 November. Angelotti Group, its impact has a measured effect on our debt of about EUR 5 million, doesn't in any way jeopardize our predictions. Net debt end of the year should stay same order of magnitude as the figures we already gave to you in July. Generally speaking, the housing market, you're familiar with the metrics. We won't dwell on this. New home sales down especially since developers got to have access to bulk sales. Mortgage interest rates continue going up, as we know. There are rate hikes, that's important, but even more importantly, possibly, is what happened at beginning of the year. Publications given to banks by the authorities on user interest rates, so now we're beginning to see production of property loans is down and minus 11% in recent bonds. More recent statistics for housing loans saying it's about minus 1/3 in the next couple of months. So production of mortgage is going down very significantly. We think that the banker brands have to recognize now that we're seeing a contraction in mortgage lending. As we mentioned earlier, this is H1 on the left-hand side. As per the FPI, minus 17% for retail home sales and minus 38% for the bulk sales, but we're seeing a minus 15% of retail sales and plus 3% in bulk sales for the reasons I gave you earlier are in July. Some of our operations are sold to institutional investors as we mentioned. So we've got a minus 8% versus 2021, you'll remember, which is a very high year with the post-COVID year, a time when the market, though, has gone down by 21%, we've grown only minus 8%. Now for -- I've said to you several times, a main feature of ours versus some of our competitors is that we're highly stable over time. We stay with the same order of magnitude even in 2020. What we see over time, we can see our proportion of retail sales and bulk sales. The charts here show clearly that versus previous years, we can't compare it to 2020, but previous years, end of Q3, 15% of our sales were to institutional value, square meter prices continue going up, up 11% of retail and up 6% in bulk sales. Residential real estate, we discussed the demand in the first half. We're now talking more about supply. What we've seen this broadly throughout the country, increased building permits, gradually, we therefore can replenish our commercial offering, upping the number of lots, but we're still at a trough. In spite of an uptick, we're lower than what we may have had in the past. Another point, an important one to realize currently, our supply is sound and low risk. We've got completed homes that are unsold, basically standing at 0, and that can be a low risk. We have 0 completed homes unsold. So a very low risk, and we can say that, that's a very good percentage. Now, Jean-Claude, would you like to speak now on commercial real estate?

Yes. So commercial real estate, as we said at the end of the first half, it's at the low point in the cycle, and that's reflected in our order intake, EUR 108 million revenue, minus 30% trend. We have a backlog at a level that remains very high, EUR 827 million after integrating the order intake and the reduction of conversion into revenue as projects progress. And midterm, we have a potential pipeline that remains at a very high level of EUR 2.1 billion, giving us good visibility going forward. Future prospects that can benefit from the market momentum that is trending. Well, as regards services, now here again, identically almost, we have drive the same as H1, plus 9% increase in our revenue versus September 2021. The growth stems primarily from managed properties, student residencies and co-working properties. The slide shows the various services, property management, service properties, distribution, a brief word on each. For property management, we see stability. When it comes to service properties, we see a favorable dynamic in the number of lot units that's posting positive net growth. We see that management activities progressing well, and we have transaction and rental activities. Transaction benefits from our integrated model, we distribute, we sell products that are those of our client's rental management who also buy these products. We have a virtuous circle that works well for rental. However, that's suffering from the stop in the rental market that we're seeing. That's minus 12% on the rental market that has an impact on our activity, the order of 8. For service properties very, very good progression of our student -- and morning studio, we have an occupancy rate very close to 100% of the student residences driving revenue. And on morning, we're benefiting from 2 impacts. Firstly, improvement period-to-period of the occupancy. Rate up 14 points. That's obviously driving top line growth, but added to that, the extension in the property base, its growth of 15% over the period. So these 2 trends are delivering very strong growth in morning, a doubling of revenue over the period by morning. Lastly, for distribution, what we can say about distribution is that the business is benefiting from its leadership position in this segment, very good transformation of reservation into deeds. That's driving revenue growth up 4%. We're also -- a point of attention in the market because the property developers, who need to market and transform -- come to [ poll ] to our content and that is driving business. And there, we can reaffirm the strength of our distribution business.

Thank you. Now revenue. Institute revenue in the first 9 months, down 4% versus 3.077% we had. Then this scope. There were divestments beginning of '21. 2021 saw a big order intake in the first quarter and commercial real estate. If we restate for the base effect, revenue remains stable. Current activity dropping residential minus EUR 7 million. Delay in start of some projects offset by advances in commercial projects. An increase in services, plus EUR 50 million for reasons that Jean-Claude mentioned previously. Now outlook. We reconfirm our annual targets, as indicated at the Investor Day, up 14% in expected market, 130,000 units. Revenue above EUR 4.6 billion which will end on transformation rates of signatures towards the end of the year. Operating margin around 8% for current operating margin. Our pipeline continues to be significant, as Véronique said at the beginning of the session. EUR 6 billion is in the backlog, which is 2 years' worth of revenue. Now this backlog, I'd remind you, is future revenue, which has already been secured and this is based on deeds already signed and building permits already in hand. This is already secured through construction budget. Now future revenue under business potential, you can see this is very high as well, up 4% compared to 31 December. This shows our ability to develop and renew production for future years regardless of the overall market environment. That's pretty much the conclusion of our presentation. We would be happy to field any questions you might have now.

[Operator Instructions] First question comes to us from Emmanuel Parot from Gilbert Dupont.

In fact, I have 3. The first was on the cancellation rate of your reservations. Would it be possible to have that rate? And above all to know whether it's rising, given tightening conditions by the bank? Second question on the institutional investors in the residential segment. It seems to be working quite acceptably for you, and we can check that there's a kind of a wait-and-see attitude by institutional investors in the residential segment with the rising capitalization rates. Can you give us an update on that? Third question, Angelotti, question, would it be possible to have the margin? Do you have to consolidate the revenue as of the end of December with the PPA? Is it just booking the revenue in your accounts that will occur later on the price? If I understood correctly, it's EUR 100 million for half the capital. That's an acquisition price of EUR 200 million, that's half the revenue. Is that right?

So regarding sales to individuals, we're seeing an increase in the withdrawal rate that's moderate of the order of 10% as compared to last year. And this withdrawal increase is due to refusal -- loan refusals higher than last year, but remain at an acceptable level and don't, in any way, call into question our ability to market to private investors. On Angelotti, we have a margin forecast that's higher the Nex Group -- Nexity margins. So that's going to be accretive on the -- and there'll be a PPA, which will have an impact on the clients 2 years, and that will be as a deduction of the margin, but for Angelotti, that will be accretive on our P&L. So the impact on the P&L of this unit that will be consolidated fully. That will be in '22, 2 months of revenue, November, December of '23. We'll book a full year the Angelotti business. And you're right that it's EUR 100 million, that's 50%, then of course, you can extrapolate the enterprise value of the half. On the institutionals, institutional is a very broad based. And of course, Caisse des Dépôts, CDC, of course, buying social housing, but also in the open market, there's this fair of the housing with homologies are very much in -- we work with local landlords, local buyers. They are great many across the country, and we've closed the transactions with 2 types of institutional private 1 leveraged. So we won't probably see those next year. And another is an insurance company where we cemented 2 good deals today. And they managed, as we said at the Investor Day, we're looking more at managed, coleasing where the service is provided. So they're there at this point in time, and we took those decisions ahead of time back in July. But -- so to read you right, the private institutional investors in your 9 months reservations, that represents what proportion? Well, we gave you the -- give you the information in the press release. 43% of our reservations are with institutionals. And on that, we have about 2/3 with social landlords and then more conventional on free open market. So it's all types of products that are addressable for these institutionals, which is, as Angelotti said, are very varied in terms of geographic location. Their investment capacity as to why they're -- and it's that richness and diversity allows us to successfully market our products that risk of declining margins as compared to what we decided that our engagement committee.

Next question from Marie-Line Fort from Societe Generale.

I had a question regarding Angelotti also. If I understood properly, sorry to make you repeat, but apparently no impact of PPA in terms of recognition of revenue at the end of the fiscal period.

That's correct. The PPA is recognition of customer relationship. It's an amortization between EBITDA and operating income. 4% of revenue in upcoming years. No impact on revenue, just a decrease in the margin. But even with the PPA, our margins will continue to be above margins at Nexity property development.