Nexity SA (NXI) Earnings Call Transcript

Hello. Welcome to the Nexity conference call for Q3 business activity and revenue. This conference is being recorded. [Operator Instructions]. Open to Mr. Jean-Claude Bassien, Deputy CEO.

Thank you, and thank you all for joining us this evening for this earnings call. I'm joined as per usual, by [Pierre-Henry Pouchelon] Secretary General in charge of Finance, whom you know well, the Investor Relations team with him, there's a new feature this evening, which is the absence of Eric Lalechère, many of you have known him for several years. You probably know that he has retired and we'll have [Catherine Tran] Deputy CFO joining us. So as per usual, I'll give you an introduction on the momentum over the past 9 months, [Pierre-Henry Pouchelon] will present the figures and then we'll be able to have a Q&A session. So by way of introduction, what would I like to underscore, let's start with something pretty obvious that needs to recall because the backdrop to our business sector has deteriorated, and we can illustrate the level of deterioration by continued rising rates during 2023 plus 160 basis points in the first 9 months of the year. Second, is the production of real estate mortgage is minus 44%. That's a key number that will have an impact on individual investors and customers. That market is drying up fast. And the third factor linked to the second is new home reservations down H1 latest figure published minus 31%, we can expect the next number that will be released to be even less favorable against this backdrop. What are the dynamics at play. What I can say is against the backdrop that is -- what is that the momentum is fully in line with that achieved during the first half of the year. That's to say we're outperforming our market with a drop of 20% of our bookings for residential real estate and [Pierre-Henry Pouchelon] will come to that in a moment. But it positions us very favorably in our immediate competitive universe. Second point I'd like to underscore in my introduction is that we're fully factoring in the new market situation for a while now. We've been indicating that this new market equation reflects a structural change in our market, and we're at adapting our road map accordingly, and we said as much recently through our CEO, we're accelerating our road map by focusing it on the two main drivers of the strategic road map, urban regeneration and new lifestyles accounting for over 2/3 of the generation for Imagine '26 road map. And in addition to the refocusing, she also announced to the market a process of seeking strategic and financial partnerships for service business management and distribution, I can confirm this evening that, that process underway that we have counseled to support us, including an investment bank. More about that in due course, after [Pierre-Henry Pouchelon] will present the revenue for Q3.

Regarding residential activities, we have 9,213 net bookings September 30, down 19.5% in volume, 27% in value in line with the first half. Bulk sales which were growing partially offsetting the decline in retail sales, mainly impacted by the withdrawal of individual investors due to the credit crunch. Then the comment on our sales strategy, the difference of just the 3 points between volume and value transfer, retail reflects the strategy of holding our sales prices as low as possible. It is therefore difficult to compare ourselves with the market when sales strategy differ. Commercial real estate is evolving in a market that is in a stand still and it's the data on commercial investment in France sure is 57% fall over the first 9 months and a 74% drop for the quarter. Against this backdrop, order intake was very low, EUR 32 million, including over EUR 20 million in the region outside of France. Notably [indiscernible] services were driven by service to properties with high occupancy rates in both student residencies and co-working facilities. The property management business is stable with recurring sales and all this with a 15%, 20% exposure to the mix, i.e., limited exposure to intermediary leasing and transaction activities in all the buildings, which are in decline. Lastly, the backlog came to rather EUR 5.5 billion, down mainly due to the progress of major real estate projects, such as the Eco-campus at La Garenne Colombes. And the store, the commercial property market. In addition, we are reloading our backlog very selectively and therefore, bearing the decline in favor of profitable operations. Please note that we are currently working on adapting potential sales and the other component of our pipeline. In other words, all our operations under promise is secured through options. On the one hand, this involves reviewing all operations in the light of new market conditions and on the other, integrating the deals signed with Carrefour. The deal which covers the development of 76 sites is progressing rapidly. The conditions precedent for almost 90% of the sites were due to be lifted before the end of November, enabling the creation of the landholding joint venture at the same time. In the previous slide, I mentioned the good momentum of bulk sales. They are up 9%, which enables us to post a total variation in volume of minus 20%, outperforming the market. Once again, trends in line with the first half. These figures are the result to an agile sales policy pursued by the group since the end of Q1 2022, shifting its bookings from retail to bulk sales. This strategy is enabled and facilitated by the long-term partnerships forged between Nexity and private and public landlords. The graph on the right-hand side shows the customer mix at the end of September, bulk sales accounted for 58% of the mix of bookings, an increase of 15 points compared to the same period in 2022. The drop in retail sales is mainly due to the withdrawal of individual investors, who are now unable to get loans. FYI, they were 43% of our bookings at 30th September 2021, 20% of the same date in 2022, 26% in Q3 2023. We believe that this mix in favor of bulk sales is sustainable, and we're actively working on adapting structure costs to improve profitability. A quick update on our supply for sale on Slide 9. By continuing to control commercial launches. We can confirm the downward trend in supply for sale at 8,500 rental units, down 15% compared with 2022. We only launched what we know how to market. We have a cautious policy with the required the pre-sales have raised to 60% before land acquisition. This policy has been in place at the beginning of the year. And this enables us to limit our supply under construction to below 40%. And this also means that more than 60% of our supply is constantly reworked to reflect new market conditions and that we allow ourselves the possibility of configuring the operation and changing the product mix or even abandoning it if the requirements are not met. Our completed stock remains limited to around 100 housing units and in significant amounts in value terms of around EUR 30 million. Slide 10 discusses the long-awaited zoning overhaul announced following the work of the CNR National Refoundation Council, which has finally come into effect. This was highly awaited and has finally come into effect in concrete terms, this means that more than 150 municipalities have been reclassified as supply-constrained areas, making them eligible for the Pinel scheme until the end of 2024 and also for the LLI, the intermediate rental housing scheme. The extension of PTZ zero-interest earned schemes with subsidized returns for investors with 80% [indiscernible] supply located in the newly owned supply-constrained areas with a positive impact of standpoints and 26 branches located in areas, newly owned A or B1. This measure confirms the relevance in that city. Territorial coverage represents a real business opportunity in the short term and medium term as well as a growth driver for the medium term. As far as commercial real estate is concerned, we've talked about that. The market has come to standstill with investment volumes down by more than 50% across France, including in the regions outside Paris that were previously spared. We are at the bottom of the cycle in terms of promises or agreements signed, but this has been cushioned by the progress of our major projects underway, including La Garenne-Colombes, which contributes over 200 million sales over 2023 and 2024, the noteworthy projects include REIWA, future head office in Saint-Ouen duty delivery in between '24 of these low trading centers due for delivery by the end of the year. It's a major project for which we won an award at the last MVP in the Real Estate and Urban Planning Events. Regarding services, property management business confirms its resilience with the portfolio of 123,000 housing units under management at the end of September 2023. Here we're talking about condominium management and rental management. Over 70% of this is repeat business. Please note that energy renovation obligations represent real business potential for the condominium management business with almost 112 project management assistance contracts approved since the start of the year against a target of 140, representing 6,500 innovated housing units. The Service Properties business continues to grow in the co-working business 14 sites were open during the year, bringing the total service area under management to almost 130,000 square meters, plus 18% compared with the end of 2022. Occupancy rates for space is open for more than 12 months or close to 100%. Student residences are also doing very well with an occupancy rate of 97% to new sites due to open by the end of the year, bringing the total number of residences to 133. And surprisingly, distribution activities continue to be impacted by the market environment and the slowdown in the residential property sales to individual investors. Let's move on now to an analysis of sales to the end of September. Sales were stable at EUR 2.1 billion residential development, which accounts for almost 70% of total sales was down 5% at nearly EUR 2 billion. Sales of residential housing in France were down by 4% due to the slower pace of notarized deeds signed since the beginning of the year. The consolidation of Angelotti, an acquisition completed in October 2022, this is a planer and the developer in the Occitanie region. This is going well with the contribution of EUR 100 million in Q3. In International Residential Housing, sales were down by 18%, so minus EUR 11 million. This was due to the set of Poland and Portugal, which were finalized in June and August respectively and in line with the schedule. Sales in commercial property development rose by 45% or EUR 113 million, so rose to EUR 362 million, benefiting from the progress of onboard projects, mainly La Garenne-Colombes EUR 200 million in Q3 and our Reiwa headquarters, excluding distribution, sales and services, property management and service properties came to EUR 485 million, up EUR 44 million or 10% on end of September 2022. Service to properties driving the group's growth sales came to EUR 193 million (sic) EUR 195 million rather than EUR 198 million (sic) EUR 139 million, up EUR 43 million, so up 28% driven mainly by the increase in the customer base of the Morninegative Coworking company, either full year impact to the 13 spaces opened in 2022 and the three new openings in '23. [Studea] has good growth on a like-for-like basis plus 10% also noteworthy as the student residences business operates in a buoyant market with a shortage of supply. Sales in the Distribution business, meanwhile, followed the trends in the individual investment market for new housing with sales down EUR 56 million or 29% EUR 239 million. Thank you for your attention. I'll hand over to Jean-Luc for the last part of the presentation.

So this last part will, first of all, focus on our ambitions in terms of low carbon. We've been championing this ambition for many years now. We have a few noteworthy highlights as we move in through Q3. The trajectory 1.5 degrees was endorsed by SBTI in July. We're very proud to join the Euronext SBT 1.5 index since the 15th of September for the fifth consecutive year. We've obtained all the possible awards of BBCA this year. And so we're extremely proud of that. And lastly, equally important, if not more, where extending our partnerships with major players to support us in our constructions on the Schneider Saint-Gobain. These are partnerships that we're continuing to extend on this front. Next, a key question to be addressed and answered. What impact does this have on our business? And so you can see on the slide shown here. That the -- our transactions that we won because we have this low carbon ambition Lyon Confluence, we couldn't have won the deal without a low-carbon commitment. Carrefour, the two finalists on the Carrefour partnership, were most identified in the low carbon policy. And so we won this major deal, we'll be able to roll out under this transactional strategic partnership with Top Hat. This deal is significant in defining for Nexity, 800,000 square meters, potentially 12,000 housing units. That's a very defining deal won in this regard. Turning now to our guidance. It remains unchanged for '23. That's the guidance that we adjusted at the end of H1 this year, and it remains unchanged, and of course, subject to changes in the market environment. Why? Because it's degraded as I indicated. And so it's necessary to guard against a possible further deterioration. As far as we're concerned, the watch points identified the potential impact and what remains to be done, of course, is a high degree of seasonality in Q4. So it's important to execute Q4 in a stable environment. And then there's also the environment of our ecosystem with a deterioration that we're seeing on the construction front, construction activity. We need to make sure that all this remains stable, so as to deliver on our targets. So against this backdrop, we're continuing on the items of operational steering that is tight steering as we call it, and we're going to maintain our targets. We're strengthening our operational efficiency across the Board and all business with a proactive plan to cut our overheads of some EUR 30 million full year. We're confirming that, of course, a freeze on jobs, non-replacement, reorganizations, reduced number of subsidiaries, centralizing certain functions, everything that can be done to contain our cost base. We're also managing strictly our development risk by keeping a close watch on WCO. We're gradually emptying our land bank and keeping close watch on inventory stock rotation. We've also planned to implement our disposal plan [ international ]. We finalized the sale of our Polish unit as well as our development activities in Portugal. We're continuing to gradually reduce and eliminate management of residual operations abroad. So that's for operational management and for strategic forecast. I said I'd return to that -- as a conclusion, the priority is, of course, to refocus the road map. And we're doing that with in mind some priorities, accelerate pivoting towards sustainable cities and urban regeneration. We see it day in, day out, endorsed by the market. The market of tomorrow is that of urban regeneration. It's important to move towards that and take position. We have initiatives with the setting up of Nexity Heritage, the new Nexity brand for Urban Regeneration, [indiscernible] Patrimoine & Valorisation, we've announced our partnership with TopHat that you heard mentioned earlier, a key player -- British player in modular construction, we're going to roll this out for the Carrefour deal, Second major thrust of this refocusing. We're rolling out our offer of managed products because that meets the demand both of users and investors were accelerating our co-working activities, students, residences and co-living. And lastly, the third component of refocusing the road map is to give ourselves the means to deliver on our ambitions. We launched in October, the digital platform for the distribution of savings products. And above all, we've embarked on a process of strategic and financial partnership service this retail distribution, the idea here is to continue to develop with service businesses. All businesses need to have the means to expand. If we focus our road map on sustainable cities and urban regeneration, we must find other means to allow services, businesses to grow, hence, the strategic partnership. So all options are on the table, even including opening up the capital of these companies to a third party. Thanks for your attention, and we're now available to take your questions.

[Operator Instructions]. First question, [indiscernible] Chaput from ODDO.

Yes. I've got a few, the first in your bookings, can you perhaps indicate the number of units that have been booked over the CPC, Habitat, [indiscernible], you got kind of commitments at the end of the year early '24 in terms of booked units, returning to the service partnerships in management and distribution, more specifically, what type of partner are you seeking more financial or these sector players to accelerate synergies. And if they're financial players want some, what's lacking today to accelerate synergies? And a final question a bit naive, sorry, but why operation don't seem affected by the search for partners. Thanks.

So the first question on the bookings. I mean, we don't give them, obviously, by counterparty. Obviously, they impact a significant number of block bookings, Axion, Lachman CDC, we've already signed deals with them through the first 9 months. Of course, great many things coming down the pipes in the what's left to be done with Jean-Claude [indiscernible] to be signed with these two major players because you know that they have significant purchase commitments with property developments, and we plan to weigh in on that for the market share that we represent. That's the first. On the second one. So partnership services, what type of partnership are we seeking? Well, clearly, the rationale that we followed was really to leverage our client base in to develop cross-marketing offering services, we're looking for partnerships that allow services that will extend their offering. So as to meet this quest for synergies, that's clearly what we're looking for, what type of partner. Well, partners who can meet that condition. Obviously, when you open up to that type of opportunity, while players show up, and we'll assess them when they turn up depending on who they are and their ability to deliver the ambition. So to date, I can't really characterize the profile of partner that are lining up today, but you have my answer on our focus, which is to continue to forge synergies through framework agreement, all strategic partnerships. That's the first point. Well, the second point on operations stems from my answer to the second question. Clearly, why did I indicate that the search for partnerships is primarily focused on management and retail distribution, it's because the level of synergies that is embedded on operations is already very high. So we're not closed to partnerships here. But given the level of synergies achieved and the interaction that we're looking for between managed real estate and development, while operations to operate. It's not a priority. We're already well advanced and we need to have a significant contribution to show interest and an opportunity that might arise the priority, the two other segments.

Next question, Emmanuel Parot from Dupont.

Yes. I have three. The first on 9 months bulk sales to know whether the margin notched up over the 9 months was comparable to what you've achieved these past few years. That's my first question. Second point, on cost efficiencies. If I heard, you mentioned EUR 30 million cost savings for year. And you seem to indicate that we won't be at EUR 30 million full in 2023, but rather than '24. If you could just clarify those numbers, please? And the third point, just to pick up on Christophe's earlier point and the possible opening up in the share capital for some of your services. Well, I was kind of questioning the rationale of this transaction, it'd be pretty strict some way, because if you bring in a minority partner, we can logically expect there to be a patent call system that might lead to the sale down the road of those activities. Is that an option on the cards or not at all on the table?