Welcome, ladies and gentlemen, to the Nexity conference regarding its Q1 business activity and revenue performance. You are attending in audio only, but you get a chance to ask questions at the end by pressing star one on your keyboard to record your question. I'm now going to hand over to your host, Ms. Nadia Bensalem-Nicolas, Deputy CEO in charge of Finance. She will start today's conference. Nadia, over to you.
Thank you very much. Hello, everyone. My name is Nadia Bensalem-Nicolas. I'm the Deputy CEO in charge of Finance with Nexity. I'm with Eric Lalecher, Head of Finance, as well as our investor relations team. Thank you all for being with us for this presentation of our Q1 2022 performance. Slide three, please. There are two main messages that we would like to share with you, which is inconsistent with what we communicated on April 1.
Over the short- term, we do not expect the global geopolitical context to impact our activity if we get our figures for the past quarter. As you know, this quarter doesn't truly reflect the activity throughout the year, and it has the lowest contribution. In terms of residential real estate, we have good sales momentum, which is very much in line with 2019, 2020 and 2021. This shows how resilient our teams are and how well they have weathered the COVID crisis. This reflects sustainable demand from our entire customer base despite the loss of supply, minus EUR 130 million, that was expected considering the global context and the baseline was abnormally high in Q1 last year in terms of commercial real estate.
Over and beyond this, the rest of Nexity's activities are doing well, particularly services. Double-digit performance. This shows the continued relevance of our model. Second message, alredy we are taking action and adjusting to the current context, the return of inflation and a rise in construction costs so we can maintain the margin level of our projects. We are confident, thanks to the visibility of our backlog, that we will be able to achieve our financial targets for the year. We are reiterating our guidance. Before we get down to the financials. Financial and non-financial performance are increasingly intertwined in the eyes of investors. Also let's bear in mind the announcement made a couple of days ago. We are accelerating our climate strategy to strengthen our position as a pioneer in decarbonization and green real estate.
As you well know, construction is a major contributor to greenhouse gas emissions. This is important in terms of our relationship with local and regional authorities. Last year we received the SBTi, Science-Based Targets initiative, certification, and our goal is to limit the global warming trajectory to under two degrees. Now we're aligning ourselves on a 1.5-degree global warming increase, which will also receive SBTi certification. By and large, this means we're doubling our previous targets. On the graph you're seeing a much steeper curve. We're aiming to reduce by 40% by 2030 our CO2 emissions from the entire construction process. This means including Scope 3 emissions that are not within our direct scope of responsibility as opposed to 22% in our previous commitments.
We also want to develop high energy efficiency buildings and ensure a refurbishment. We want to use low carbon construction methods and construction materials more and more. This is a very ambitious target, 10% more ambitious than the RE2020 thermal regulatory requirements, which is already pretty demanding as the EU goes. This means Nexity is positioning itself as one of the earliest property developers that embraces that 1.5-degree trajectory. We're also protecting biodiversity. This new strategy is an important step for Nexity. We have a long-standing tradition of supporting low carbon construction techniques, and we want to ensure total consistency between what we're saying and what we're doing. Now, let us review our quarterly performance for all of our businesses. Slide five. Let's start with residential real estate.
Demand staying strong from all of our customers. There's still a lot of interest from private citizens in terms of residential real estate. This is clearly seen as a safe haven in times of inflation, and the financing terms are still attractive. Interest rates are rising, yes, have been rising since the beginning of the year, but are still below 2019 and 2020 levels. There is, considering this context, the reservations for new homes come to 3,490, which is in line with previous years, as opposed to our main competitors. Their performance is fluctuates more, and the reservation levels are still below 2019 levels. Our commercial real estate business and its resilience is significant. Our volumes and our sales are significant irrespective of the environment.
We are a sustainable property development player. We have a strong balance in terms of our customer base. Our private citizens are our main customers, accounting for 61% of monthly reservations, including two-thirds of individual investors and the remainder are first-time buyers. Thirty-nine percent of bookings, that's social landlords. Obviously, this class of assets is attractive, and we have 31% of social landlords, which are important partners in our strategy. They help us meet the growing needs of local and regional authorities, help us win new projects, and they hold the keys to the land bank. In value terms, reservations account for EUR 764 million for the quarter, down 3% relative to 2021. We've been impacted by the mix because block sales are performed at a lower price than retail sales.
Now, it's important to note, as you can see in bold in the lower right-hand corner, that the average sales price per square meter is up 4.2% in supply constrained areas, which account for 80% of our bookings. This shows our ability to enhance the value of our products as much as possible, so we can retain developed drivers to absorb the rising construction costs. Now, on the supply side, it's still very difficult to obtain planning permits and also the investigation times for securing the permit is getting longer and longer. This means that people are not putting their heads together in terms of fighting that short supply problem.
As you can see, there's still a slow recovery in building permits, a +6% between December and January this year relative to last year, even though those levels are still lower than pre-COVID levels. Approximately 5% lower than the red bar, which represents February 2020. Now, we provide a strong national coverage. We have quality operations teams. We have a broad diversity of products, and this means that we get more planning permits than the rest of the market, so up 17% for the period. This means we are confident in our ability to fuel our supply for sale over the next few months and meet our target of at least 14% market share for the rest of the year. I'm now going to hand over to Eric, who will review commercial property and services.
Thank you, Nadia.
Now, commercial real estate. This business was weak, only EUR 34 million in order intake. In 2022, we anticipate a lower order intake. This is a low point, but things are expected to pick up in 2024. The quarter was mostly marked by a major project at the heart of Paris, and this reflects our expertise. We are converting a garage space into an office building, and this shows our ability to transform the city, respond to new uses, and we're setting the example in terms of CSR. Now, services. We are well-positioned in line with the 2021 trend.
In this slide, you can see the importance of our co-working business, the stronger momentum, more sites, so five new sites, more, a higher square meterage operated, and also the occupancy rate is also up 90% in Q1, the same occupancy rate we had prior to the COVID crisis. Now, in terms of shared offices, they are core to new uses. They provide flexibility in terms of floor space and also duration of leases for users. Our activities are well positioned in terms of property management. There's a high level of transactions for seasonal rentals and good performance in terms of transaction activities. There's a good level of notarized deeds in particular. Next slide, please. In Q1, our sales come to EUR 895 million.
Proper level of business in residential and commercial sales are down by 13% relative to 2021. EUR 1.28 million on like-for-like scope basis. Bearing in mind the divestments performed in 2021, this drop must be due to the strong base effect. There was a major project that we signed. France sales services is up 10%. This is expected to continue in 2022. In terms of businesses, we expect sales to amount to EUR 400 million. The éco-campus project in La Garenne-Colombes is proceeding according to plan. Sales are contracting in Q1. This is expected to continue in Q2, and then it will kick back up thanks to new projects in the second half of the year.
We expect to reach sales levels that are at least as good thanks to the visibility provided by our backlog. That's what Nadia is now going to discuss.
Thank you, Eric. The backlog on slide 10, we're ending the quarter with the backlog remains at a high level, EUR 6.5 billion at the end of March. That's two years of revenue. Maybe just a technical point, but the backlog represents future revenue of the group that is already secured. That is to say, reservations that have not been endorsed, and the portion of the revenue that needs to be generated on notary deeds already signed with margins that are pretty much secured. On these transactions under construction, we're seeing a moderate uptick of challenging the firm, an irreversible area of our markets. Many applications are accelerating, and we're examining them for the 500 job sites with special attention for small companies and long-term partners.
Renegotiations, of course, are covered as normal contingencies that are included in our budget of operations. This backlog and stringent management make us very confident in reaching our target of current operating profit for the year. Over and above that, the projects will be launching and which will generate the revenue beyond next week are included in potential activity, which is the red bar, still at a high level, EUR 13.5 billion. That reflects the assurance we have of renewing our production in the out years, whatever the market environment. Turning to slide 11, as we said, we're confident in our ability to materialize our backlog in revenue tomorrow with the expected margin rate. We expect to renew the offering and the success of new projects after tomorrow. The issues here are essentially linked to the constraint of construction costs.
They represent only 50% of a project cost, 50% for construction materials, so 25% of our project cost and 50% labor cost. These costs are higher than our initial anticipations and included in our budget. They lead to an extension of negotiations for construction projects, slowing the renewal of offering. We haven't seen an increase in the number of discarded projects because we're fully in motion to adapt ourselves, as indicated in the title, to adapt to this new global context and be able to continue to launch transactions that will absorb these cost increases while respecting our profitability requirements. We're in action by fully leveraging the group's size and its negotiating capability with the central construction division, which is a real competitive edge as compared to our peers.
It's fully mobilized to monitor market condition, to increase our purchasing policy, strengthening suppliers' relationship. On the nineteenth of May, we'll have a special trade event to buy new framework contracts by anticipation when it makes sense, secure those transactions, and ensure that the best price is secured. We're more than ever agile in the way we devise our projects by reviewing our construction processes, the type of material and their geographic provenance when it's relevant to move towards more economical solution. To give you a very practical example, faced with the difficulties posed currently by the tiles in terracotta that are affected by the rising price of gas, they're replaced by concrete tiles that are more economical and more virtuous in terms of RE2020 because they emit less carbon.
As well as working on our cost base, we're working on our offering products, geographic offering to meet changing demands so that we can direct, as best as possible the available cash and selling our products at the best price by leveraging a diversified, customer base. Of course, increased energy prices that's generating strong pressure and heightened, sensitivity by all our, customers is an opportunity for us to make the difference and to enhance in our offering our leadership in low carbon building, constructing buildings that consume less, energy and of course, renovating existing, building stocks. It's this effort relying on our traditional expertise makes us confident in our ability to maintain our margin levels, as we've always done in the past through the property cycles that it has experienced.
Let me remind you that Nexity is the development player with the highest margin and the one that is the most stable and resilient over time. On this basis, thanks to these strengths, slide twelve, we're reiterating, as I said at the outset, the annual targets disclosed last February. Market share in residential property above 14%. Current operating profit of at least EUR 380 million will continue to follow closely, of course, developments of the health, economic and social situations. To conclude, slide thirteen. Let me remind you, our next meeting with shareholders is the annual general meeting to be held on the eighteenth of May in person. After two years of virtual meetings, this AGM will be an opportunity to review the results of the year elapsed.
We discussed in February, Nexity recorded high level performance, demonstrated strong resilience and strengthened its financial structure. The dividend's up 25% to EUR 2.50 per share, back to its pre-COVID levels of 2019, representing a high yield for our shareholders. That's what we wish to say to you today. Between now and the next AGM, we're ready to take your questions with Eric.
Ladies, gentlemen, if you have a question, please press star one on your key. First question from Emmanuel Parot, Gilbert Dupont.
Yes. Good evening. I hope you can hear me clearly.
Yes. Hi, Emmanuel.
I had three questions. The first on reservations, bookings.
I was actually a bit surprised on developments by customer, especially the professional tenants, landlords, and the fact that you could have perhaps given, perhaps favored the most profitable clients in that context where there's no shortage of offering. If you could perhaps give us some explanation on that. Then second question, construction costs. In your release, maybe it's in it, but did you give a figure regarding the change in construction costs since the start of the year? We're talking about a second wave of increase. Could you maybe give us that for Nexity? That would be of use. Are you facing shortages that are impacting the progress of construction sites and booking the revenue? Third question, both in terms of demand in April, I know it can't be disclosed without giving a figure.
Is demand as sustained? I mean, when you see the pass-through rate, is it good? I mean, this context seems to be tightening a bit with the interest rates. If you could say a word about that. Thanks.
Four questions in one, Emmanuel. Eric, I'll start and feel free to complete. The first question on the client mix and declining sales to individual investors. Let me tell you, Emmanuel, that the customer mix that we have in Q1, 6% in retail, 40% bulk, is broadly similar to the customer mix we had in 2021, 55% retail, 45% bulk sales. I mean, you must just read into some differences, some calendar, quarterly calendar differences.
If there were to be a bit more, it would be the inadequacy of our offer rather than specific requirements of customers, because there's a lot of activity on our internet side, a lot of expressions of interest shown on their part. Okay, interest rates have increased, but they remain attractive. The pull-out rates, I mean what they've been historically, and I would say that property as a safe haven is really being fully leveraged during this period. Really, it's just quarterly calendar effects. By the end of 2022, we should have a client mix broadly similar to that recorded in 2021.
As I said, 55% individuals, 45% bulk sales, even if we retain the flexibility to steer the selling down the most responsive sales channel. Eric?
Yes. Since the start of Russia, I mean, there wasn't a major tipping point or shift compared to what's happened since the start of the year, or the war in Ukraine hasn't changed consumer behavior regarding real estate. Your second question on construction costs. There were actually, you had two questions, the first on supply and the second on the cost. On supply, obviously on the construction sites underway, I mean, there are no delays that are specifically linked to supplying. There's no major big shortage of materials that we've seen.
In 2021, construction costs underwent a sharp increase. The construction index costs went up 5% because of rising energy prices and tensions on raw materials, and we were able to pass that factor into our sale price because average retail prices rose 2%-3%. Well, since the start of the year, the war has sent the cost of certain materials spiraling upwards, steel, aluminum, bricks and tiles. Then you've got outside carpentry, locksmithing and the major works. But I mean, there's no delays linked to supply issues on these products. Then on the cost, we were actually expecting an increase of the order of 4%-5%, full- year.
What we're seeing to date is rather an increase of the order of 4% since the start of the year on construction costs. Slightly higher than expected in other words, says Emmanuel Parot. Yes, says Eric Lalecher. In an annual approach, it might continue to rise slightly, but the bulk of the rise is baked in our budgets. We're a bit more cautious than imagined early in the year to incorporate the risk factor that really extends the unwinding of these projects for certain. I mean, it might lead to rethinking certain projects regarding materials, construction and in the components of the project. That can sometimes take time, but broadly we're confident in our ability to cement the budgetary equation at a cost price with dynamic cost management.
Just a final question on your business model. I hope you can hear me.
Yes. Yes, sir, your question's on the business model. Please go ahead.
Now, in terms of inflation, we felt that the projects were well structured, your backlog in particular. I get a feeling that in this context with this high inflation, even the backlog can be subject to price pressures from your suppliers. Am I right or am I right?
Well, to a limited extent, what we explained earlier about the backlog. For projects currently under construction, things are secure. We may receive claims for suppliers who have higher construction costs and they may challenge the setup. Of course we need to look at things on a case by case basis. By and large we are pretty secure. The contracts we sign with our suppliers are firm and not subject to revision. In terms of provisional margins, there is nothing to worry about when it comes to our backlog. It is secure. Obviously you never know how projects unfold. Anything can happen in the course of operations, but we are confident. We are confident in terms of our guidance for our operating margins for the year.
It depends on the revenue generated from those projects, but we are confident in our projects. We have discussions with our suppliers. There's more an impact on the project itself than on the level of margin generated by that project.
Thank you for those explanations. Have a good evening.
Thank you, Emmanuel. Talk soon.
Next question. Marie-Line Fort, Société Générale. Marie-Line, you have the floor.
Good evening. I'd like to get back to your indication for your revenue on an annual basis. Basically you expect sales to remain stable throughout this year. In terms of services, plus 11%, is that what you're hoping to reiterate? Did I understand properly? What is the basis for that confirmation, if you could please remind me. Secondly, regarding cost inflation and the impact this has not on your backlog but on your pipeline. You rework on projects but you don't cancel projects. Did I understand properly?
I take the first question. I think Eric said that we're hoping to maintain sales from last year, do at least as well as last year. Obviously, there are moving parts and different trends that are at work from one business to another.
We expect a drop in commercial real estate. This is a mechanical effect, a relatively EUR 492 million recorded last year. We're expecting this to drop to EUR 400 million for 2022.
Regarding the two other businesses, what does that mean for residential, property, and services?
Well, we're expecting revenue to increase. Services are expected to enjoy continued double-digit growth.
Thank you.
There are lots of issues pertaining to our portfolio. Student residences, co-working, et cetera, we have a portfolio effect. This is what drives our business for 2022. Regarding projects, we may have to rework on projects if we realize that the financial equation is in peril, the basic financial equation. Of course, that doesn't happen systematically, doesn't happen across the board.
When we budget, we are very careful when we sign options, or sales, contracts, in terms of estimated revenue or construction costs. By the time we actually get to work and start negotiating construction costs, it is then that we determine whether or not our forecasts were sound. Very often, we get good news regarding revenue. In recent times, we've had less good tidings when it comes to construction costs, and this is causing us to renegotiate, rework the project. Up until now, we've been pretty good in terms of maintaining our projects. It's just teething problems that are taking longer. That's it. In terms of contracts, we have continued the problems in terms of obtaining, planning permits or building permits, and also the budget equation has to be sound. These are the two main constraints.
That's another way of answering your question in terms of solvency of customers. The increase in interest rates is a constraint for our customers. Regulatory bodies are imposing more constraints in terms of access to loans. This has some impact on demand. By definition, solvent demand is impacted as well. We have a well-balanced customer portfolio with a lot of social housing operators, and the guidance is at least a 14% market share when it comes to housing reservations or bookings.
Thank you.
To ask a question, please press star one. The next question is from Oddo. Christopher Cappie, you have the floor.
Thank you. Please clarify. When you said to Emmanuel that construction cost went up by 4% since the beginning of the year, did you compare that with Q4 2021 or December 2021?
Yes.
When you compare construction cost with Q1 2021, it's +8%. In your reservations, you said that sales price was increased by 4% for retail sales. On that basis, the profitability rate is pretty similar for reservations that were just signed in Q1. Is that how I should interpret things?
Yes, absolutely. You're absolutely right. Construction costs double, and they account for just 50% of unit costs. Since the beginning of the year, we've seen sales prices per square meter increase by 2%, even 3% for some certain types of products. This means we are able to protect our profitability despite the rise in construction costs.
What about the provision for works-related contingencies? Are you able to increase that provision to some extent to have an additional safety net?
We can do anything we want.
It's a matter of internal management. Fortunately, when the project doesn't go well, it doesn't happen often, but it does happen. Sometimes we eat away at provision. For the projects we're currently looking at, in two months' time, in three months' time, we clearly asked our operations teams to increase the expected construction costs. We don't necessarily classify that as a contingency because it's more likely to go well than to not go well. We're looking at the estimated cost of the contracts we're going to sign. It's not just a repetition of previous prices. We apply inflation. So we're working on that particular item. Because we are cautious people and we know that a lot of things can happen in a construction project, generally we have a general contingency provision.
It's always there, we keep it there and if necessary, tap into it should there be contingencies. At the end of the day, the profitability rate is in line with our expectations and in line with our history. Yes, we can increase the provision. It's not an accounting rule, it's a management rule, but obviously that's a secret recipe. But these days, yeah, the provisions tend to go up as opposed to down because of the rising uncertainty levels on our market.
One last thing. I'm sorry if you already answered that question, but if we look at your land bank, are there plots of land that you have given up on the basis that they won't be enough to generate the kind of profit you want?
Well, our land bank is rather limited, which is a good thing because they offer major opportunities.
At the moment, we're not having any problems, no specific problems when it comes to our land bank. Of course, we're extremely cautious in terms of our ability to tap into new land banks, or we try to maximize upside and minimize disappointment.
Thank you.
Well, when margin levels aren't sufficient, the teams rework the project so that the budgetary equation is sound enough to ensure the profitability level we expect.
No more questions in the waiting line. If you'd like to ask a question, please press star one. No more questions.
Well, thank you very much, everyone, for showing interest in Nexity. Thank you for taking part in our conference. If there are questions that come to mind later, feel free to write us. Our investor relations team are on hand to answer you. Thanks again for attending and, have a good evening.