Earnings Call: Q1 2021

Apr 28, 2021

Nexity Q1 2021 Business Activity and Revenue Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Julien Carmona, Deputy CEO. Please go ahead, sir. Thank you. Good afternoon and thanks for attending this conference call. I'm here today with the CFO of Nexity, Ric Laricherre And with Veronique Bleddag, Deputy CEO, who will be formally appointed as CEO of Nexity immediately after the AGM on May 19. We suggest to walk you briefly through the slideshow, and we will be pleased to fill your questions afterwards. Let me start on Page 3 with a summary of the quarter's Key figures and major events. Q1 2021 was a very dynamic quarter. Business activity was very strong. Our turnover has really jumped, and we announced 2 significant disposals, Egypt Domitice and Century 21 France. So 14 months after the start of the health crisis, Nexit is showing a very good performance. Starting with our key business indicator, is a conference call. The Q1 of 'twenty one was in line with the second half of 'twenty, running at full speed. The strong business activity resulted in approximately 3,900 units booked by Nexity in France, 7% higher than the Q1 of 2020, Representing €882,000,000 plus 11 percent in value. In a challenging market, challenging in terms of supply and not of demand, But Veronique will elaborate on that shortly. Nexity once again managed to outperform. On commercial real estate, we booked €300,000,000 of new orders, That's largely due to the final sale of REWA, our large off plan project in Saint Trois, very close to Paris, Which is set to be Nexity's future headquarters. It was pre signed last year, but we naturally waited until we had the certainty That no appeal would be lodged against the building permit before booking this sale. Within 1 quarter, we actually achieved 75% of this €400,000,000 of new orders, but we don't expect to go much above that goal given the current situation in the office market. The total development backlog is stable at €6,800,000,000 a very high level, representing about 2 years of future secured revenue. Whereas the pipeline is slightly down, but not alarming, it's partly a consequence of the health crisis, but it's also a sign of a difficulty of our market environment in terms of setting up new projects and obtaining building permits. This is the main caveat we want to add to our otherwise excellent results. The revenue for the Q1 of 2021 reached €1,132,000,000 up 345,000,000 from 1st Quarter 2020, plus 44%, due to favorable base effects and therefore not completely representative Are the growth projected for 2021. Eric will explain it to you in detail. The 28% growth in turnover over the last 2 years is probably more representative of the underlying trend. Nevertheless, this very good start to the year, obviously, gives us confidence In our ability to achieve our turnover and profit targets for this year. Moving on to the strategic review. Concerning the sale of Egid, we issued a press release 3 weeks ago, and we have a detailed slide later in the presentation. So the key takeaways here are, 1st, the confirmation of the price, enterprise value of €375,000,000 or 100%, firm price and also the fact that we expect to close this deal by June 30, thus effectively deconsolidating AGI Dominique from this date. Century 21, which is the 2nd and last disposal, follows another logic. It's a small, profitable, high quality business is based on managing a network of franchise real estate agents. We have no pressure to sell it, but the connection between this company And the rest of Nexity, of the service platform of Nexity, the connections were very limited and we couldn't extract meaningful synergies Given the fact that these agents are independent entrepreneurs and not Nexity employees. So when we received a good offer from Arch, the company owning CITIA, Valuing Century 21 at €84,000,000 which is roughly 20 times the EBIT of 2020, We took the opportunity. Likewise, we expect to close the deal before June 30. Overall, these two sales allow us to close our is our strategic review and asset sales program, which we had announced in December 2020. We are pleased with the result, pleased with the speed of execution I'm pleased with the quality of the partners. At this stage, I will hand it over to Veronique. Hi, everyone. Thanks, Julien, for your introduction. So now please let's move to Page 4, which concerns itself with our environmental targets. As we want to keep our leading position and sustain our value creation strategy over the long term, we are very much is engaged in managing our carbon footprint. As I mentioned last time, this is core business for Nexity. So 2 years ago, we took a major step in deciding to join the ScienceBase Target Initiative, SBTI, is to demonstrate our willingness to engage further on the climate transition issue on very solid ground. As you might know, SVT I is the most renowned independent body, which validates carbon intensity reduction targets. Back in January this year, we submitted our new targets concerning scopes 123. You have to keep in mind that On the service platforms such as Net City, more than 99% of the emission are on Scope 3, Primarily Real Estate Development Emissions. That's why I told you earlier that it's a core business for us. So our target between 2019 and 2030 are twofold, as you can read on the slide. On scope 1 and 2, we aim to reduce our carbon emissions in absolute term by 28% At Enscorp 3, which is really our main target, we are targeting to reduce our carbon emission per is for Metro developed by 22%. So last month, we were pleased to receive the SPTRI validation of our targets, Which is an important step in the carrying out of our strategy. Please go to Page 5, Which focuses on the French market supply. So on the left hand side, we can see the gradual decrease In building permits, which is, of course, one of our main concerns. Indeed, 17% Drop in permits granted is intensifying the supply shortage and limiting our own supply for sale. This drop, which is regularly seen in the context of local political election cycles, is now approximately is 50% lower than the usual drop, probably due to the sanitary crisis and new council persons. On the right hand side, we can see the housing starts, which are consequently impacted by the billing permit decline. Because this trend would lead to more inequality and exclusion, we have rising prices and lower housing stock renewal. Against this lackluster backdrop, Necti is outperforming the market as we see on Page 6, Well, we show a good level of activity on new home reservation, as Julien described earlier. So during the Q1, the demand continued to be solid. Thus, we have sold around 3,900 new homes, up 7% compared to the Q1 of last year. In value terms, is reservation reached around €880,000,000 up 11%. The activity abroad was dynamic with international newborns reservation rising by 51%, continuing the ramp up. So now please turn to Page 7 on the client mix. On this chart, We see our individual investors' reservation have increased by 15%. The Pinal fiscal team remains very attractive for people who are able last year to accumulate savings. On the other end, And despite the easing recommendation of the HCSF Banking, which is the French Banking Body Council, with longer debt and higher affordability rate, we have fewer first time buyers, probably because of the global economic assessment. Regarding institutional investors, the low 5% share doesn't reflect the pattern over the course of the year And should increase over the coming quarters because basically the bulk sales are not linear. Will you please go to Page 8, Presenting netity supply for sale. Here you can see the supply we provide remains low, around 7,000 apartments, Relatively steady over the quarter. This situation is a direct effect of the decline of building permits. We are continuing to fill building permits, Twice as many in the 1st semester of this year than now, which is a lot, which projects adapted to the local authorities' needs. Thus, we are well positioned to benefit from the recovery of the building permit trend when it happens. To finish on the Residential Development section, please go to Page 9 regarding the pipeline. As you see, our backlog is stable. Our business potential is punctually affected by the building permit bottleneck and has been contracting by 7% over the quarter. Let's go on to commercial real estate development on Page 10, starting with our future headquarters named Reiwa. This is the project Julien talked about earlier. We closed this project deal with Adiva earlier this year. It will be delivered late 2,033 and is another example of how Nexity is able to perform provides the highest standards available on the market. It's a really great project. Now to conclude this component concerning commercial property development, Please turn to Page 11, presenting the pipeline. The commercial real estate pipeline totals about EUR 2,800,000,000 and is barely unchanged over the quarter. The backlog is rising 10% at the expense of the business potential, minus 11% is mainly due to the Reiwa project moving from business potential to the backlog. So even in the 2021 target looks easily attainable, it is important, I think, to keep in mind That we are not expecting any other large projects for 2021 to arise and that, as you know, The office market continues to struggle due to the current sanitary measures. So I will now give the floor to Eric is to discuss the Services activities. Thank you, Geric. Moving on to Services, Page 12. Is a condominium management portfolio totaled almost 871,000 units under management at the end of March 21, Which is stable compared to end December 2020. Regarding the property management, the volume of the floor area under management has also remained stable at 20,100,000 square meters at end March 2021. The performance of our study in Chile is still strong. The occupancy rate of residences remained at a high level, 92.3% at the end of March, Despite the retention of distant courses for students. For our shared office space activity, the occupancy rate remains stable Around 70% at the same level at the end of December 2020, which is encouraging in the resilience of this market Despite the strengthening of working at home for more than 1 year due to the sanitary measures. Distribution activities plus 32% growth in the Q1 of Q1 meets 1334 reservation related to the rise of individual investors not in our client mix. On Page 13, you can see Nexity Q3 2021 revenue. In the Q3 of 2021, Nexity recorded revenue of €1132,000,000 plus €345,000,000 for the Q3 of 2020. This is a very good performance, but it will not be extended throughout the full year. The Q1 of 2020 was impacted by the health crisis, Suspension of construction sites, no notarial beds and thus no more revenue. The slowdown of activities observed in 16 March 2020 was estimated at nearly €130,000,000 from Exiti for Q1 2020. Revenue for the residential real estate development amounted to €686,000,000 at the end of March 21, An increase of €194,000,000 compared to the Q1 of 2020. And the increase takes into account the base effect is a shutdown of construction sites in 2020 for 1 half and the other half from the increase in the volume of activity that comes from the higher backlog and the brick space The signing of notary debt in the Q1 of 2021. Revenue for the commercial real estate development Amount to €195,000,000 at the end of March 21, a very strong increase, up €139,000,000 Compared to the weak Q1 of 2020, pulled this year by the high contribution made by taking the sale of Raywalk in Saint Joan. Revenues from the services activities amount to €250,000,000 an increase of €11,000,000 thanks to the growth of the distribution activities, high level of transaction and the net increase of the portfolio of services residences. For the whole year, revenue from the development activities is expected to be at least equivalent to 2020. 1st revenue from the Redistributed Real Estate Development is expected to continue to grow in the coming quarters of 2021, Driving by the flow of high backlog to represent growth of more than 10% compared to 2020. Remember that revenue in 2020 was €29,000,000 On the other hand, revenue of commercial real estate are expected to return to a level around €500,000,000 about €400,000,000 compared to 2020. Taking into account the construction planning of the current operation, while 2020 had benefited from the historic order intake of Eco Campus at the Guy in Colombia. I will now leave the floor back to Julien, who will describe our confidence for the future with the growth pipeline and the 2021 guidance. Yes. Thank you, Eric. And just before that, a couple of other points about the agitomites disposal process. I'm on Page 14. So as we said back in early April of the press release, we currently own 63% of the capital. We're going to sell 45% is the acquirer, AG Desiree Lamondial, so we'll keep 18% of the capital with a long term put option. Keeping a minority stake is positive for us. Secured the Real Estate Development Strategic Partnership, which we signed together with the sale agreement. What are the key points of this partnership agreement? First of all, it has a long duration, 6.5 years up until the end of 2027. Nexity is going to be the preferred, non exclusive, but preferred real estate development partner. In essence, we are going to grant each other priority rights. We show all our suitable plots to Egid and they show us all their projects. And based on certain criteria, Nexity will target to develop about 2 thirds of the total Dominique Senior Housing pipeline. AGI Dozier la Mondiale is really the right partner. It's very long term oriented. It has a strong focus on the senior clients. It's a life insurer, health insurer, pension fund, and And they want to use Domitice to provide more services to their client base. They intend to keep a strong pace of development, At least 20 new residences per year, which is, of course, good for us as a preferred developer, and they are not impacted or very little impact By IFRS 16. Actually, it's not just an asset sale, it's a strategic partnership that Exiti and La Mondrian have concluded together. Real Estate Development, Agile, of course, but possibly other asset classes. La Mondial, as it said, is going to invest about 5% of NexSys Capital with a long term commitment and we already bought off market 2.14 percent of NexSys Capital by buying a block directly from Newport, NexSys Manco, which basically solved Newport debt problem. So moving on to the guidance and concluding the presentation. We confirm the guidance given to the market with the annual results in February. And clearly, having such a strong start in Q1 gives us a good level of confidence, but the year is far from over. We can, however, be more precise now that we have indication of the prices and other time lines concerning our disposals. Assuming that both Aegid and Century 21 are sold by June 30, our 2021 turnover Should be around €4,600,000,000 at least equivalent to 2020 on a comparable basis. The current operating income is expected to reach at least €350,000,000 before as well as after the disposal And at least 23% up compared to 2020. This means basically that the deconsolidation of Egid and Centuri in H2 Will cost us a loss of turnover, but no loss of profit and will be accretive to the operating margin. The proposed dividend is unchanged at €2 per share. Before answering your questions, please allow me a more personal note. This is the last time I host this conference call in my capacity as Deputy CEO of Nexity. As I decided to takes the opportunity to join Credit Mutuel Arcia, a midsized but very successful and innovative French bank, which is also one of the large shareholders of Nexity. For the past 7 years, I really enjoyed being Nexity's CFO and then Deputy CEO because it's simply a great company. I think that Nexity's market recognition improved during those years. And I know that I'm leaving the finance function and the company as a whole in good hands. So let me just thank all of you, investors and analysts, for all these great exchanges that we had over those years and the quality of your market insights. And now Veronique, Eric and myself will be ready to fill your questions. Operator? If you are using a speakerphone today, it might be necessary for you to pick up your handset or depress the mute function, so the signal can reach our equipment. And we'll take our first question from Emmanuel Parrot from Gilbert DuPont. Good evening. Can you hear me? Yes, we can. Yes, okay. Good evening. I would have two questions, please. The first one concerning Newham Reservation. In Q1, you disclosed the plus 7% in volume. That's quite a good performance. Your guidance is 20 1,000,000, if I remember well, so it's a flat guidance. Could we consider that you are cautious On this point or is it because the level of commercial offer is quite low? That will be my first question. And maybe the second one, concerning the building permits in France, Quite a low level. You flagged this point. Could you give us more Results about this low level in France and maybe when do you expect any inflection In the coming quarters. Thank you. Maybe I will take the first question and Bjornik will take the second one. Are we cautious? Yes, we are, as usual, as always. But Q1 is always The smallest quarter in the year that's based on the seasonal pattern on our French real estate market, Where a lot of business gets transacted around year end. So just because of that, there's no reason to extrapolate. It's a good start. The retail clients and back to let investors in particular are back. We have a low level of bulk sales, but as Veronique said, there's no reason to I don't give too much interpretation on that. So it's a good start, but it's just a small quarter as usual, and it's too early to draw consequences. And you're right, You can see the level of supply diminishing. We're doing our best and the teams are putting a lot of efforts into replenishing the supply. But in this context, it wouldn't be prudent to just change or increase the guidance. And on your second question about the billing permits? As I told you on the market, there was a very strong drop in term, it's by 70 Between February 2020 February 21. It was a lot less for an activity because We got minus 3, so we definitely outperformed this drop In building permits, I think it's just it's a question of political cycle. As you know, in France, where you have These local elections, you have less permits 2 years before the elections and probably usually 6 months After the election, as I told you, the drop was I looked at yesterday, the drop was 50% lower than usual political cycle. I think, of course, we have this sanitary crisis. And as you know, Some urban departments, even in big city, were closed for almost 2 months last year and probably Not at closing speed even now. Then as you know, we had elections and The council person were changed in a lot of cities, so they are reviewing and we are assessing all the projects, so it takes time. Honestly, I expect the permits to come back, honestly, we hope in the Q2. Okay. Thank you. And a special thanks to Julien. I wish you the best for the future. Thanks. Thank you. And we have is a question from Nicolas Tabak from Stifel. Good evening. Can you hear me well? Yes. Please go ahead. Great. Thank you. So first, congratulations Veronique on your upcoming nomination and congratulations also Thank you, Julien, for your new nomination and thank you for your great help with Nexity. The first question would be On Century 21, was the EBIT in 2020 down versus 2019? What 'nineteen more or less versus, let's say, a normal year in 2019. And then my second question would be, Let's say more broad. I'm trying to understand, I mean, the strong performance in terms of individual Real Estate revenue back to 2019 levels, I mean for the reservations is back to 2019 level. I'm trying to understand, we see that there's still a lack of building permits. So what helps you to be back so fast, why you couldn't Before, I mean, is it new building permits you receive that increase the supply that you can deliver? So you've Talked about, so the notarial deeds, but I guess it doesn't explain everything. So I'm trying to get the other part How that worked and how that backlog could be delivered, but not before, despite the building permits issue? And then on the third question, What's your mix right now in reservations and backlog that is linked to the Olympics overall? My take here is, I I mean, how much of the reservations and backlog is like not really in the hand of individual mayors, But are, let's say, such big project politically that it's more other prefer or some other instance that will have the power and therefore Or you will not be hindered as others would be. Thank you very much. Maybe I will start, sorry, I was interrupted. Thank you very much for your kind words. First thing about the backlog. The backlog is essentially secure. It's Essentially made either of the reservations which were made, notarities were signed And we just need to make progress until we technically finish the building. So this is absolutely secure. I'm I'm talking about residential real estate. The other part of the backlog is made of reservation, which essentially I don't have a figure, but Over 90% were made with building permits, clean building permits, meaning no appeals, no claims. So if your question is, Is the backlog secure or is it vulnerable to a change in the attitude of individual mayors or local councils? The answer is, Neil, it is secure. And we are not like other companies, I made a smaller hint, Which puts into their backlog projects without building permit or without claim building permit. So in our situation, There's nothing to worry about. The backlog is very strong. And indeed, the conditions of last year created a situation where the Progress and technical progress was hindered, was delayed. But this year, despite the health crisis, we are really strongly making Strong progress both on the technical side and on the commercial side, and this means good revenue recognition. That's what Eric said. We expect A double digit growth in the revenue of residential real estate. So the question for me for us is not the backlog. The backlog will flow into revenue And you see a really good year for Nexity Residential. The question is what happens afterwards? That's the pipeline. This is where we have this current Challenging situation on the land market, but as Veronique said, it's a sort of low point in the political cycle, which is set to improve. Is I'm sorry that was very clear. It's me. I think I wasn't I just wanted to say so on the new home reservations in France, so you for the reservations you are back to the 2019 level And those new reservations, how could you be able so as you said, you are only making reservations and backlog out of Clean building permits. So I guess to make this higher level of new reservations, you had to get new building permits, right? So what differentiates you and how were you able to get these very strong and impressive rebound in reservations? The revenue is natural, yes, but more on the reservation side, so let's say ahead of the curve. Sorry about not being precise. No, no, no, that's clear. Thank you. We actually got more building permits than the market because as Veronique said, I mean, it's an important indicator. When the market was down by 17%, we were down by 3% for Nexity Residential as a whole. So we got much more than the market, But not enough and a little bit less than last year. And the direct consequence of that is that the Supply for sale is slightly diminishing, and we are selling very, very fast, but it cannot go to 0. We need more products to sell. So Why do we outperform? I think it has to do with the very good diversification of Nexity, geographic diversification, both Greater Paris, But everywhere in France and particularly the regional metropolis, but also the mid sized cities, which are back in Since the COVID crisis, we are everywhere and with a product range, which is really unrivaled compared to the market And particularly, managed residences, service residences, seniors, student, co living and other format, we're really very popular and we are really not a specialist, but the specialist of Service residences in France. So that's an explanation. But of course, we cannot take for granted that we will always be Ahead of the curve, ahead of the pack. So Veronique and the teams, of course, are putting a lot of efforts into replenishing The pipeline and the supply for sale. As I told you, we feel building permits was as many in the 2 semester this year than last year. So I think we are very active. And as we told you, I think we have a very good track record in terms of obtaining our permits. I think we definitely know how to deal with the municipalities. That's where I come from, by the way. And as Julien I said we have a wide range of products and we are everywhere on the territory. So I think it's a good risk management. Great. That's very clear. And so what's your exposure to the Olympics at the moment? And where is it Between reservations and backlogs and the Great Paris project and how does that feed into the rest of the total group reservations? In terms of backlog, it's 0 to my knowledge, but we'll check that. No reservation were signed. It's part of the pipeline, so it's a meaningful project, but it's extremely small compared with the overall size of Nexity. And we are still at the beginning of the project. We just make the acquisition of the land and so it will go in the next month And it will contribute to the volume of reservation in 2021, but at most size. And we have a question from Christophe Chapulte from ODDO. Yes, good evening. Just a Quick question on reservation. So bulk sales are up by 4%. And I just wonder if you have booked further Unit from CTC EBITDA or Jasonard. And for CTC EBITDA, could you remind us how many left from the initial agreement you And obviously Veronique and Julien, I would like to speculate for your new position. Thank you. At the beginning of the year, we don't make a big deal with CEDES ABITDA or with Gencina. The studies and projects are going. We are still have many things to do with these 2 big clients. And we think That we'll have a good contribution in the next step of the year. Of course, it also depends on the time we to make the sales. So it will take some time and it will come in the next period. For the global deal with Cebeci EBITDA, we have this deal, but we have also lots of With many subsidiaries, so we make last year about 5,000 reservation with This EBITDA in all components and we think that we can do in this trend for next year. But of course, it is done project by project and we will do that in the Next month. Okay. Thank you very much. And we'll take our next question from Marie Lynn Foegh from Societe Generale. Yes, good evening. I've got just a number crunching questions. It's about the split of Your Q1 sales between AIGID and Saint Louis Vientiane. You mentioned €104,000,000 If we could ask the split, it would be great. 2nd question is about the building permits again. You mentioned a kind of normalization of building permits as soon as Q2, But aren't you afraid of any other delay that could occur From the national election in 2022 that could lead to another wait and see attitude And my last question is about raw material inflation. How do you deal with this topic? Has you some room to negotiate on the land price, For example, our better negotiation with your subcontractors, if you could give us some colors on that topic. Many thanks. First of all, for the split of the revenue contribution, that's about €200,000,000 for the Disposal activities, I can say that it's about 10% for Century 21 and the rest for the For the speed of permitting permits, of course, we have not the permit, so we are waiting for the authorization. Many things can happen. Some things can make more time and some things can make we can then the permit faster. We have a very big demand of clients. So the municipalities have also to take into account the demand and they cannot only make their Time to give us the authorization and for the addiction context, of course, it can happen, but the impact of the Housing is not the top of the list of the daybeds. So of course, we can have some risk, but we are quite So that we can have a good trip to have permits for the next month. Yes. And hello, Marine. And in addition to that, Really in our business, it is the local election that matter. Unfortunately, in our last years, every 6 years. And the national elections, first of all, don't matter a lot. And then if I look at the last national election year 2017, the business activity of Nexity was quite good. We were up by 15% in volume and 21% in value. So I don't know if it was the Macron effect, but actually a very good year for Nexity. So the current environment is challenging. We didn't talk about normalization in Q2. We're talking about the challenge and our ability At the end of the day to obtain the billing permits, which we are filing and filing in greater number compared with the previous periods, Which is encouraging, but really for 2022, the national elections are not a factor in our view. Okay. Thank you. About cost of construction, yes, we have inflation in raw material, but of There is not any raw material in the price with the construction company. So we have a global Discussion with them so that we can have a good equilibrium to meet our price. And yes, of course, you underline that there is also The price of land and also component in our price. So we are quite confident that we can have a good level of margin for our next operation Despite the inflation of raw material. Absolutely. The cost of commodities is up, but the cost of human labor is down, And they tend to offset each other. And if you look at the slide about housing starts going down, that's more or less true for all the final markets So in this respect, the construction industry is not in a great market, is not in great shape, which gives us A little bit more leverage to negotiate with them compared to the previous years. Okay. Many thanks. Back over to our speakers for any concluding remarks. No, we don't have any other remarks. Our next meeting, our next rendezvous is at the AGM on May 19 at 10 a. M, which will be broadcast. Important meeting point with our shareholders. Unfortunately, distant video, but If you can join, you will be very, very welcome. Thank you. Thank you. And once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.