Welcome to the Hemnet Audiocast with teleconference first quarter 2022. Today, I'm pleased to present CEO Cecilia Beck-Friis and CFO Carl-Johan Åkesson. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Speakers, please go ahead.
Welcome. As you can see from page
Operator, please can we go on mute? Thank you.
Okay.
Okay, let's start over. Good morning, and welcome to this presentation of Hemnet Group's results for the first quarter of 2022. As you can see on page two, my name is Cecilia Beck-Friis, and I am the CEO of Hemnet, and I am joined today by Carl-Johan Åkesson, our CFO. Together we are excited to be with you today and to provide you with an update on Q1, in which we have seen both strong growth as well as new and exciting product launches. First, I would like to acknowledge the anniversary of our IPO, turning to page three. Yesterday, April 27th, 2021 was the first day of trading of Hemnet shares on the Nasdaq Stockholm exchange.
Since the IPO, we have delivered four strong quarterly reports, five, including this one, and I'm hugely proud of the Hemnet team, consistently working to achieve great progress and results along the way. I have truly enjoyed meeting many of our investors in the past year, and as we continue to progress back to a more normal post-COVID life, I also hope to meet some of you at our office in Stockholm in the near future. Turning to page five to go over the quarterly highlights. This is yet another strong quarter for Hemnet with net sales growth in excess of our growth target and Adjusted EBITDA margin in line with the upper end of our target. Net sales growth of 26% is largely driven by a growth in ARPL, the average revenue per listing, of 41.3%.
Despite the current economic and geopolitical uncertainty, the Swedish property market has remained stable, and published listings actually grew by 3.9% for this quarter. We have, since the IPO, underscored the historical stability of the Swedish property market, driven by organic demand for property and due to the lack of both the buy to let market and the functional rental market. More important than the market, though, is that we are confident that we can rely on our product development and pricing strategy to continue driving growth in ARPL. On EBITDA margin, we see positive impact from the change in the agent compensation model implemented last year on March 1st, 2021. This will be the last quarter where the comparable figures include the old compensation structure.
Overall, margin increased 7.5 percentage points to 47.6% as we continue to grow net sales in the business with high operational leverage. We continue to enjoy high profitability and cash generation with a cash conversion in the last 12 months of 102%. Our ability to quickly generate cash results in rapid de-leveraging, and we see leverage decreasing to 0.3 x A djusted EBITDA this quarter. On that note, we have announced plans for both a dividend and a share buyback to be voted on the AGM tomorrow. Our proposal to the AGM is to pay a dividend in line with our financial target of about 1/3 of net income and to return excess cash via a share buyback program, and more on that from CJ later on this presentation.
Towards the end of 2021, we turned our focus in product development towards business customers, especially real estate agents. We deliver significant value to this key customer group, but see great potential in further developing and refining products for them. As a first step, we have launched a new section on Hemnet that connects property sellers with real estate agents, and we will continue to develop this product throughout the year to give agents a greater opportunity to market themselves and to win new mandates. We have also launched a new Hemnet Business Pro product for our bank customers, and I will come back to that later on in this presentation. Now let's spend a minute on page 6 to discuss ARPL development. I want to highlight that despite consistently strong growth in ARPL, we are still early in our monetization journey.
We have at our disposal a number of tools to grow ARPL. The first one of this is product development. We are still early on in our product journey, having launched Plus and Premium in 2019, and there are significant upgrades that can be implemented across our listings portfolio to increase the value of these products in order to pursue more sellers to upgrade their listings. We have also tools that can impact conversion. This includes our direct relationship with the seller and our ability to communicate directly to the seller the value of our products. At the same time, we see more and more agents recommending to their clients that their listing should be upgraded to one of our premium packages. Finally, we are working with pricing through our pricing team.
Here, we make small and iterative adjustments across products, asking price categories and geographies to see how the prices of our products can mirror the value provided in the best possible way. Turning to page seven, where we'll simply put highlight the fact that Hemnet is the number one property portal in Sweden. Since starting in 1998, Hemnet has had a great opportunity to build an unmatched market position and moat. Hemnet is known by virtually all sellers, 97%, and 84% note Hemnet as their number one choice for a property portal. Interestingly, the second choice, with 14% of votes, is Blocket Bostad, which no longer allows the publication of brokered listings. We are the fifth strongest media brand in Sweden, jumping up one place from last year's survey and passing the public broadcaster SVT in the process.
Only international giants like Spotify and Google surpass our brand in the Swedish media space. Finally, Hemnet is the de facto query when searching for property in Sweden. On Google, the word Hemnet is searched 8 x more frequently than the word for property and 10 x more frequently than our closest competitor. This gives us a great advantage when it comes to the audience and the volumes of traffic to Hemnet. All of this leads to a key component of our business, that 90% of all properties sold in Sweden at some point are listed at Hemnet. This results in unmatched network effects, cementing Hemnet's place as a natural part of the property sale process.
This number has been stable over time, fluctuating a few percentage points depending on the market, but there has always been a small number of transactions conducted without Hemnet. Examples of such transactions can be inheritance, buying a known property such as your neighbor's, or sales where the seller values discretion, in a discreet process. That said, the vast majority of properties are published on Hemnet, and we do not see any significant trends in our data suggesting otherwise. I bring up those examples to highlight the strength of Hemnet's brand and our market position, and also to underscore our confidence that this is a position from which we can build products of great value for a sustained period of time.
Those of you familiar with classifieds model know that the network effect mean that once a portal has established its position as the go-to player, the market position is hard to change. Now turning to page nine and the business update. We have a clear company strategy, focused on three customer groups: consumers, property sellers, and real estate agents and business to business. For consumers, our focus is to increase personalization of the Hemnet experience to create an even stronger bond and to continue to encourage users to use Hemnet when researching the market. For sellers, we have developed a portfolio of value-added services that we will continue to refine whilst also working with product conversion and pricing to drive ARPU.
For agents and other business customers, we've seen great growth the last couple of years on the back of great gains in our market share of display advertising. We see significant untapped potential in this area as we are today limited by our relatively narrow product offering. That is why we have now started working with introducing new and more integrated products to better match the needs of our individual customer groups and generate growth in the process. Turning to page 10 to talk about our business to business plans going forward. Our primary focus so far this year has been the customer groups closest to our business, namely the real estate agents and property developers.
In the coming years, we will broaden our product portfolio to include more integrated products for both these groups. With regards to real estate agents, we have already made significant progress by launching a new section on Hemnet that highlights real estate agents in an area, giving home sellers and agents new ways to find each other on Hemnet. We recognize the value in being real estate agents' most important business partner, and we believe that the best way to achieve this is by addressing the crucial need to find new property sellers. In doing so, we not only provide a clear value to the agent community, but we also increase the market mobility by making it easier to buy and sell real estate in Sweden. On page 11, you can see a couple of visual examples of our recently launched products.
Starting from the left, with consumers, we want to continue to deepen our relationship in the research phase, encouraging the use of Hemnet long before the publication of a listing. One step to achieving this is the launch of the first version of a property valuation tool, allowing logged-in users to track the value of their property over time. The first iteration is limited to the Stockholm region, and our plan is to develop this product over time. The second illustration shows the entry point to a new section that I talked about on the previous slide.
Today, real estate agents invest in branding on Hemnet as a way to attract new potential sellers, but we can clearly see that there is so much more we can do to help property sellers to find a broker. This is why we recently launched the first iteration of our Find Your Broker product, where we list the brokers in the areas based on the last sale. Going forward, we will improve and develop this section further from a user perspective, as well as adding commercial opportunities for agents to market themselves towards potential sellers. During the product development of this section, we have collected extensive input from the broker community, making sure that the product meets the concrete needs of the customer group. Let's turn to page 12 to talk about our latest product updates for banks.
We have a unique position in that we are still in the only place where consumers can compare mortgages from all the large banks in Sweden. To improve this experience for both consumers and banks, we have launched a new product called Hemnet Business Pro, which gives subscribing banks more exposure of their logo to consumers looking to compare mortgages. We have also improved the functionality of our mortgage calculator, adding data points for the overview of housing costs. All in all, it has been a busy and productive quarter from a product launch perspective. I'll now conclude this chapter with a couple of comments on recruitment and marketing on page 13. We added nine FTE during the quarter, totaling 121 FTE at the end of Q1.
This is a strong recruitment pace, aided by our attractiveness as an employer, and as can be seen in various awards given to Hemnet in the past few months, as well as a proactive recruitment strategy. Most additions are in product development, and we continue looking for talent to strengthen the team, that has the most significant direct impact on the pace at which we execute our strategy. On the marketing front, we will be launching a new marketing concept during this year to reinforce our market position. This is the first time in many years that Hemnet invest in paid marketing, and it's something that we strongly believe will add value as we seek to deepen our relationship with consumers and customers. Finally, the Guldhemmet Award ceremony will be held in Stockholm City Hall in May.
I am very excited over that opportunity to once again gather the Swedish real estate community in an event that has become an important and very appreciated part of the calendar for the whole industry, one where we acknowledge and celebrate outstanding achievements in areas such as sales, customer care, and innovation. With that, we'll leave the operating updates, and I'll hand over to Carl Johan Åkesson to provide us with details of our financial results.
Thank you, Cecilia. Let's start on page 15 with an overview of the quarterly results. We have had the opportunity to say this a few times since the IPO one year ago. This has been yet another strong quarter for Hemnet. Net sales grew by 26% to SEK 179.6 million, and Adjusted EBITDA is up 49% to SEK 85.5 million. This growth in both net sales and profit is driven by our ability to increase ARPU, which was up 41% compared to Q1 last year and reached SEK 2,681. Over on the right-hand side, you see that our EBITDA margin increased by 7.5 percentage points to 47.6% as a result of this.
Cash conversion, measured as free cash flow in relation to Adjusted EBITDA for the last 12 months, was 102%, while leverage stands at 0.3x A djusted EBITDA by 31st of March . We're of course very pleased with the start to this year, as it again demonstrates Hemnet's ability to generate growth and profitability. We now have a couple of quarters with high comps in terms of listing volumes and traffic due to COVID, but our underlying ability to generate growth is unchanged. Looking at page 16 and net sales by customer category, you will see that net sales from our most important customer group, property sellers, grew by 47%. This is driven by growth in ARPU, a KPI that captures both product innovation, product adoption by customers, as well as pricing. Cecilia commented on this earlier in the presentation.
This quarter, we also had a positive contribution from higher listing volumes, but this, of course, is a much smaller part of the revenue growth in this category. In Q1, revenue from property sellers made up 2/3 of total net sales, so it's clearly our most important growth driver. For the three other customer categories, which then makes up 1/3 of our total net sales, the combined growth was a - 2.6%. However, last year included items affecting comparability of SEK 2 million. Excluding that, the change from last year is actually positive with 0.7%. Looking at those individual customer groups, we see that our primary business customers, real estate agents, continue to invest in Hemnet, both in terms of display and specific broker products.
We do, however, feel that there is much more that we can do for this customer group going forward, and as Cecilia talked about earlier in the presentation, this is something that we are addressing. For the last two categories, developers and other advertisers, we see a negative growth, but for advertisers, as I mentioned, this is due to items affecting comparability. We have quite high comps for traffic from last year, which short term put some limits on what we can deliver in terms of display growth from developers and other advertisers. We also continue to see some signs that the very active property market leads to developers not needing as much marketing as it perhaps would have done in a less hot market. In summary, we continue to generate high growth from our two key customer groups, property sellers and real estate agents.
Turning to page 17 and the net sales split by service category. Here you will notice that we have updated the way we report net sales per service category. We now have two rather than three categories, listing services and other services, after we split the old category value-added services across these two new categories. The reason for the update is to more clearly illustrate what portion of net sales come from our product portfolio for property listings as opposed to other services. Listing services then include all revenue from Hemnet Bas, Hemnet Plus, Hemnet Premium, as well as Raketen and Renew listing. The listing related part of the old category value-added services have moved into this new category.
The category other services consists of all other revenue, including the part of the old category value-added services that was related to business customers, which is Hemnet Business and Mäklartipset, the broker tip. The split by service category in many ways reflect the split by customer group that we have just talked about, so I won't comment any further on this specifically. Going forward, we will be focusing our comments on the split by customer category. Let's now turn to page 18 and look at the growth in Adjusted EBITDA. Adjusted EBITDA grew almost 49%, a combination of high top line growth and good cost control. This is the last quarter where the comparables include the old compensation model for real estate agents. In this case, January and February 2021 included compensation based on the old model.
Last year, we also had expenses of SEK 5.5 million for the educational compensation to brokers, which we don't have this year. Those two factors together are the reason why we see a positive contribution to Adjusted EBITDA this quarter, while going forward, the compensation will increase compared to last year as we grow revenue from property listings. Other external expenses, excluding compensation to real estate agents as well as personnel costs, are growing at a managed pace. Now turning to page 19 to talk about our financial position. We are highly cash generative with a cash conversion of 102% for the last 12 months.
This metric does, of course, vary somewhat over time, but the underlying characteristic of Hemnet's business model is that we are highly cash generative, as we don't need any significant working capital as we grow and also have very limited needs for actual CapEx. From this quarter, you can see that we reduced the drawdown on our revolving credit facility with SEK 65 million, and we ended the quarter with about SEK 96 million of cash on the balance sheet. The leverage was 0.3 x Adjusted EBITDA. With that, what is our plan for capital allocation? Let's turn to page 20. We have previously mentioned our intent to distribute excess cash to investors and have proposed both a dividend and a buyback program to the annual general meeting that will be held tomorrow.
The proposed dividend is SEK 0.55 per share or about SEK 56 million , in line with our dividend policy of at least one-third of net income. Excess cash will be returned through buybacks, including using our balance sheet in terms of the already existing revolving credit facility, and it will be conducted between now and the next AGM. We foresee that the buyback would keep leverage somewhere around the level we will have after the dividend has been paid out, so staying well within our leverage target of 2x EBITDA. Speaking of financial targets, let's turn to page 21. We have consistently exceeded our growth for net sales in the previous quarters, and this quarter is no exception.
We have also met our profitability targets coming in towards the upper end of the target as we continue to invest modestly in our business through re-recruitment. We're well below our leverage target, but as I said, as we conduct buybacks, you should expect this number to stabilize. With that, I hand it over to Cecilia again.
Thanks, CJ. Let's turn to page 23 and a brief summary of the quarter. First, however, I would like to once again thank the team for the hard work since the IPO and our investors for your continued support of Hemnet. I have enjoyed speaking with many of you, and I'm glad that an increasing number of meetings now occur in person at our office, so we can better illustrate the Hemnet culture. Strong quarter with net sales up 26% and EBITDA up 49.5%. ARPL continues to be the main driving factor for growth as we work with both products and pricing. Finally, we will accelerate our business to business product development, kicking things off with a number of significant product launches, such as our first Find Your Broker tool and Hemnet Business Pro for banks.
Thank you for your continued support, and we will now take any questions.
Ladies and gentlemen, if you have a question for the speakers, please press zero-one on your telephone keypad. Thank you. The first question comes from Pete Kujala from Morgan Stanley. Please go ahead.
Yes, I've got a couple of questions from me. Thanks. First of all, on your recruitment plans for the remainder of the year, you added nine FTEs in Q1. If recruitment is optimal from your perspective, are you targeting similar trends for the remainder of the quarters, or how should we think about it?
Yes, I would say the Q1 is relatively representative of our ambition. Of course, quarter by quarter, this will fluctuate, but this is what we feel is a managed pace in recruitment.
All right. Great. Thanks a lot. That was helpful. On Hemnet Bas or Basic, the new pricing model that you did for that, launched in March 2021. If we talk about year-over-year growth in ARPL, is there some kind of a difference when we look at January, February, and then again March when the new pricing model was in the comparison period?
Yes, I would say so in one way because, historically, or let's say up until first of March when the new segmented pricing one was introduced for Bas, we didn't touch the Bas pricing for quite some time. This was due to the pandemic where we didn't want to sort of adjust prices. First of March, we had, I would say, more room to adjust than at any time, I think in the history of Hemnet because it was almost two years since we did the previous adjustment. That is definitely one difference for March versus January and February.
Great. Thanks a lot. The Business Pro for banks that you mentioned, can you tell us a little bit about the monetization of that product? Do you have some kind of different tiers for banks in that bank?
We have had for quite some time an offering for banks. If you want to be part of our bank mortgage calculator, that is the first tier, and we're very happy that we'll have all the major banks on one platform. This step and this product launch that we did during Q1 is one step further in adding another layer so you can add more exposure. You could say it's another tier in that sense. We will kind of continue working with this product going forward.
All right. Thanks a lot. Thank you.
Thank you. The next question comes from Andrew Ross from Barclays. Please go ahead.
Hi. Morning, everyone. Thanks for taking the question. My first one is just to follow up on that previous one and to push you a bit harder on the ARPL growth in March and in April to- date. Could you actually give us a number? Because it's really important when thinking about the kind of growth for the rest of the year now you're lapping against the pricing model change. Thank you.
We don't provide any sort of more current or forward-looking statement on the ARPL growth, actually.
I mean, maybe directionally as we think into the kind of last nine months of the year, you know, should we be assuming that there's gonna be a decent size slowdown against the 41% that you did in Q1? Or do you kinda think that you can keep kind of close to that run rate going, despite lapping against the pricing model migration?
Again, we don't want to sort of move into that specific discussion, but I think what we said historically is that we have a sort of a managed pace in terms of how we work with pricing as well. It might fluctuate a bit over quarters, but overall, we have this significant gap in terms of what we charge and the value we bring. Nothing has changed fundamentally in our view after this quarter, even though we increased with 41% in Q1. There will be room for growth for sure without going sort of deeper into exactly what that number would be.
Okay. That's helpful. Maybe I could just follow up with one more. Has there been any? Or is there any kind of timing of price increases we should be aware of? Because I know you tweak the increases, you know, regularly in different bits of the rate card in different regions. You know, should we be kind of thinking there are a series of rate card increases planned through Q2 and Q3 that will support that growth? Or are you saying there may be some phasing that we need to be aware of on that pricing front?
No, I wouldn't say there's any particular phasing. We review. I would say on a monthly basis to give some sort of indication. We don't want to touch this too often, even though we have the ability to do it more often. Based on that, annually there could be some sort of up and down movements in terms of the growth rate. Overall, we hope to keep sort of a nice managed pace that can last for years rather than quarters.
Perfect. Thank you.
Thank you. The next question comes from Eirik Rafdal from Carnegie. Please go ahead.
Yeah. Hi, Cecilia. Hi, CJ. Thank you for taking my questions. I guess it's a kind of different way to ask some of the other questions that have been asked. I know that you know quantitatively don't disclose the drivers around the ARPL growth. But could you just give some more flavor on the effects between pure price hikes, underlying housing price inflation, and positive mix effects? Is the growth kind of evenly distributed between the three or how should we think about that for the quarter?
As you say, it is something we don't sort of dive into. All those factors are of course in the growth. I mean, Bas is, I would say, that that's of course the majority of the revenue, given that we classify only the excess above Bas as sort of being value-added services. From that perspective, given that the base is big, it also has potentially a big effect on change. We've seen a nice increase in the uptake of our value-added services, as well as have a little bit of sort of tailwind from property prices. Although that's something we can sort of factor in ourselves in our pricing also.
If we're not relying on prices to move in a certain direction, but it helps a little bit, very short term.
Okay. Perfect. I was wondering on the agents increasing or more actively recommending the services. I saw you call that out, Cecilia, in the intro. Do you have any numbers on that evolution over time? You know, compared to last year, how many more agents are actively recommending the Plus and Premium?
We don't disclose the numbers, but what we can say is that we launched the recommendation feature a year ago during Q1 as part of rolling out the new compensation model. We've seen an continuous, I would say, increase in the recommendation levels, which we find it's great. We expect that to continue going forward.
Okay. Perfect. Thank you. That was all my questions.
Thank you. Ladies and gentlemen, let me remind you again. If you want to ask a question, you will have to press zero one on your telephone keypad. Thank you. The next question comes from Daniel Owen from Nordea. Please go ahead.
Yes. Hello, Cecilia and CJ, and thank you for taking my question. I only have one last question actually, and that was on the Plus Premium conversion. I know that you gave this level for Q4. I think you said it was around 30% combined. I wonder if you could, if you care to give that level again for Q1 or maybe give any indication at least of where the conversion levels are at this point. Thank you.
We don't disclose that number, but we are seeing that with, you know, a continued growth in that number.
All right. It's basically higher than the combined Plus, the combined 30% that you saw in Q4 basically.
Correct.
Okay. All right. Perfect. That's all my questions. Thank you very much.
Thank you. The next question comes from Andrew Ross from Barclays. Please go ahead.
Sorry, guys. I came back in the queue. I've got two more, if that's okay. On advertising, can you just remind us on how the comps look in terms of traffic and engagement through last year? When we should kind of expect that advertising line to start to grow again as you kind of work through the normalization on post-pandemic? The second question is anything you can help us with in terms of your outlook for listing volumes in Q2? Thank you.
Maybe I can take the first one. When we talk about the engagement and traffic levels, and we have since the start grown with on average 6% yearly. During the pandemic, especially during the first half year of 2021, we had exceptional growth in traffic. I think that it's we were on more normal levels during the fall. The comparables are higher compared to last, I would say, the first six months compared to last year. When we are looking into product development, one key thing here is that we have had great growth in the business- to- business the last few years. We have the majority of our product portfolio is within display.
What we'll see, I mean, is an increased demand from our customers, especially the real estate agents. What we are now looking into with these new products that we have launched and that we'll continue working with is more integrated products. That is more kind of broadening our product portfolio. Display will continue being a very important part of our product mix, but we will add more native integrated products as well. It's not only display going forward. The second part was on the listing volumes, I believe. We don't speculate in the future. I think that you can see some uncertainty in the market that could, I would say, affect the volumes very short term.
Like I said in the presentation, to kind of remind everyone that if you zoom out and look at the Swedish property market in general, we have historically had very stable volumes. That, you know, it's driven by what we call the real demand. People need to move. We don't see that would change going forward.
I think maybe to add just quickly to that, I mean, Q2 last year, we grew volumes almost 18%.
Yeah.
That is of course a very sort of difficult comp to beat.
Yeah.
To have some sort of correction this year, I think would be very natural to expect that. Q2 is a bit of an outlier.
That's helpful. Thank you.
Thank you very much. There are no further questions at this time. Please go ahead, speakers.
Thank you so much for joining this presentation today, and we're looking forward to continue the contact and discussions going forward. Thank you. Bye.