Nexity : 2018 full-year results

On the strength of these results, a rapidly expanding backlog (up 12% at €4.5 billion) and over 10,000 employees committed to serving our clients, Nexity confirms all its medium-term guidance as disclosed to the market in June 2018, in particular compound annual growth of 10% out to 2021. Thanks to sound management of the Group's debt, Nexity can confirm its proposed dividend of at least €2.50 out to 2022 while remaining ready to seize external growth opportunities.

Lastly, beyond commercial and financial targets, Nexity also intends to roll out its strategy on the broader stage of social utility. With highly ambitious environmental targets and a specific commitment to providing housing for the disadvantaged, Nexity will continue to fulfil its core mission by pursuing causes that are essential to both the company and the world around us."

***

At its meeting of 19 February 2019, chaired by Alain Dinin, Nexity's Board of Directors reviewed and approved the Group's consolidated financial statements for the financial year ended 31 December 2018, which can be found in Annex 2 of this press release. Audit procedures have been performed. The audit report will be issued after the verification of the information presented in the Management Report.

Nexity exceeds its 2018 financial targets^[5]

X: Target exceeded X: Target not met

Target order intake in Commercial Real Estate was not achieved due to delays in obtaining final administrative authorisations. The projects in question are likely to be confirmed in 2019.

2018 BUSINESS ACTIVITY

INDIVIDUAL CLIENTS 

Through its real estate services platform strategy, Nexity aims to meet all its clients' real estate needs at every stage of life by creating packaged offerings supported by the power of the brand and the wealth of data available to the Group.

To implement this strategy more effectively, in 2018 Nexity continued to roll out its individual client-focused organisational structure, with a single management team - the Individual Clients Committee - providing integrated oversight of Residential Real Estate and Real Estate Services to Individuals. The marketing, sales and digital functions and organisational teams were brought together within two departments covering the whole of the Individual Clients segment.

Starting in 2019, client satisfaction is now monitored and managed across all business lines; Nexity's call centre - which handles over a million calls a year - and customer service team now cover the whole of the Individual Clients business. Synergies and cross-selling between the various business lines have increased. One result of this development is that, of the 12 million visits to the Group's web platforms and the nexity.fr website in 2018, some 11% looked at more than one business line.

INDIVIDUAL CLIENTS - RESIDENTIAL REAL ESTATE

In 2018, the French market for new homes, including bulk sales^[6], began to decline from the record levels seen in 2017. Net reservations were set to total around 155,000, down around 6% year-on-year, split between 128,000 retail sales (source: ECLN) and around 27,000 bulk sales (source: Nexity estimate). This change was mainly due to a slowdown in reservations by some social housing operators, a one-off supply issue linked to the approaching spring 2020 local elections, and overly inflated prices in some locations.

Conversely, current financial conditions in the residential mortgage market^[7] were excellent, with interest rates very low (averaging 1.43% in December 2018), maturities continuing to lengthen (10 months longer than at end-2017) and record new lending volumes (up 4% relative to 2017). Against this backdrop, the expected gradual rise in interest rates should not have any short-term impact on client solvency. The key underlying trends shaping the markets in which the Group operates (population growth, urbanisation, changing lifestyles and protection of resources) remain very positive.

Residential Real Estate sales to end-2018 (new homes in France, subdivisions and international sales) were up 3% by volume and 8% by value (on a like-for-like basis: up 1% by volume and 5% by value).

New homes

In 2018, Nexity booked 19,609 net new home reservations in France, up 7% by volume and 10% by value relative to 2017. Expected revenue from reservations rose more sharply than the volume of reservations, particularly as a result of a favourable product and geographical mix and positive price effects benefiting both retail sales and bulk sales.

After adjusting to exclude external growth transactions (acquisition of a controlling stake in the Ægide-Domitys group in June 2018), a total of 19,060 units were reserved in the year to end-December 2018, up 4% relative to 2017. Expected revenue from reservations came to €3,799 million including VAT, up 7% relative to the year to end-December 2017.

With respect to their geographic distribution, 87% of reservations were located in supply-constrained areas (the A, A bis and B1 zones under the current Pinel scheme). Growth in reservations was more buoyant outside the Paris region (up 10%) and more moderate in the Paris region (up 2%).

In the fourth quarter of 2018 alone, net new home reservations in France were up 15% by volume at 6,600 units and up 17% by value at €1,327 million (on a like-for-like basis: up 12% by volume and 13% by value), mainly driven by the bulk sales segment.

Ægide's senior independent living facilities development business is fully consolidated with effect from 1 July 2018. On a full-year basis, Ægide generated 2,456 reservations (1,051 of them through co-development with Nexity). Of the 1,405 reservations that did not involve Nexity, 549 were in the second half of 2018.

Reservations by first-time buyers were up 10% from 2017 thanks to development programmes closely matching client demand. Reservations placed by homebuyers made up 22% of Nexity's total new home reservations.

Reservation volumes by individual investors were more or less stable (up 1% relative to 2017) and thus slightly less buoyant than in other segments. However, individual investors accounted for 42% of new home reservations during the financial year (with 67% making use of the Pinel scheme), compared with 44% in 2017.

Reservations made by professional landlords comprised 36% of total new home reservations. They rose 17% compared with 2017, with significant growth in reservations made by investors in intermediate and non-social housing (up 53% relative to 2017). In 2018, the latter accounted for 35% of reservations by professional landlords (with the remaining 65% made by social housing operators, up a modest 4% relative to 2017).

The professional landlords market was boosted by growth in bulk sales of serviced residences to private investors and increasing investment by major players - notably in'li and CDC Habitat - with which Nexity has entered into long-term strategic partnerships: for example, in early October 2018 the Group signed a new agreement with CDC Habitat covering the period 2018-2020 (acquisition of 5,000 intermediate homes and 3,000 social housing units), as well as an agreement with in'li covering the acquisition of 3,000 intermediate homes over three years.

Nexity is thus further strengthening its leadership in bulk sales for professional landlords, a market segment with substantial unrealised growth potential.

Nexity's strong performance relative to the market is first and foremost down to its geographical positioning, which is highly concentrated in Greater Paris and major cities, where underlying demand remains very buoyant. However, it is also driven by the unparalleled breadth of the Group's product range, its leading positions in steadily growing market segments such as serviced residences and its close partnerships with institutional investors, who are gradually reinvesting in the residential market. More fundamentally, though, Nexity's excellent performance in real estate development is underpinned by the Group's highly integrated services, which enable it to provide solutions that meet its clients' needs.

The average price including VAT of new homes reserved by Nexity's individual clients at end-December 2018 was up 3% compared with end-2017, reflecting a supply shortfall. Nexity, whose strategy is to offer affordable housing, does not rely on assumed inflation in selling prices.

The average level of pre-selling booked at the start of construction work remained high at 2018, at 69%, compared with 78% at end 2017.

New sales launches were very buoyant in the fourth quarter (with 38% more units launched than in Q4 2017), boosted by a catch-up effect after a slower first nine months. In 2018, Nexity launched a total of 19,585 units, down 9% relative to 2017 (19,342 units on a like-for-like basis, down 10%) particularly as a result of the fall in the number of building permits granted.

The supply of homes for sale grew 4% relative to end-December 2017, totalling 9,005 units at end-2018 (8,807 units on a like-for-like basis, up 2%), for an average time on market of 5.5 months^[8]. Unsold completed stock (138 units) as a proportion of the total supply for sale remained very low.

At end-2018, business potential for new homes^[9] was up 13% from end-December 2017 at 53,602 units (51,040 units on a like-for-like basis, up 7%), equating to 2.7 years of development operations. This increase, which ensures that future supply will be replenished, was accompanied by a high level of vigilance with regard to land prices.

Subdivisions

The subdivisions business (single-family home market) was hit harder by tax measures (withdrawal of interest-free loans in non-supply-constrained areas). Against this backdrop, subdivision reservations totalled 2,063 units, down 21% relative to 2017. Only 27% of reservations were located in supply-constrained areas. The average price of net reservations made by individuals rose 5% to €81k as a result of the higher average price per square metre (up 8%) and the improvement in the geographic mix.

International

In 2018, Nexity booked 365 international new home reservations (down 13% relative to end-2017), almost all of them in Poland. In 2017, expected revenue from reservations included reservations in Italy, where average prices were higher.

INDIVIDUAL CLIENTS - REAL ESTATE SERVICES TO INDIVIDUALS

In Property Management for Individuals, excluding Franchises (condominium management, rental management, lettings and brokerage), the portfolio of units under management totalled almost 897,000 units at 31 December 2018, up 0.8% at current scope in 2018 after declining 0.9% in 2017^[10].

In Franchise operations, Century 21 and Guy Hoquet l'Immobilier signed 5% more provisional sale agreements in financial year 2018 than in 2017, with France's market for existing real estate remaining at historically high levels in 2018^[11]. The number of franchisees rose to 1,361 agencies at end-December 2018, compared with 1,292 at end-December 2017.

Nexity Studéa, France's leading student residence management firm (with 122 residences totalling over 15,000 units under management at 31 December 2018), saw its occupancy rate increase to 93.2% (compared with 91.5% at end-December 2017).

The Domitys-branded senior independent living facilities business, fully consolidated with effect from 1 July 2018, posted strong growth. Eleven new residences were opened during the period, increasing its portfolio of serviced residences to 83, corresponding to 9,805 residential units (up 16% relative to end-2017). The occupancy rate of the 48 "cruising speed" residences^[12] is 97%.

Distribution activities under the iSelection and PERL brands recorded 4,293 reservations in 2018 (compared with 4,514 in 2017 - a 5% decline). 2,301 of these reservations were homes distributed on behalf of third-party developers or through the division of ownership of existing property, up 4% compared to 2017. The remainder corresponds to Nexity's new home reservations recorded in connection with Residential Real Estate sales.

INDIVIDUAL CLIENTS - DIGITAL AND INNOVATION

The Eugénie smart home management service is being rolled out to all developments launched with effect from March 2018. 221 smart homes (nine residences) were delivered in 2018. The application won the IoT Business Hub award for best innovative service and user experience.

During the financial year, Nexity sold its stake in Luckey Homes, a start-up offering premium concierge services for short-term rentals with US giant Airbnb. The company's existing sales agreement with Studéa remains in force.

In addition, Bien'ici - the next-generation property listings website launched in December 2015 in which Nexity currently has a 49% stake alongside a consortium of real estate professionals (Consortium des Professionnels de l'Immobilier) and a financial investor - continued to receive a growing number of membership requests from professionals wishing to place paid listings (with 8,448 member agencies at end-2018 compared with 7,352 at end-2017). The number of visits to the website continued to grow, reaching a record 55.5 million in 2018 (twice as many as in 2017), making Bien'ici the third largest real estate portal in the French market a mere three years after its launch.

COMMERCIAL CLIENTS^[13] 

As part of the rollout of its real estate services platform, in December 2018 Nexity launched Nexity Enterprise Solutions. This multiservice platform dedicated to Commercial Clients is intended to speed up the business transformation process, from the design phase through to operation, by making real estate more flexible through turnkey solutions and real-time property management systems.

The French commercial real estate investment market was very buoyant in the fourth quarter of 2018, with €13 billion invested, bringing total investment to end-December 2018 to over €30 billion (up 20% relative to 2017). Office space in the Paris region accounted for the lion's share of these volumes, including prime assets, some of which traded at an all-time low yield of 3%. The market for VEFA off-plan office contracts remained buoyant (at almost €4 billion), with the proportion of speculative deals declining slightly (35% of deals in 2018, compared with 47% in 2017), demonstrating the shift in the market towards supply adapting to user demand.

The rental market remained active, though it declined slightly in the fourth quarter of 2018, with take-up in the Paris region totalling 642,000 sq.m, bringing full-year take-up (volume of rental transactions and user sales) to 2.5 million sq.m in 2018, down 5% from 2017 but well above the average for the past ten years.

Total order intake in 2018 was €349 million excluding VAT, compared with €402 million in 2017, broken down as follows:

• €166 million in orders in the Paris region (48% of total new orders), notably including the €67 million "New" development in Asnières-sur-Seine (Hauts-de-Seine) and a €57 million development in Bagneux (Hauts-de-Seine); and
• €183 million in orders outside the Paris region (52% of total new orders), including a growing proportion of timber-frame developments (accounting for 47% of reservations outside the Paris region).

Target order intake in Commercial Real Estate was not achieved due to delays in obtaining final administrative authorisations. The projects in question are likely to be confirmed in 2019.

Conversely, business potential in Commercial Real Estate^[14] totalled €2.8 billion at end-December 2018 (up 80% relative to end-December 2017), representing 5.5 years of development operations. In particular, this performance reflects the impact of the development in La Garenne-Colombes (Hauts-de-Seine), developed through a financial and technological partnership with Engie. Building permits will continue to be sought in 2019 with a view to marketing these developments from 2020.

The floor areas under management in Real Estate Services to Companies^[15] totalled 18.6 million sq.m at end-December 2018 including 8 million sq.m that is only under technical management, a service offered by the Group, with key developments including the renewal of the contract with SNCF and the signing of two new management agreements with EDF and Enedis in the fourth quarter.

Nexity Enterprise Solutions rounded out its service offering by completing a number of external growth transactions:

• Acquisition of a majority stake (54%) in Morning Coworking, a leading player in the Paris ready-to-use office space market, with 20 locations serving more than 5,000 co-workers;
• Acquisition of Service Personnel, which provides corporate concierge services; and
• Acquisition of Accessite, specialising in the management of retail space, at the beginning of 2019.

Nexity Enterprise Solutions also strengthened Nexity Property Management's service offering by entering into a strategic partnership with Intent (a fully digital real-time data exchange platform), making it possible to use data from the buildings it manages.

Lastly, in January 2019 the Group entered into exclusive talks with management at its subsidiary Nexity Conseil et Transaction with a view to selling a majority stake in the company.

LOCAL AUTHORITY CLIENTS

At end-December 2018, the land development potential of Nexity's urban regeneration business (Villes & Projets) had risen 8% to 635,400 sq.m^[16], with acquisitions including a 36,700 sq.m plot in Solliès-Pont (Var) and Nexity's 98,000 sq.m share of a plot in La Garenne-Colombes (Hauts-de-Seine).

At end-2018, the land bank¹⁴ stood at €130 million, reflecting the Group's adapting to the issue of intense competition and higher prices for certain types of land, as well as its ability to acquire high-potential land, as seen in the December 2018 acquisition of a commercial building in Saint-Ouen (Seine-Saint-Denis) for renovation.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Nexity Non Profit

Nexity Non Profit, which is involved in developing family shelters, began construction on its first development in 2018 and expects to file building permit applications for around 500 housing units in 2019, in line with its initial target of 1,000 housing units a year at cruising speed.
Furthermore, action on rental intermediation continued, with the first social tenancy agreements signed.

Stakeholder Committee

Nexity has decided to include its external stakeholders' ecosystems into its strategic thinking about development. This approach has resulted in the creation of an advisory proposal-making body, the Stakeholder Committee, which met for the first time in November 2018.

Non-financial rating

The Group stands out through its strategy and actions in response to climate change and was included in January 2019 on the "A List" drawn up by the Carbon Disclosure Project (CDP), an international non-profit that guides sustainable economies, which ranks the Group among the top 126 global companies across all sectors.

Nexity has been included in the Gaia Index for the eighth year running. Reflecting the Group's proactive approach, its overall rating rose in 2018, with the Group placing 12th overall out of the 230 companies ranked (vs 16th in 2017) and 10th out of the 85 companies with annual revenue in excess of €500 million (vs 14th in 2017).

2018 key CSR indicators

The indicators set out above point to an improvement in Nexity's CSR performance. They constitute one of the criteria used to assess the annual variable compensation of Alain Dinin, Chairman and Chief Executive Officer.

These indicators are supplemented by more comprehensive medium-term CSR targets.
2018 CONSOLIDATED RESULTS - OPERATIONAL REPORTING^[17]

For ease of comparison, 2017 data has been restated by applying IFRS 15 and IFRS 16, reclassifying the CVAE levy under "Income tax" and adopting the new segmentation. A breakdown of restatements can be found in Annex 3 to the interim results press release of 25 July 2018 and in the 2018 Interim Financial Report.

The contribution from Ægide-Domitys, fully consolidated with effect from 1 July 2018, includes only the second half of 2018, when it contributed €175 million in revenue and €35 million in EBITDA. Ægide-Domitys is included in the Individual Clients segment for development (Residential Real Estate) and operations (Real Estate Services to Individuals) and in Other Activities for head office costs.

REVENUE

Nexity posted revenue of €4,135 million for financial year 2018, up 16% relative to 2017 (€3,959 on a like-for-like basis, up 11% relative to 2017).

* Revenue generated by Residential Real Estate and Commercial Real Estate from VEFA off-plan sales and CPI development contracts is recognised using the percentage-of-completion method, i.e. on the basis of notarised sales and pro-rated to reflect the progress of inventoriable costs.

Individual Clients 

Revenue from Individual Clients amounted to €3,550 million at end-2018, up 12% from 2017. On a like-for-like basis, revenue to end-2018 totalled €3,375 million (up 7% relative to 2017).

Residential Real Estate posted revenue of €2,648 million in 2018, up 13% relative to 2017 (€2,565 million on a like-for-like basis, up 9% relative to 2017). This growth reflects the increase in the backlog over previous quarters, buoyant business at Edouard Denis and the consolidation of Ægide's development business with effect from 1 July 2018, which added €83 million.

Real Estate Services to Individuals posted revenue of €902 million in 2018, up 11% relative to 2017 (€810 million on a like-for-like basis, equating to stable revenue year-on-year).

Property Management for Individuals and Brokerage (including Franchises) generated €360 million in revenue, up 2% relative to 2017, driven by strong performance in the brokerage business.

Distribution activities generated 2018 revenue of €359 million, down 3% from 2017 due to slightly lower levels of business activity.

Serviced Residence activities generated revenue of €183 million, including €91 million from Studéa (up 4% due to higher occupancy rates at residences) and €91 million from the Domitys senior independent living facilities business, consolidated with effect from 1 July 2018.

Commercial Clients 

Commercial Clients posted 2018 revenue of €581 million, up 43% relative to 2017. This strong growth reflects a year-on-year increase in the volume of developments under construction as well as strong momentum in Real Estate Services to Companies.

Commercial Real Estate posted 2018 revenue of €512 million, representing very strong growth relative to 2017 (up 49%) both in and outside the Paris region, notably thanks to the volume of developments generating high levels of revenue delivered during the year.
Real Estate Services to Companies posted 2018 revenue of €69 million, up 8% year-on-year.

Revenue under IFRS

In IFRS terms, revenue to end-December 2018 totalled €3,940 million, up 15% relative to restated consolidated revenue of €3,415 million for the year ended 31 December 2017. On a like-for-like basis, revenue totalled €3,766 million, up 10% from 2017). This figure excludes revenue from joint ventures, in accordance with IFRS 11, which requires joint ventures - proportionately consolidated in the Group's operational reporting - to be accounted for using the equity method.

EBITDA^[18]

Nexity posted EBITDA of €523 million at end-December 2018 (compared with €461 million in 2017), up 14% year-on-year, giving an EBITDA margin of 12.6% (down 0.3 percentage points relative to 2017). Like-for-like EBITDA to end-December 2018 came in at €488 million, giving an EBITDA margin of 12.3%.

Individual Clients 

EBITDA from Individual Clients totalled €477 million in 2018, up 15% year-on-year (€416 million in 2017), giving an EBITDA margin of 13.4% (up 0.2 percentage points relative to 2017). Like-for-like EBITDA to end-2018 came in at €438 million (up 5% from 2017), giving an EBITDA margin of 13.0% (down 0.2 percentage points relative to 2017).

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