Our Commercial real estate and Services businesses also turned in a strong sales performance.

Our operating profit has exceeded the €320 million mark. The Group's margin has made further headway, and the services business has improved its performance. The 2018 targets we are announcing today confirm that the Group aims to maintain its profitable growth trajectory. Lastly, our financial structure is sound; it allows us to once again increase the dividend paid to our shareholders, and will allow us to step up our growth if opportunities arise (external growth, particularly in services; investments in digital; a swifter pace of new land position acquisition, without altering our low-risk development model).

Beyond growth in each of its business lines, Nexity is aiming for an even bigger transformation. Backed by its unique market position in France and a sizable storehouse of data, the Group is preparing to shift its identity to that of a real estate services platform, in order to better serve all of its clients' real estate needs, moving beyond the simple binary of development and operations to conceive complete solutions that generate recurring revenue and create value for clients, and especially to ensure that Nexity remains useful and sustainable, placing its social and environmental responsibility at the centre of its strategy.

To this end, in 2017 Nexity adopted a new client-centred organisation (Individual Clients, Commercial Clients, Local Authority Clients, Internal Clients), henceforth reflected in its financial communications, which now uses EBITDA as its main profitability indicator, in line with Nexity's profile as a services business."

***

At its meeting on Tuesday, 20 February 2018, 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 2017. The Group's condensed financial statements (income statement, statement of financial position, statement of cash flows and change in net debt) are set out in Annex 2 of this press release (pages 21 to 23). Audit procedures have been performed. The audit report will be issued after the verification of the information presented in the Group's management report.

Nexity exceeds all its 2017 targets^[7]

x: Target exceeded

The target for current operating profit of €300 million in 2018, announced in February 2016, was met a year early in 2017 as announced in February 2017 (revised upward to €300 million in 2017) and in October 2017 (at least €300 million in 2017). The current operating profit of €321 million achieved at 31 December 2017 corresponds to EBITDA of €368 million. The previously announced target of at least €325 million in 2018 has now been replaced by an expected EBITDA target of around €485 million for 2018 (which should be compared to EBITDA of €448 million in 2017, restated under the new reporting standards).

2017 business activity

Residential real estate

For 2017, the retail market for new homes in France posted its best performance since 2007. For the year as a whole, net reservations^[8] totalled 130,000 units (up 2% on 2016), still driven by very low interest rates, together with improved economic conditions overall.

After bottoming out in November 2016 (at an average of 1.31%), mortgage rates for individuals increased slightly, reaching an average of 1.51% in December 2017^[9], and Nexity expects this gradual increase in rates to continue. The current low level of rates remains a significant driver of housing demand (with rates averaging 1.53% in 2017, compared with 1.62% in 2016).

Most of the tax incentives designed to stimulate new housing starts were extended in the 2018 budget voted by the French parliament. The few restrictions introduced by the government (refocusing of the Pinel buy-to-let investment scheme and the PTZ interest-free loan scheme on supply-constrained areas) are not expected to have a material impact on Nexity's business, given that the Group's activities are concentrated in France's major cities and their surrounding areas.

• New homes

In 2017, the Group booked 18,351 net new home reservations in France, thus setting a new annual record, up 15% by volume and 21% by value year on year. Since 2014, business activity levels for this division have risen by 77%. Based on initial estimates of the French market (130,000 reservations^[10]), Nexity's market share reached an all-time high of 14.1%, compared with 12.5% in 2016. Expected revenue from reservations rose more sharply than the volume of reservations, particularly as a result of an increase in average prices, for both retail sales (see table below) and bulk sales (due to a better geographic and product mix).

With respect to their geographic distribution, 89% of the reservations recorded in 2017 were located in supply-constrained areas (the A, A bis and B1 zones under the current Pinel scheme). Reservations were strong in both the Paris region (up 27%) and the rest of France (up 19%).

After adjusting to exclude external growth transactions, a total of 15,848 units were reserved in 2017 (up 5% compared with 2016), corresponding to expected revenue from reservations of €3,093 million including VAT (up 10% on 2016).

In the fourth quarter of 2017 alone, net new home reservations in France were up 10% by volume and 17% by value year on year (up 1% by volume and 9% by value on a like-for-like basis).

Reservations by first-time buyers were up 3% on 2016 and 57% of these buyers had received PTZ interest-free loans (97% of which in supply-constrained areas).

There was a 6% rise in reservations by individual investors in 2017 relative to 2016, with 60% of these investors making use of the Pinel scheme (93% of which in supply-constrained areas).

Reservations made by professional landlords were up 7% compared with 2016. The announced decline in financial resources for the social housing sector was not accompanied, either in 2017 or in the first weeks of 2018, by a slowdown in bulk sales of social housing units.

The average price including VAT of new homes reserved by Nexity's individual clients at 31 December 2017 was up 3% compared with end-2016, reflecting among other factors a slight increase in the average price per square metre.

On a like-for-like basis, the average level of pre-sales booked at the start of construction work was 78% at year-end 2017 (versus 72% a year earlier), an exceptionally high level.

In 2017, Nexity launched a total of 21,607 units (55% more than in 2016). The supply of homes for sale increased by 28% to reach 8,651 units at end-December 2017 (6,872 units on a like-for-like basis, up 21% on the total a year earlier). Unsold completed stock (145 units) as a proportion of the total supply for sale remained very low.

At end-December 2017, the business potential for new homes^[11] was up 14% from year-end 2016 to 47,560 units, i.e. 2.6 years of development operations (38,527 units on a like-for-like basis).

Nexity also distributes products on behalf of third-party real estate developers under the iSelection brand. This activity added 2,116 reservations to the total for 2017. From 1 January 2018, both iSelection and PERL, which sells homes for which property ownership is divided (known as démembrement in France and based on the distinction between bare ownership and usufruct), together with other Nexity structures specialising in sales and consulting, have been reclassified as part of the Services to individuals business.

• Subdivisions

Subdivision reservations totalled 2,601 units, up 3% on 2016. Of this total, 26% were in supply-constrained areas, and it should be noted that the business activity in the remaining areas may be affected by changes in the French government's housing policy (mainly the progressive elimination of the PTZ interest-free loan scheme in non-supply-constrained areas). The average price of net reservations made by individuals was stable at €77k, while average subdivision size rose by 1%, an increase offset by the 1% decline in the average price per square metre.

• International

In 2017, Nexity booked 420 international new home reservations, down 12% on 2016. Poland made satisfactory gains (up 7% compared with 2016). Business activity in Italy advanced less strongly, given the absence of new sales launches.

Commercial real estate^[12]

In 2017, €25.4 billion was invested in commercial real estate in France - still a high figure, albeit slightly lower than the €26 billion invested in 2016. Office space in the Paris region accounted for 71% of these volumes, including prime assets, some of which traded at an all-time low yield of 3%. The market for VEFA off-plan contracts for offices remained buoyant (at more than €4 billion), representing an increase over 2016 volumes and still including a large proportion of speculative deals, which accounted for 47% of transactions in 2017 (down from 61% in 2016), showing that risk appetite remains relatively strong among investors, who continue to anticipate a shortage of high-quality supply in the rental market.
The rental market proved buoyant in the fourth quarter, with take-up in the Paris region totalling more than 850,000 sq.m, bringing full-year take-up (volume of rental transactions and user sales) to 2.6 million sq.m in 2017, up 8% from 2016.

In the fourth quarter of 2017, Nexity booked orders totalling €260 million, mainly thanks to the off-plan sale to Caisse des Dépôts and Amundi Immobilier of the first phase of the Évidence development, located at the heart of Les Docks de Saint-Ouen, a new eco-district in the Paris suburb of Saint-Ouen.

Business activity outside the Paris region was very buoyant in 2017, with orders booked totalling €151 million, notably including the off-plan sale of:

• Palazzo Méridia in Nice, set to be the tallest timber-frame office building in France (10 storeys, 35 m), with delivery in early 2019;
• Wooden Park in Mérignac near Bordeaux, a complex of three timber-frame buildings offering 6,000 sq.m of office space meeting high environmental performance standards, with delivery in the fourth quarter of 2018 and the second quarter of 2019; and
• A nearly 60,000 sq.m logistics facility in the Mitra mixed-use development area near Nîmes, which will be leased to Auchan for a firm period of nine years, with delivery in January 2019.

New orders in 2017 totalled €402 million excluding VAT, exceeding the full-year target of €350 million.

At end-December 2017, the Group's business potential for commercial real estate^[13] was €1.6 billion representing 3.9 years of development operations.

Services

In Real estate services to individuals (condominium management, rental management, lettings, operation of residences, brokerage), the portfolio of units under management totalled 890,000 units at 31 December 2017, thus exhibiting a strong decline in the churn rate compared to previous years (1.1% at 31 December 2017 on a like-for-like basis, versus 2.9% a year earlier^[14]). This improvement in Nexity's sales performance is due above all to a lower number of agreements terminated without renewal, reflecting better client retention. Nexity Studéa, a leading student residence management firm (124 residences, i.e. 15,300 units under management at 31 December 2017), saw its occupancy rate increase to 91.5% (compared with 89.6% at end-2016). In addition, through its stake in the Ægide-Domitys group, Nexity is the leader in serviced senior residences (72 residences managed, i.e. nearly 8,400 units at 31 December 2017).

The digital transformation in Real estate services to individuals continued, notably including the introduction of new customer service tools (paperless property inspections, private interactive client spaces, etc.) and the development of connected agencies and disruptive offerings such as E-gérance (the first fully digital rental management offering).

In Franchise operations, Century 21 and Guy Hoquet l'Immobilier signed 7% more provisional sale agreements than in 2016 in an exceptionally strong market for existing real estate in France^[15]. The number of franchisees grew in financial year 2017, totalling 1,292 agencies at end-December 2017 versus 1,217 at end-December 2016.

In Real estate services to companies, the floor area under management at end-December 2017 totalled 11.3 million sq.m, down 8% from end-2016, mainly as a result of the expiry of a management contract for more than 530,000 sq.m. Business is growing in value-added services (supervision of works, technical assistance, concierge and event management services).

Urban regeneration (Villes & Projets)

At end-December 2017, the land development potential of Nexity's urban regeneration business (Villes & Projets) was up 11% to 588,500 sq.m,^[16] with the notable addition to the portfolio of the development programme in the vicinity of the future Bry-Villiers-Champigny station on the southern section of the new Line 15, part of the Grand Paris Express project. This mixed-use development will comprise 140,000 sq.m of space, divided between residential units and business premises.

Digital and Innovation

Nexity continues to invest around €30 million a year in digital technology and innovation, split between in-house digitisation projects and investment in new services through direct investments or through partnerships with start-ups and investment in venture capital funds (such as Demeter, Elaia and Newfund).

The Group's investments in this area totalled €28 million in 2017, including:

• direct investments in innovative start-ups like Cowork.io (an application to manage co-working spaces), Realiz3D (a 3D modelling solution for the real estate industry), LuckeyHomes (a short-term rental management service similar to Airbnb);
• the development of new service offerings like Eugénie (a smart home management service), which will be rolled out as part of all programmes put on the market by Nexity beginning in March 2018;
• the development of the first fully digital sales launches, mirroring the approach used for the Vill'Arboréa programme on Rue des Girondins in Lyon; and
• the inauguration of Startup Studio, an internal incubator housed in the Group's head office.

Initiatives launched since 2014 include the following:

• Bien'ici - a next-generation property listings website in which Nexity has a 48% stake alongside a consortium of real estate professionals (Consortium des Professionnels de l'Immobilier) - continued to receive a growing number of membership requests from professionals wishing to place paid listings (with 7,352 member agencies at end-2017 compared to 5,800 at end-2016). The number of visits to the website has continued to grow, setting a record of 3.5 million in November 2017, making Bien'ici the third largest real estate portal in the French market a mere two years after its launch.

Lastly, Nexity will not renew the existing leases for its Blue Office workspaces in the areas closest to central Paris (première et deuxième couronnes parisiennes), but will continue developing an offering of shared offices.

2017 CONSOLIDATED RESULTS - OPERATIONAL REPORTING^[17]
(In accordance with IFRS as applied by the Group at 31 December 2017, but with joint ventures¹⁷ proportionately consolidated)

Revenue

In 2017, Nexity recorded revenue of €3,506.1 million, up 14% relative to 2016. On a like-for-like basis, excluding Edouard Denis and Primosud,^[18] the Group had consolidated revenue of €3,404.4 million in 2017, 11% higher than in 2016.

* Revenue generated by the Residential and Commercial real estate divisions 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 incurred construction costs.

Residential real estate revenue totalled €2,597 million, up 15% year on year. This growth reflects the strong increase in the division's backlog observed over the past several years. On a like-for-like basis, the division's revenue totalled €2,496 million in 2017, up 10% on 2016.

Revenue for the Commercial real estate division surged 29% year on year to €397 million in 2017, reflecting the ramp-up of projects signed in prior years.
  
The Services division generated revenue of €507 million, up 3% relative to 2016. The growth in revenue was due in particular to a strong increase in franchise networks (up 15%) and to a lesser degree by the increase in revenue in property management¹⁷ (up 2%).

Revenue from Other activities (stable with respect to 2016, at €4.3 million) included sales to third parties of development rights acquired through Villes & Projets.

Reported using the Group's new client-oriented organisation, now adopted by Nexity for its financial communications, revenue generated by the Individual Clients business (Residential real estate development and Services to individuals) was up 13% to €3,041 million in 2017 (versus €2,700 million in 2016). Revenue for the Commercial Clients business (Commercial real estate development and Services to companies) grew 25% to €461 million in 2017 (versus €368 million in 2016).

In IFRS terms, revenue to end-December 2017 totalled €3,354 million, up 13% relative to consolidated revenue for the year ended 31 December 2016 (€2,975 million). This figure excludes revenue from joint ventures, in accordance with IFRS 11, which requires joint ventures to be accounted for via the equity method instead of proportionately consolidated as they were previously.

Current operating profit^[19]

Nexity generated current operating profit of €321 million in 2017 (compared with €266 million in 2016, up 20%). The current operating margin increased by 0.4 percentage points to 9.1%.

In Residential real estate, current operating profit totalled €247 million in 2017, up 22% year on year (up €44 million), reflecting good progress on housing and subdivision development projects as well as sales performance in previous years. The division's current operating margin increased by 0.5 percentage points to 9.5%. International operations made a positive contribution to this change.

In Commercial real estate, current operating profit totalled €70 million in 2017, compared with €57 million in 2016 (up 23%). The division's current operating margin came in at 17.7%, reflecting excellent financial and technical management of ongoing projects as well as the healthier economic and financial climate. Based on the division's order book, it is likely that margins will remain appreciably higher than 10% over the next two years.

The Services division generated current operating profit of €47 million, compared with €45 million in 2016, increasing its current operating margin to 9.3% (compared with 9.1% in 2016), and mainly reflecting good control of overhead costs.

Current operating profit from property management for individuals rose 5% to €34 million, corresponding to a current operating margin of 10.8%, up 0.4 percentage points. It also benefited from strong momentum in the brokerage business. The profitability of real estate services to companies continued to be affected by the reorganisation of Nexity Conseil et Transaction. Nexity Studéa's profitability continued to improve (up 0.9 points with respect to end-2016) as a result of the strategy of repositioning its portfolio of student residences. Very strong profitability in the franchise networks was mainly driven by increased revenue, improving the absorption of fixed costs.

The current operating loss from Other activities (€44 million in 2017, compared with €39 million in 2016) includes, among other items, profit/(loss) from the holding company, research and overhead costs incurred by Villes & Projets, the development of incubated start-ups and digital projects^[20], and IFRS expenses on share-based payments.

At 31 December 2017, current operating profit for the Individual Clients business amounted to €295 million (up from €248 million a year earlier), corresponding to an operating margin of 9.7%, up 0.5 percentage points. In the Commercial Clients business, current operating profit totalled €69 million, compared with €57 million in 2016, corresponding to a current operating margin of 15%, down 0.6 percentage points.

EBITDA^[21]

In 2017, Nexity generated total EBITDA of €368 million, compared with €305 million in 2016 (up 21%), giving an EBITDA margin of 10.5%, compared with 9.9% in 2016. In 2017, the Services division posted EBITDA of €62 million, up 12% on 2016, with a margin of 12.2%, representing an increase of 1 percentage point on the preceding year.

Net profit

Net financial expense was €30 million, versus €28 million in 2016.

The tax expense (€95 million) increased by €5.9 million as a result of the higher profit figure, but was mitigated by the €7 million reimbursement of the 3% tax on dividends that Nexity had paid in 2013 and 2014. This tax was declared invalid by the French Constitutional Court in October 2017. The effective tax rate was 32.6% in 2017, compared with 37.3% in 2016. The 2017 rate comes in at 35.0% after adjusting for the reimbursement of the 3% tax on dividends.

Equity-accounted investments made a €4.9 million negative contribution (compared with a €7.2 million loss in 2016). The main components of this item are the contributions from Bien'ici and Ægide-Domitys.

Net profit attributable to equity holders of the parent company came in at €185.6 million for the period, compared with €139.1 million in 2016 (up 33%). Earnings per share^[22] amounted to €3.35 (versus €2.54 in 2016), an increase of 32%.

Working Capital Requirement (WCR)

Operating WCR at 31 December 2017 was €770 million, up €75 million from its level in December 2016.

In Residential real estate, the positive change in WCR reflects strong business activity growth. The WCR of Commercial real estate improved by €41 million, due to rising order intake at the end of the year. The Services division's WCR was affected by one-off cash flow lags. The change in the WCR of Other activities takes into account the growth in new land positions secured by the Group's urban regeneration business (Villes & Projets).

Cash flows

Cash flow from operating activities before financial and tax expenses totalled €356 million, up €67 million relative to 2016 mainly as a result of the higher profit figure for the year.

Operating investments, particularly in IT, increased to €33 million, compared with €23 million in 2016.

Nexity's free cash flow^[23] in 2017 was €152 million, compared with €168 million the previous year, exceeding the dividend payout.

Net cash from financing activities (€132 million) primarily involved the bond issue carried out in June 2017 for €151 million (see below), net of loan repayments and the partial bond redemption during the financial year.

Financial structure

Nexity's consolidated equity (attributable to equity holders of the parent company) was €1,639 million at end-December 2017, compared to €1,589 million at end-December 2016, mainly after €133 million in dividends paid and the inclusion of net profit (€186 million attributable to equity holders of the parent company).

Net debt amounted to €343 million at 31 December 2017, compared with €317 million at 31 December 2016 (up €26 million). Net cash flows from operations almost completely covered the increase in operating WCR (up €64 million), the payment of the dividend (€133 million) and investments. At 31 December 2017, net debt equated to 21% of equity and around 1x EBITDA for the year.

On 22 June 2017, Nexity successfully issued €151 million in bonds into the private placement market, comprising one tranche of €30 million in bonds, redeemable at maturity in November 2023 (6.5 years) and paying an annual coupon rate of 2.05%, and a second tranche of €121 million in bonds, redeemable at maturity in June 2025 (8 years) and paying an annual coupon rate of 2.60%. At the same time, Nexity redeemed €65 million in bonds originally due to mature in December 2018.

At 31 December 2017, the average maturity of the Group's debt was 4 years and the average cost of debt was 2.9%, versus 3.2% at 31 December 2016. At 31 December 2017, Nexity was in compliance with all of the financial covenants attached to its bonds.

Backlog at 31 December 2017

At end-December 2017, the Group's backlog reached a record €4,754 million, up 19% relative to end-2016 and equivalent to 19 months' revenue from Nexity's development activities (revenue on a rolling 12-month basis).

Order backlog in the Residential real estate division totalled €4,191 million, up 21% compared to 31 December 2016. This backlog amounts to 19 months' revenue (Residential real estate division revenue on a rolling 12-month basis).

Order backlog in the Commercial real estate division totalled €562 million at end-2017, up 3% compared to 31 December 2016. This backlog amounts to 17 months' revenue (Commercial real estate division revenue on a rolling 12-month basis).

Changes in reporting standards and operational segments

IFRS 15 and IFRS 16

IFRS 15 Revenue from Contracts with Customers, which must be applied for annual periods beginning on or after 1 January 2018, has a limited impact on the Group's financial statements. The main effect of applying this standard, for real estate development activities in France, is that it makes the method for recognising revenue and margins on a percentage-of-completion basis faster than before. The percentage of completion is now calculated based on all inventoriable costs (particularly including land). Conversely, the Group's order backlog decreases due to this higher percentage of completion (down €627 million at 31 December 2017, a 14% decrease).

IFRS 16 Leases must be applied for annual periods beginning on or after 1 January 2019, but the Group has opted to apply it early from 1 January 2018. This standard requires lessees to recognise all remaining lease payments in the form of a right-of-use asset under fixed assets and a lease liability under borrowings. For Nexity, the lease payments concerned (€80 million paid in 2017) mainly involved buildings used for business operations (half of the total), with the remainder for serviced residences under the student residence management business (Nexity Studéa). The main impacts simulated on the statement of financial position at 31 December 2017 were an increase in fixed assets and in net debt of around €300 million. The impact on the income statement was reflected in an improvement in EBITDA of around €80 million, with net profit remaining practically unchanged.

New operational segments

As part of Nexity's growth strategy adopted in 2017, through which it will become a comprehensive real estate services provider, the Group will henceforth be using its client-centred organisation in all of its financial communications (with two main divisions: Individual Clients and Commercial Clients).

As such, the following reclassifications will take place:

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