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Paris, Tuesday, 25 February 2020, 5:45 p.m. CET |
FINANCIAL RESULTS1 AHEAD OF TARGETS
VERY BRISK BUSINESS ACTIVITY
OUTLOOK FOR 2020
2021 TARGETS CONFIRMED
Alain Dinin, Nexity’s Chairman, commented:
“As expected, Nexity has published very good annual results, and for the first time we can quantify the benefits of integrated solutions between development and services, which totalled 16% of our revenue and margins.
Our Service platform, combined with our leadership positions in nearly all our businesses, have placed our Company ahead of schedule with respect to our 2017–2021 strategic plan.
With 26% revenue growth and 24% EBITDA growth over the past two years, Nexity expects some 10% growth in its revenue, its EBITDA and its current operating profit for each of the next two years, while maintaining a dividend of at least €2.70 per share and a shareholder return of more than 6%, based on the current share price.
In addition to these strong financial results, Nexity is clearly positioned:
Decisively focused on the future and on all our drivers of growth, profitability and sharing, the Executive Management team will continue to build our client-oriented Service Platform.”
Jean-Philippe Ruggieri, Nexity’s Chief Executive Officer, commented:
“Nexity delivered yet another year of very solid performance, beating its targets. This performance was particularly impressive in our development business lines:
The Group’s performance also stood out in Real Estate Services, where Nexity’s business model combines recurring activities (like Property Management for Individuals) with high-growth segments (like senior residences and coworking).
Our financial results were also very good, with revenue and EBITDA growth of about 10%. The Group saw a slight dip in its operating margin, mainly due to investments in our services businesses and our digital tools, as well as an undeniable – but currently controlled – increase in construction costs.
In addition to our financial targets for 2020, which reflect our growing synergies, we also want to step up the pace of our CSR initiatives – in particular the ambitious carbon trajectory target we have set for ourselves, but we also want to focus our efforts on the quality of the services we offer our Clients to meet and exceed their expectations.
I would like to thank all of the Group’s employees, who have worked hard to achieve these good results.”
***
At its meeting on Tuesday, 25 February 2020, 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 2019, which can be found in the annexes to 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 TARGETS IN 20196
2019 (Actual) | 2019 (Guidance) | ||||
Nexity’s Residential Real Estate market share growth | 14.2% | Growth (12.4% in 2018) | P | ||
Commercial Real Estate order intake | €521m | €350m | P | ||
New serviced residences opened | 21 | 20 | P | ||
Revenue growth | 9% | >7% | P | ||
EBITDA growth | 10% | >7% | P |
P: Target exceeded O: Target not met
2019 BUSINESS ACTIVITY
INDIVIDUAL CLIENTS
Residential Real Estate
The French market for new homes7 is expected to total 154,000 reservations in 2019 (down around 2% year‑on-year). Growth was mainly held back by a one-off supply issue linked to the approaching spring 2020 local elections in France, which should subside thereafter.
Financial conditions in the residential mortgage market8 – where interest rates were historically low (averaging 1.13% in December 2019) – fuelled very strong demand. In addition, sales price growth offset the inflationary trend in construction costs, which should ease in 2020.
With double-digit growth in its reservations, Nexity once again substantially outperformed the market. The Group’s market share7 is expected to increase by 1.8 points to 14.2% (compared with 12.4% at end-2018). For full-year 2020, Nexity expects the market to pick up again starting in the second half, and anticipates that the Group will continue to gain market share.
Nexity’s strong outperformance relative to the French market reflected the success of its multi-product, multi-service and multi-brand strategy; its geographical positioning, which is concentrated in Greater Paris and major cities, where underlying demand is very buoyant; and its unrivalled offering of products and services, which enables the Group to meet demand throughout the entire country.
At end-2019, net new home reservations in France totalled 21,837 units for €4,362 million including VAT, up 11% by volume and by value with respect to 2018 (see table in annexes). Excluding changes in scope (acquisition of a controlling stake in the Ægide-Domitys group in June 2018), they totalled at end-December 2019, 21,195 units for €4,231 million including VAT, up 8% by volume and by value relative to 2018. This growth was well balanced across the entire country, up 14% in the Paris region and up 10% elsewhere in France, and 86% of reservations were generated in supply-constrained areas.
In the fourth quarter of 2019 alone, net new home reservations in France were up 18% by volume and 15% by value at 7,794 units, corresponding to €1,529 million, reflecting very brisk business activity in the last few months of the financial year.
This increase in reservations was mainly concentrated among individual investors (up 19% relative to 2018) and professional landlords (up 11% relative to 2018), driven in particular by strong growth in reservations in serviced residences (up 53%), which made up 29% of total reservations. Reservations by homebuyers remained nearly stable in volume even though their percentage as a proportion of the total decreased.
The average price including VAT of new homes reserved by Nexity’s individual clients at end-December 2019 totalled €231 thousand, up 3% compared with 2018. Nexity, whose strategy is to offer affordable housing, does not rely on assumed steady inflation in selling prices.
The average level of pre-selling booked at the start of construction work remained high at 73% at end-2019, compared with 69% at end-2018.
The supply of homes for sale dropped back 2% from its end-2018 level to stand at 8,859 units at end-2019, due to a particularly swift absorption rate of 4.9 months9 (compared with 5.5 months in 2018). Unsold completed stock (104 units) as a proportion of the total supply for sale remained very low.
At end-2019, the business potential for new homes10 rose 3% from end-2018 to 55,354 units, i.e. 2.5 years of development operations. This represented potential revenue of €10.6 billion excluding VAT. This high potential, which ensures that future supply will be replenished, was accompanied by a high level of vigilance with regard to land prices amidst an inflationary trend in construction costs.
At end-2019, including subdivisions (2,088 plots) and international sales (641 reservations, 1.8 times higher than in 2018), Residential Real Estate’s business activity (24,566 units reserved, for €4,639 million including VAT) was up 11% by volume and 13% by value (on a like-for-like basis: up 9% by volume and 10% by value).
Real Estate Services to Individuals
Property Management for Individuals
In Property Management for Individuals, excluding Franchises (condominium management, rental management, lettings and brokerage), the portfolio of units under management totalled over 880,000 units at 31 December 2019, down 1.4% at current scope11. In a brokerage market that hit record highs (with more than one million sales of existing homes), Nexity’s brokerage business and the Century 21 franchise network delivered a very strong performance.
Serviced residences
Nexity Studéa had 124 student residences under management at 31 December 2019, totalling more than 15,000 units. The rolling 12-month occupancy rate increased to 94.7% at end-2019 (versus 92.9% at end-2018).
The Domitys-branded senior independent living facilities business posted strong growth. 17 new residences have been opened since the beginning of the year, increasing its portfolio of serviced residences to 100, corresponding to over 10,000 residential units. At end-2019, the 58 residences that were opened more than two years ago had an average occupancy rate of 95%.
Distribution activities
iSelection and PERL recorded 4,670 reservations in 2019 (up 9% compared with 2018). This reflects the continuing strong appeal of buy-to-let investment products among clients as well as the very good commercial performance of Nexity’s networks. Around half of these reservations were homes distributed on behalf of third-party developers or through the division of ownership of existing property, with the rest made up of homes produced by the Group.
COMMERCIAL CLIENTS – NEXITY ENTERPRISE SOLUTIONS12
Commercial Real Estate
In a French commercial real estate investment market that remained buoyant (with nearly €36 billion invested in 2019, higher than in 2018), the Group recorded €521 million excluding VAT in order intake for 2019, versus €349 million in 2018, which broke down as follows:
Business potential in Commercial Real Estate13 totalled nearly €3 billion at end-2019 (up 6% relative to end-2018).
A purchase contract subject to conditions precedent was signed with Swiss Life Asset Managers in the fourth quarter of 2019 for the eco business park in La Garenne-Colombes (Hauts-de-Seine), developed in partnership with Engie (135,000 sq.m). In 2020, subject to planning permissions, the VEFA off-plan agreement to be signed for the project (Nexity’s share of which is just under €1 billion) will have a significant impact on the Group’s revenue.
Real Estate Services to Companies
Floor area under management – after including 1 million sq.m in respect of Accessite, a retail space management firm acquired in January 2019 – totalled 19 million sq.m at end-2019.
Morning Coworking – a leading player in the Paris coworking space market – continued to grow and at end-2019 operated 22 coworking spaces totalling more than 60,000 sq.m (up 35% from end-December 2018) and corresponding to around 6,700 workstations.
LOCAL AUTHORITY CLIENTS
With its broad range of expertise, Nexity is able to win complex calls for proposals with strong commitments to social and environmental responsibility:
CSR
Nexity’s most valuable asset is its people. The Group has become one of the 325 companies around the world (including 12 in France) that have been selected for the 2020 Bloomberg Gender-Equality Index (GEI), recognising Nexity’s initiatives in this area, such as its “Being Inclusive Together” Charter, signed by the Strategy Committee and approved by 400 managers in September 2019, based on the fundamental principles of gender equality and diversity.
Nexity is a pioneer in timber-frame developments, with 120,000 sq.m delivered since 2011 and 19% of commercial space delivered in 2019 featuring a timber-frame design, and was ranked the number-one low-carbon developer by BBCA in 2019.
Nexity issued a green bond in December 2019. The issuance of this green bond complies with the eligibility criteria set out in the Group’s Green Bond Framework. The proceeds of the issuance will be used to finance and/or refinance the development and construction of residential real estate projects in France that meet several criteria, including the alignment with European NZEB (“Nearly Zero-Energy Buildings”) standards. The allocation of funds to projects will be subject to a specific traceability process and annual reporting that will be audited and published on the Group’s website.
2019 CONSOLIDATED RESULTS – OPERATIONAL REPORTING14
(in millions of euros) | 2019 | 2018 | Change in €m | |||
Consolidated revenue | 4,498.8 | 4,135.0 | 363.8 | |||
EBITDA | 572.9 | 523.0 | 49.8 | |||
% of revenue | 12.7% | 12.6% | ||||
Current operating profit | 353.2 | 372.7 | (19.5) | |||
Remeasurement of Ægide-Domitys following acquisition of control | - | 79.2 | (79.2) | |||
Operating profit | 353.2 | 451.9 | (98.8) | |||
Net financial income/(expense) | (80.2) | (51.7) | (28.6) | |||
Income tax | (103.6) | (113.1) | 9.6 | |||
Share of profit/(loss) from equity-accounted investments | - | (4.7) | 4.7 | |||
Net profit | 169.4 | 282.4 | (113.0) | |||
Non-controlling interests | (8.7) | (5.5) | (3.1) | |||
Net profit/(loss) attributable to equity holders of the parent company | 160.7 | 276.9 | (116.2) | |||
Net profit attributable to equity holders of the parent company before non-recurring items | 162.7 | 197.7 | (35.0) | |||
(in euros) | ||||||
Net earnings per share | 2.90 | 4.95 | (2.05) | |||
Net earnings per share before non-recurring items | 2.92 | 3.53 | (0.61) |
In 2019, non-recurring items included the fair value adjustment of the ORNANE bond issue for a negative impact of €2 million. In 2018, they included the remeasurement of the investment in Ægide previously accounted for using the equity method following the acquisition of a controlling interest in the company for €79.2 million.
REVENUE
Nexity posted revenue of €4,499 million for 2019, a €364 million increase, up 9% at current scope relative to end-2018, and up 4% on a like-for-like basis, including a €220 million scope effect (due in particular to the consolidation of Ægide-Domitys over an additional half-year period). Revenue growth in Residential Real Estate (up €323 million) substantially exceeded the decrease in revenue for Commercial Real Estate (down €128 million), in line with the Group’s forecasts.
(in millions of euros) | 2019 Actual | 2019 LFL | 2018 Reported | % Change Actual | % Change LFL** | |||||
Individual Clients | 4,014.2 | 3,837.1 | 3,550.1 | +13.1% | +8.4% | ** | ||||
Residential Real Estate* | 3,049.0 | 2,971.7 | 2,648.4 | +15.1% | +12.2% | |||||
Real Estate Services to Individuals | 965.2 | 865.4 | 901.6 | +7.1% | -3.0% | ** | ||||
Property Management for Individuals (including franchises) | 358.8 | 358.8 | 359.8 | -0.3% | +2.5% | ** | ||||
Serviced residences | 316.3 | 216.4 | 182.8 | +73.0% | +18.4% | |||||
Distribution activities | 290.1 | 290.1 | 359.0 | -19.2% | -19.2% | |||||
Commercial Clients | 483.7 | 440.9 | 580.7 | -16.7% | -21.6% | ** | ||||
Commercial Real Estate* | 384.4 | 384.4 | 512.0 | -24.9% | -24.9% | |||||
Real Estate Services to Companies | 99.3 | 56.4 | 68.7 | +44.6% | +12.2% | ** | ||||
Other Activities | 0.9 | 0.8 | 4.3 | -79.7% | -80.3% | |||||
Revenue | 4,498.8 | 4,278.8 | 4,135.0 | +8.8% | +4.2% | ** |
* 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 all inventoriable costs.
** See glossary on page 25. 2018 data used to calculate the like-for-like (LFL) change in revenue have been adjusted to reflect the disposal of Guy Hoquet l’Immobilier at 31 March 2019, in the amount of €9.6 million (in the “Property Management for Individuals (including franchises)” segment), and the disposal of Nexity Conseil et Transaction at 1 January 2019, in the amount of €18.3 million (in the “Real Estate Services to Companies” segment).
Revenue growth in Residential Real Estate – which for the first time ever recorded over €3 billion euros in revenue (€3,049 million, up 15.1%) – reflected the increase in the backlog observed over previous quarters, buoyant business at Edouard Denis, and the consolidation of Ægide’s development business over an additional half-year period.
Revenue growth in Real Estate Services to Individuals (€965 million, up 7%) was made up of several elements:
The decrease in revenue in Commercial Real Estate (down 25%) arose, as expected, from a low backlog at 31 December 2018, the inherent volatility of this business arising from the phasing of developments, and lastly a major project (regional council premises located in Saint-Ouen) that was very close to delivery at end-2019 and should be completed in 2020, as an exception to Nexity’s standard development model.
Revenue from Real Estate Services to Companies increased €31 million due to external growth (primarily Morning Coworking and Accessite) and its own organic growth over the year (€6 million).
Revenue by business line
To offer an additional tool for analysing its operational performance, the Group also provides a breakdown of its revenue by business line, separating its Real Estate Development activities from its Services businesses.
In 2019, both business lines saw revenue growth: 9% for development activities and 10% for services with respect to 2018.
The main financial aggregates under this segmentation are presented in Annex 2 (revenue, EBITDA, current operating profit and capital employed).
Revenue arising from integrated solutions between the development and services business lines came to €725 million in 2019 (€680 million for the serviced residence business and €45 million for Property Management for Individuals and sales activities directly generated by development), representing 16% of the Group’s total revenue. This revenue should continue to grow given the increasing level of collaboration across business lines, and make an even greater contribution to the Group’s revenue growth.
Revenue under IFRS
In IFRS terms, revenue in 2019 totalled €4,201 million, up 7% relative to 2018. On a like-for-like basis, revenue totalled €3,981 million, up 1% from 2018. 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.
EBITDA15
Nexity generated EBITDA of €573 million in the period to end-December 2019 (compared with €523 million in 2018), representing growth of 10% and an EBITDA margin of 12.7% (up 0.1 points from 2018). Like-for-like EBITDA came in at €525 million, giving an EBITDA margin of 12.3%. This increase reflected robust growth in EBITDA from Individual Clients (up 13%), while EBITDA from Commercial Clients fell 14%.
2019 | 2018 | |||||||
In millions of euros | EBITDA | Margin rate in % of revenue | EBITDA | Margin rate in % of revenue | ||||
Individual Clients | 539.7 | 13.4% | 477.4 | 13.4% | ||||
Residential Real Estate | 303.6 | 10.0% | 283.6 | 10.7% | ||||
Real Estate Services to Individuals | 236.1 | 24.5% | 193.8 | 21.5% | ||||
Property Management for Individuals (incl. franchises) | 84.8 | 23.6% | 67.4 | 18.7% | ||||
Serviced residences | 119.9 | 37.9% | 70.0 | 38.3% | ||||
Distribution activities | 31.4 | 10.8% | 56.3 | 15.7% | ||||
Commercial Clients | 61.8 | 12.8% | 71.7 | 12.3% | ||||
Commercial Real Estate | 42.8 | 11.1% | 64.8 | 12.7% | ||||
Real Estate Services to Companies | 18.9 | 19.1% | 6.9 | 10.0% | ||||
Other activities | -28.6 | na | -26.0 | na | ||||
TOTAL Group | 572.9 | 12.7% | 523.0 | 12.6% |
The increase in EBITDA for Residential Real Estate (up €20 million) reflected tight control over operating budgets despite pressure on construction costs, explaining the relative drop in the margin (down 0.7 points in 2019 compared to 2018), which nevertheless, at 10%, outperformed the market.
EBITDA growth in Real Estate Services to Individuals (up €42 million) was driven by the serviced residence business (up €50 million, €34 million of which was due to a scope effect), offset by a €25 million decrease in EBITDA from distribution activities, caused by a temporarily lower number of notarial deeds of sale. Growth in EBITDA from Property Management for Individuals included the capital gains on the disposal of the Guy Hoquet l’Immobilier franchise network.
EBITDA from Commercial Real Estate was down €22 million due to lower revenue and a slightly lower margin (11.1%). As expected, this margin gradually approached its normal margin of 9% to 10%. This change notably reflected higher construction costs.
EBITDA from Real Estate Services to Companies rose €12 million, including a €9 million scope effect (Accessite, Morning Coworking).
More generally, the increase in Real Estate Services confirmed these businesses’ potential for growth and profitability, generating 45% of the Group’s EBITDA in 2019.
OPERATING PROFIT
Current operating profit16 came to €353 million at 31 December 2019, compared with €373 million at 31 December 2018 (down 5%). On a like-for-like basis, current operating profit was €360 million, equating to a margin of 8.4%.
The difference between EBITDA and current operating profit (a negative impact of €220 million) mainly resulted from the depreciation of right-of-use assets (under IFRS 16) in the amount of €154 million (compared with €94 million in 2018), which increased to a greater extent than EBITDA.
The change in current operating profit (down €20 million compared with 2018) contrasted with the growth in EBITDA in 2019, and mainly reflected:
Ægide-Domitys – which has a similar business model to Studéa – is expected to generate a medium-term operating margin of around 7%.
OTHER INCOME STATEMENT ITEMS
The net financial expense was €80 million, versus €52 million in 2018; it included interest expenses on lease liabilities under IFRS 16 for €25 million in 2019 (versus €16 million in 2018). Restated for this item, the €19 million decline in net financial expense with respect to 2018 arose from:
The effective corporate income tax rate (excluding the CVAE17) was 33.7% in 2019, compared with 31.7% in 2018. The tax expense (including the CVAE), which was €104 million at 31 December 2019 (versus €113 million in 2018), reflected a lower tax base.
Restated to exclude non-recurring items (change in fair value of the ORNANE bond issue), the Group share of net profit before non-recurring items was €163 million, compared with €198 million at end-2018 (down 18%). This change mainly resulted from the decrease in operating profit and the increase in “Other financial income/(expenses)”, which were significantly higher than in 2018, as well as a higher effective tax rate and an increase in non-controlling interests.
CASH FLOWS AND WORKING CAPITAL REQUIREMENT (WCR)
(in millions of euros) | 2019 | 2018 | ||
Cash flow from operating activities before interest and tax expenses | 544.5 | 507.8 | ||
Cash flow from operating activities after interest and tax expenses | 376.6 | 350.0 | ||
Change in operating working capital (excluding tax) | (98.2) | (102.3) | ||
Changes in tax-related working capital, dividends from equity-accounted investments and other | 10.9 | 22.3 | ||
Net cash from/(used in) operating activities | 289.3 | 270.0 | ||
Net cash from/(used in) operating investments | (59.6) | (47.9) | ||
Free cash flow | 229.7 | 222.1 | ||
Net cash from/(used in) financial investments | 5.8 | (73.4) | ||
Repayment of lease liabilities | (169.9) | (103.9) | ||
Dividends paid by Nexity SA | (138.2) | (140.3) | ||
Net cash from/(used in) financing activities, excluding dividends | 413.8 | 45.7 | ||
Change in cash and cash equivalents | 341.2 | (49.8) |
Cash flow from operating activities before interest and tax expenses totalled €544 million at end-2019, up €37 million relative to 2018, mainly as a result of the increase in EBITDA over the financial year.
Operating investments rose to €60 million (versus €48 million in 2018), with most of this increase due to the integration of Ægide-Domitys and Morning Coworking, whose business requires investments in refitting and maintenance of the premises managed.
Nexity’s free cash flow18 at end-2019 was a net inflow of €230 million, compared with a net inflow of €222 million at end-2018, substantially exceeding the dividend paid in 2019 (€138 million).
Net cash from financial investments (€6 million) arose from the disposals of Guy Hoquet l’Immobilier and Nexity Conseil et Transaction, net of the acquisition of Accessite.
Net cash from financing activities (€414 million) comprised new borrowings (primarily a green bond for €240 million and the arrangement of a Negotiable European Commercial Paper (NEU CP) programme for €120 million) less the cost of share buybacks (€20 million) and minority buyouts (€27 million over the period).
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