Hypoport Ag

Good afternoon, ladies and gentlemen, and welcome to the Hypoport results for the first half of 2024 conference call. At this time, all lines are in a listen-only mode. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference over to Ronald Slapka. Please go ahead.

Thank you. Yeah, welcome from my side as well. So first half of 2024 is over and we reported today in the morning our numbers. You are aware that this was a pretty good start in the year 2024. Double-digit growth on top line and gross profit and massive outperformance on the earnings side thanks to a pretty difficult last year which we had as you are aware. Core growth driver is the real estate and mortgage business with a growth of 32% even. And this is thanks to a recovery of the German mortgage market plus market share gains across all segments which we could realize over the last 12 months. Another highlight comes from the financing segment, our software as a service offering and open ERP system for the housing associations is growing fast and this is quite a heavy investment we did in the last years and still we are doing, including this year, where we see massive growth on the client side. Challenging, I would say the most important part is the property valuation side where we are still struggling with the regulatory changes in the market environment over the last two years to adjust to this, to adapt to this, and to gain trust of the clients again. Plus, the financing platform is still in the market environment, which is on the bottom. There's no recovery visible by now, and this is different than the real estate segment for now. Okay, so let's start with the most important segment and the core of the company, real estate segment. You're aware of this, dominated by our mortgage platform, Europace, and a lot of entities that support this growth or expand our reach along the value chain. We have a first view of the market because the market was this what massively changed over the last 24 months. And you can say now second quarter in a row where we see a recovery. The underlying macroeconomic figures are We have a net migration to Germany thanks to a huge demand on the labor side. Other trends like children are the main trigger for Germans to acquire a first home and more and more people living alone, which increases the demand for housing even more. A new trend I would say over the last three to four quarters is that The typical supply side for lots of people of the middle class to find a new home was the renting market, and this renting market is pretty frozen thanks to massive regulation over the last ten years in the end. The price cap and the price breaks that were initiated, slowed down the rent dynamics of existing renting contracts to a level that now in metropolitan areas signing a new contract will cost you double of this what the existing ones in average are means nobody is giving up its renting contracts anymore so the fluctuation is sharply going down and no new renting apartments coming to the market, no existing renting apartments coming to the market because of this and no new renting apartments coming to the market thanks to the mismatch of the regulated rents to the interest environment we are in now. So that the supply side on the renting market is extremely distressed while the demand is high which leads in as a result in an a change in consumer behavior that whoever is able to afford has to buy his home if he wants to move on and change his living situation. Renting is not a feasible option for most of the people, especially in the metropolitan areas anymore. And this meets a normalizing market environment for the affordability of homeownership. You have a pretty stable interest environment. You have increasing incomes on the other side. You have a stable high supply of condos and homes in the rural areas. And you have a slightly increasing price trend again. So, something where you could profit lately, that prices are trickling down, is not delaying any decisions anymore. Okay. And the last thing what influenced this market heavily over the last years, their regulations, you can say for the first half of this year, not a lot happened. And this is already good news for us because government tend to do the wrong things lately. And with their, let's say, with the stable, not very supportive environment, people started to act and keep acting during the first half of this year. as you will see in our numbers. Okay, a little bit more details, this trend which I just described, the four most important macroeconomic indicators for our market. Interest rates stable. We saw a short peak for this year in the end of the second quarter. After this, the interest rate went down already again, which is helpful. New high level of properties for sale publicly available. We expect that there's quite a similar amount of units that will come to the market as soon as the sellers see that the market is getting more active. So there's a backlog of people who still want to sell. On the other side, there's a huge amount of people who are desperately looking for their first new home because they delayed this decision already over a period of two years now. Yeah, this leads to trickling up prices, especially in the area of condos and metropolitan areas. So the apartments are faster increasing in prices than houses in municipal areas. And when you see this, you may think that, well, let's say, one thing to understand is as well that this is the value change of properties. on a fair-to-fair comparison basis. People tend to buy smaller apartments, smaller houses, less energy-efficient houses right now. So the average price per property is still, for houses, still not going up. It's still stable. For condos, it's going up as well already, but not in the same dynamic as the value of the properties, which is shown here in the upper right diagram. Okay, quick side note here, the construction costs for new building stable for the first half of this year after a long period of fast increase in cost. This has an effect as well, which I will come back to a little bit later. Yeah, and the most important diagram, even when it's not about the homeownership market, but the renting market is the one in the lower right. We see the lowest level of publicly available renting units ever here in Germany right now. And this is a process ongoing for a long period. As I said, renting regulation makes it very unattractive to give up your renting contract. So no existing renting apartments come to the market. If, then the owner may consider to sell it and not to rent again. because of the extremely low interest he receives out of the value of the property that he has to rent. And nobody's building new renting units right now and brings them to the market. It's not paying back in the current interest environment. And we are far from that this is going to normalize again. Yeah, this is close renting market. Transactions are back. We predicted a time of one to two years for recovery to happen. Now we have the second quarter in a row where that action volume goes up. So we are in a dynamic incremental process of normalization of this market. But you see that for now we are far from the previous level. I will come to this back later. So there's still a lot of upside here in our market environment. So how we operated in this market? You are aware of this. The center is Europace, specialized marketplaces for regional banks, savings and corporate banks, and a lot of units who support this growth of the transaction marketplace for mortgages. Europace in total is up 22% compared to last year. This is above market level, just single-digit above market level, and let's say before a long time achieved double-digit growth above market level. The difference right now is that our largest partner, long-term partner, a large German bank here, struggles with their mortgage operation and massively slowed down their new mortgage production since May last year. And with this, their production volume imploded on your pace. And well, some was redistributed to other partners, but some be simply lost. And this is suppressing our growth dynamic for the first half of this year. Starting in the second quarter, you should see a normalization, because already the third quarter last year, they were not present anymore. So this growth comes In a similar way from Dr. Klein, our franchise network for small intermediaries operating on the brand, they are on growth track. They gain market share. For now, they are focused on bringing all their advisors back to normal in the efficiency. And as soon as they see that this is a stable trend, they will start to hire additional advisors and will come back to all old transaction volume records which we had here. massive growth driver for the last years and ongoing in the first half of this year where our expansion to the regional banking sectors, savings banks and corporates banks see a plus of 50% each. So everything's fine there. We outperform their own growth figures by something around 30 to 40% means we are adding market share in both of the sectors. We migrate the sales structures of the sectors So winning one after another bank to migrate to us and digitalizing their processes being more efficient than their in-house IT solution and with this expanding the reach of Europe's father. So pretty well on track and to be continued. To be continued, it is very interesting when you look on the product mix. on your pace right now. So with 12 billion in mortgages for the purchase of existing homes, we had the third highest transaction number ever on your pace for the purchases of homes. So means we are actually pretty back to old record high level. And this was lower average mortgage volumes and lower house prices. means that the number of transactions is actually already a record level for second quarter. So from this, you could say, hey, well, market is fully normalized already. To be fair, we gained roughly 30% market share during this time. So still for the market, it's a way to go up to normalize even in the purchase area from the momentum which it originally had. But as I said, renting market is closed. people have to buy if they want to have their own home. So if children are coming and you need to adjust, you can't rent anymore, you need to buy. And with this in mind, I can just predict for you that the red area here, the red columns will keep increasing over the next couple of quarters to a higher level than we previously said. and higher level in the transaction and higher level in average mortgage contract and bringing us to new record high even for this purchase area. Yeah, the other three are not distributing right now to the overall volume. So, the refining thing part is of course we refer to the new building, new construction. But there are no new houses built in Germany right now, or let's say, not no, but less than 50% of this was usually financed for new home constructions. And thanks to the increasing prices, the amount is still, let's say, more positive than the number of transactions there. So the number of new properties financed right now is Far from the need of the market, far from this what government promised to deliver so that there is increasing tension in the market that the massive demand is not met by new housing constructions. You can say that the government prediction of 400,000 units per year would bring us to a stable market environment only slightly increasing rents. Currently, we are heading in the direction of far below 200,000 units per year finished because we see what is financed. This will stress the market. This will keep the tension on the renting side high, will keep the regulation on the renting side high, and will make buying properties expensive. So this supports actually this red area of the market. So next to this product area is refinancing or follow-up financing, I call it. So the refinancing is something which is a very stable market here in Germany because of the typical 10 years interest rate, fixed interest rate period. Thanks to good advice 10 years ago, people started in 2012 already to invest 50% of the mortgages for 15 years or longer fixed interest rate periods. This is leading now to not existing need to refinance fast. So they can wait after 2027. Then this market will normalize again. And we will be back on the usual level of a couple of billion refinancing per quarter on your pace. So actually a market who should grow over the last time, over the last period and as well as Q2, the energy efficiency investments in the existing home ownership stock is still depressed on an extremely low level less than two years ago. Even then there is a huge political agenda to invest 20 billion per quarter in the existing household stock to meet our net utility target for 2045 in the upcoming 21 years. So with this in mind, the 1 billion which we see here right now is really just a fraction of this is what's necessary and it shows the potential for the near time future when the regulatory environment and the support of the government for this sector meets the demand of the people. Okay. Other perspective, same market in which areas of clients we are performing. Broker segment, our largest one, increase in market share for us. especially relative to the one and only large mortgage broker which is not using Europe AC and Germany. Interhype belongs to ING. Brokers all together gain market share. We profit from this. You see this with the client number and this is also a platform development. In the private commercial bank segment, still roughly 40%. with our as i mentioned already large clients struggling when he is coming back and they are coming back then you will see the increase in our share there yeah and cooperative banks and savings banks both at roughly 20 to 25 percent market share for us right now with our 50 growth track we are gaining fast volume share there and bringing their internal solutions of their sector internal IT service providers to a struggle with the cost per unit left for them. And this may in the near future accelerate the decision process farther in our direction. Okay. There's one area of stress and distress, you could say, in the real estate and mortgage business, our property valuation business. You are aware of this. The massive market change plus two massive regulatory changes brought us here in turbulences. We worked out this year this, let's say, a major part of this, especially our default on the service levels with our clients and adjusted our resources to the new product mix in the market. Still in the second quarter, we miss the necessary increase in orders, in order flow from our clients. We see a certain level of, let's say that they're hesitating to trust our ability to deliver again. We need to work on this trust here and then we will see increasing numbers on the revenue side and with a massive impact on the EBIT side as soon as this happens. But this trust needs to be gained again, and our struggle with the environment over the last one-half year destroyed quite an amount in positive flow and positive sentiment we had in this market. But we will work back to this. Okay. Segment summary. Double-digit growth, top and cross-profit line. The gap between this is actually a new business model. where we intensively advertise for pooling the business with us and increasing our buying power and letting other Europace partners participate in this buying power. We have to receive the whole commission in this case and forward most of this commission to our Europace partners, but keep a small share of it as a small margin. and more than it costs us to manage this all. So it's a single million digit of profit distribution this year just out of these business models and something which adds a couple of million in revenue every quarter right now to our business model. Yeah, all in all, 50 million in EBIT for the first half year, and this includes still massive investments in new products around Europace. and the value chain, and it includes close to 5 million in losses for restructuring and just inefficiency of our variation business. So without variation, we would be close to 20 million in EBIT already for this segment, something which we outperformed already in the past, but keep in mind we are roughly at 50% of the normal market level right now when it comes to volume. So there is a lot of potential up from here. Okay, next segment, financing platform. You could say all in all, the different market segments are still in the crisis environment, starting with the housing associations, the social housing here in Germany. I said a lot about that the renting market was regulated. You can say for this guys here, The regulation is one issue. The lack of fluctuations is as well a small issue. The main issue here is that out of these hundreds, thousands of social housing units which are needed across Germany, the interstate environment combined with the limitation of subsidies doesn't make it attractive for them to invest to build new houses. And this is different from the time up until 2022. Plus, as well here, energy efficiency investments needed for this sector alone, something around 5 billion per quarter should be invested. And for now, the necessary metrics are not there. So this sector is for now you can say in a winter sleep when it comes to investing and we see this in their mortgage needs. So half a billion of mortgage financing in the first half year, this is much less than we usually do and it includes still massive market share gains. So this sector is really not in the mood of investing right now. We have to compensate this with other product lines, which we are ramping up. Positive trend on the side of our deposit management platform, constantly above inflation rate. We are increasing the volume, which goes through it, and then we get a small margin. And even with the higher dynamic, and I mentioned this already as a good news part, is that the rollout of our ERP system for the housing associations with again a massive plus in signups. We already are struggling with the amount of demand. All migration slots for 2025 are occupied now. So we really need to increase our current investment in project management resources and onboarding resources to speed this up and ramp this up that we are not delaying our partners who really want to migrate in our direction. So good dynamic there and let's say overall an industry where we feel extremely connected with. Next area is corporate finance and especially the arranging of subsidies and financing for this subsidized projects here in Germany. something which saw a peak environment, a great environment at the end of the last government time. With the current government, we struggle like whole corporate Germany. You can see that the number of active projects that we advise clients and try to achieve optimal financing situations with them increased massively compared to last year. So it's not just demand, it's execution already of this. But especially when it comes to the government agency who check and underwrite certain subsidies and certain loans, we are struggling. We had a budget freeze here in Germany at the beginning of the year. which delayed a lot of these projects. And we saw in the second quarter a lot of small slowdowns thanks to restrictions coming from the government as well, how they want to fund the subsidies which they promised. a first half year which was under our expectations and slower than the first half of the year in 2023. For the second half, we expect a positive dynamic thanks to all these projects which are ongoing right now. And let's hope that our government gets a little bit on track to deliver to their promises because as well here, a lot is about carbon neutrality. and innovation is something where the German industry targets with their distributed resources compared to the expectation of the speed of change. So, last credit market in the financing segment, personal loan business, in general, Maximum a stable market, there are no quarterly figures for the whole industry. Probably even a shrinking market right now, as well, thanks to regulation. Here in Germany, to combine insurance products and personal loans, it will be banned to the end of the year. and the credit industry reacts to this with increasing credit margin because of the lack of insurance in the future. This in combination with, let's say for the short-term history, a pretty high interest rate environment leads to pretty high personal loan rates. We're talking now about 10% on the marketplace already again in average. This is unusual for the German consumer. He was getting used to more 6 or 7% and double-digit interest rates slowed down this market. So we see a shrinking consumer market here. We could compensate this on a certain level, plus 70% on the platform in general and our white labels of party business, which is very profitable, up 22% in the transaction volumes. But it's happening in a struggling market environment and consumers even increased their cancellation rate thanks to this too high interest rates now. So this which is compensating parts of our transaction volume gain when it comes to revenue at the end. So in general, this whole segment is, let's say, neutral from the growth perspective, plus 4% in revenue, slightly down in probability because of additional investments for the first half of this year. For the second half, we expect better figures, a positive EBIT distribution so that we come back to top of button line growth here. It was, let's say, a struggling start, but it's a basis from which we can expand from here. Now segment insurance, three product areas, private insurances, industrial insurances, and employer-linked pension schemes. In all three segments, we are focused on migrating existing solutions or markets to our solution. Insurance area, we migrate a lot of license-based business to a software-as-a-service recurring revenue-based business. This cost is still dynamic, and this is what you see as a P&L number, but we are progressing. Smart InsurTech, the personal insurance business is up 40% with their migration and with their recurring revenue base. But apparently they lost some license business. So the net revenue gain is lower. Corrify, our industrial insurance platform newly launched in 2023 gains traction. More and more clients are underwriting. More and more clients, industrial insurance brokers are in the test phase with Corrify. So can get a big topic for 2025 and 2026. And where we see that we are having a positive dynamic already is the occupational insurance business where especially pensions are linked to employers and employees. With ePension, we are on a clear growth path coming from a pretty low level in a highly non-digitalized environment with just a few competitors. and we are performing pretty well especially when it comes to the profitability side compared to our competitors here so this is actually the highlight on growth while while smart intertech is still struggling with the migration in general for this segment the most important thing right now is to stay positive to stay profitable they achieved this in the first half of this year um so Next to this migration, it is core not to expand our investments here anymore, but to fulfill, and this they are delivering right now, and they achieve a basis for next year top and bottom line growth from this what they stabilize here right now on the income side. So for the whole group, it is a good start in the year. We are on track, you can say. When you compare this year with previous years, you see that we are well above the revenue compared to last year. EBTA last year had some one-off double-digit million one-off. We will achieve 50 million EBTA this year without this one-off. And when you compare this with our last record year, you see already that we are getting closer to the to our last record year 2021 and uh let's say our it will be interesting when we finish the sec the second half as expected if 2025 is already to be expected the next best year ever or if we still need another year so we are we are on track to get to a new in the record time so how we are going to get there Most of all, it's still the market. Our double-digit market share growth will bring us up, but the general mortgage market is still relevant as long as it's not normal. Normal means for us, we expect to come back to something of 75 plus billion per quarter, and this thanks to the closed renting market and the need for people to acquire their home. plus energy efficiency investments plus starting in 2027 and normalization of the financing market this all together will bring us even up to 100 billion in a couple of years in this volume of volume in this market and uh up until then we still will gain another uh 30 percent market share um so this uh let's say yeah the near-term future of high reports pretty predictable if nothing super strange happens here in Europe. So this said, just a quick view on what's going to happen this year and the rest of the year. Expect the positive development in the market still for this year in the real estate segment, financing platforms and insurance for now flat. Revenue will be up in all segments at the end of the year. Yes, the strongest in real estate and mortgage platform. And EBIT will be, especially in real estate and mortgage up. This is financing all of our activities right now, you can say. Financing platforms, insurance, will improve their profitability level in the second half of this year. But in the end, both segments are, for the total group revenue, still not really relevant. We are working on this. We stick with our guidance, monetize 400 million revenue for this year and 10 to 20 million in EBIT. What is more important for you is for the next couple of years from there, double digit growth, top to bottom line, there's an outperformance on the profitability side. And I was asked this in the general call. Yes, we are focusing on profitability for the next couple of years. We see that our market got more volatile than in the past. And more volatility means in a good year, we need to have a much higher profitability level that, well, again, some crises like the one in 2022, 2023 hit us, that it's not threatening for us, but that we can focus in such an environment then on all opportunities that the crisis brings us. And so to be ready for the next crisis in 2030 ongoing, we want the higher profitability level to be achieved in 2025, 2026, 2027. And there we are going for. So stay tuned, I would say. In three months, next update from our side with the Q3 numbers. And if you have further questions, contact our Investor Relations Department. Jan is happy to answer any questions. Thank you. Bye-bye.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.