Hypoport Ag

Hi everyone and welcome to the HypoPoLit Q3 results. This webcast will be recorded in a few minutes or a few seconds. I'm here with Ronald Slatter, our CEO today and I now hand over to Ronald for his presentation. After his presentation, a short Q&A session, and I will be happy to introduce you to the Q&A session after one and through it. Ronald, the stage is yours, and we are now recording.

Yeah, hello, everyone. So new technique, this visual experience for you as well. Hope you like it. Give us the feedback later. So we are presenting. our Q3 numbers today, and I'm sure you're already deeper. So let's just get started. You're aware of this solid numbers for the first nine months. It's slightly different development in our core business around mortgage, private mortgage business, the other finances and insurance. So as usual, we will dig deep into each of these three segments. Real estate and mortgage, our core business in the private mortgage world and surrounding areas, something which is linked to the German housing market. And when we talk about this and we talk about this segment, we always have to remind you that housing is something very special, essential and special here in Germany. In general, everything is fine. We have a net migration to Germany thanks to a huge demand for skilled labor. We have the usual trigger events here in Germany. People consider to buy something in the moment when they plan to get children or divorce. So everything from a general perspective on track. What is special and what is changing the current environment for homeownership in Germany is that for a long time, the renting market was a solid offer for the middle class. Today, you can say we have a home ownership rate of 44 percent. So 56 percent of the German German households are renting. Major parts of the middle class are still renting because it was historically cheap and so affordable and available and flexible. But thanks to massive regulation in the last 10 years, this market is frozen now. And there is a low level of movement within this, a low level of new constructions of renting units. because of the net migration and high demand. So it got really tough to find something. And because of a massive rent regulation, it's as well unattractive for especially smaller landlords, private landlords to keep renting to families. So this market is under massive stress and we don't see any initiative from a political side or even any program of a party for the upcoming voting here to change this. So with this, more and more people, more and more families need to think about acquiring their home and not renting it anymore. So the affordability of homeownership gets more and more important, especially for the middle class. In the last quarter, you can say stable environment there, interest rates are stable, prices twiggling up a good percent in the last quarter, but as well incomes twiggle up thanks to the high demand for labor. The only thing where it doesn't work well is new constructions as well in the home ownership area. So this all is framed with an regulatory framework for home ownership here in Germany. You can say in the last quarter, no massive changes, a lot of talking points of politicians, a lot of ideas circulated, which keeps people from acting actually, because when you promise a reduction of the property acquisition costs, or if you talk about additional subsidies, people hope that it will make their choice more affordable to then find out that taxes are not reduced and the support programs are very specialized in a very small target group and you don't fit in it so yeah yeah this this uncertainty our governments local and uh german-wide governments creates keeps people from acting there would be a much better regulatory framework for home ownership possible here in germany and looking forward for the next upcoming voting i hope the next party understands the chance for the the german economy in this market and creates a better environment for now q3 i would say stable unfavorable regulatory environment So when we look a little bit more in detail to the numbers or the core KPIs for this market, you see the interest rates first nine months pretty stable with a small trend for declining rates lately, which is helpful. We see a huge number of properties on the market compared to a crisis environment where nothing was available three or four years ago. um so you you're able to choose what you want to buy and for a longer period with declining prices you see this in the upper right chart it was pretty interesting for people to look around check out what they can afford what is available for them and wait for declining prices For this year, these declining prices are over since the beginning of the year. We saw an uplift of 5% in average in certain metropolitan areas already close to 10. So waiting is not a good idea anymore, even when there are a lot of properties still on the market. And so the market for transactions for buying existing homes slowly creeps up. what doesn't creep up what is a stable lowest new construction because of high cost you see the gap which uh developed in the last two years between the prices for existing homes and the prices to build something new so it's roughly 20 percent more expensive than it was two years ago versus what you can buy to what you can build And this gap is keeping people for starting new constructions. Single family homes or multifamily homes for homeownership is highly depressed still. And yeah, the core reason for the positive development in the transaction market is the rental supply on the historic low level still declining, you can say. And this what is over is in the metropolitan areas, usually furnished. So not suitable for families anymore because you have your furniture already. And it's as well pretty expensive to rent a furnished apartment. So in the regulated rental environment, normal infinite renting contracts, the market, especially in the metropolitan areas, is fully empty for renting. So this creates a mortgage market, which is recovering. We predicted four to eight quarters for this market to recover. You see that we are now in the eighth quarter and we are on the way. So pretty lucky with our prediction. I would say we are up over the first quarters by 20% regarding Bundesbank data. And well, it's getting slower back to normal than the drop was, but it's getting slowly back to normal and that's fine. So we operate with a number of business models along the value chain of home ownership. We start with the core business in the segments, everything surrounding mortgages. your base total transaction volume is up 23%. So just slightly above market, you can say 20% mark 23 your pace. To understand this, you need to look on the different sales channels. So our own brand, Dr. Klein franchise slightly outperforms the market winning market share up 23%. the two large german banking groups the cooperative banks and the savings banks both up above it 50 percent savings banks 43 percent the cooperative banks so someone need to lag behind, otherwise it would not end up to 23% for Europe as in total. And this is still our largest traditional private bank partner here in Germany, which since the last summer exited the market because of a failed IT project in their back office. And they are still working on this and unfortunately didn't recover by now. This takes a little bit transaction growth from us because we have to compensate the loss of a significant volume from our largest partner. But sooner or later, we expect them to come back and be back on track, especially when we, let's say, especially that we actually did this IT project as well as them to broaden our reach there and migrate the whole branch network as well. So in some moment, they hopefully recover. Talking about recovery, this is the structure of the market. When you look on the usage of the mortgages and this solely on your platform, but it represents the total market relatively well. So what you see is that mortgages to purchase and then conduct or in your home is pretty well recovered already. 13 billion transaction volume in the third quarter. There were only two quarters on the same level, both pre-crisis, you can say. So when you just look at these numbers, you can think, well, crisis is over. Fully recovery is there already when it comes to purchase. To be fair, the transaction number is even higher because of the decline in property values and so in average mortgage volume. So when it just comes to the numbers, it's even more impressive, the recovery. But then you look on the general market development, you understand that families who used to build something new switch to buying something. So that's why it is Turkish. don't know what the name of the colors in english actually the blue one that's called the blue line is still massively depressed and feeds as well the buying sector and when you consider this what i told you about the decline in renting renting units available so a lot of people who would normally rent start to buy now so the potential is that this red column is keeps growing and outperforms the previous levels significantly is high And yes, consider, please, that we take market share all the time. And so the total market is still below the peaks of 2021 and 2022. But in Europe, we are already in the purchase area on an equal level. Yeah, I thought already new construction, the blue column still depressed, still stressed, slightly coming back, but we are still on a level which is far below the 6 billion, which we usually saw before crisis and before taking market share by hyperport. So there's still a huge potential. And if new construction stays on this level, you can be sure that property prices keep going up in Germany for a long time. Because this what we are not financing right now will not host any family in 2026. It takes roughly two years between financing and moving in. So this what was not financed in 2022 and 2023 and 2024 will affect the market, the price development in the next two years. So you can be certain already how prices in Germany will still keep trickling up because of this lack of supply side. And looking forward, because of the high costs and still a gap of roughly 20% indexed between new homes and existing homes, we don't see this changing fast. So it will take years to come back to the pre-crisis level of new constructions of homes. So what is as well still under development, let's say, and depressed is the refinancing part of the mortgage platform. um consumers in germany early started to finance much longer than the usual 10 years and with an illegal repayment options between the 10th and the 15 years they can now wait for a better deal lower interest rates to refinance their mortgage at this they do that's why we see quite low numbers of refinancing compared to the previous interest rate change environment of roughly 3 billion per quarter we are still on a very low level and will recover fully in 2027 when the 15 years mortgages from 2012 will finally be due for refinancing, if not earlier refinance because of lower interest rate earlier. The last area of interest is energy efficiency, modernization of homes. With all the political attention on the topic of zero net neutrality until 2045 in Germany or 2050 in EU, you would expect a massive increase in investments in existing homes and condos. And we don't see this yet. So from a macroeconomic perspective, to meet our carbon neutral goals in 2045, we would need 80 billion of quarterly investments in the existing household stock to get there. And every quarter we miss actually the volume that needs to be invested in the left 80 quarters until 2020. 2045 needs to be increased and for now we don't see this we see a pretty stable uh renovation level of a billion per quarter which is uh far from being sufficient to meet any goals here yeah so by now nobody starts to invest um i would say uh the regulatory environment and the the motivation for people to do this, to achieve these goals needs to be improved by local and German-wide government. So this is the current situation. So you see the positive development, especially in the purchase market, but you see as well the potential in all three other markets. From a perspective of sales channels, you can say Q3 was a pretty stable environment. So brokers are taking slightly market shares. We are well established there. Not a lot of potential for us to grow within the broker market anymore because there's only one large broker left which is not using your pace. On the other side, the competitive advantage of independent advice, selling the best product out of hundreds of lenders is enabling brokers to slightly increase their market share steadily. You see this with this plus 23% of of Dr. Klein as an example. So we expect over the next years that brokers will double their market share in Germany as they achieved as well in the Arnold Sachs market shares of above 50%. Commercial banks as well, you can say stable. If you would just look on the Q3 numbers, the 40% is not right because of the struggle of our large client there. On the other side, in general, we expect a recovery there. We see that the other commercial banks have their own struggles. And looking on the technical side, the IT infrastructure, there's still a potential to gain them all. Corporate and savings banks, there we have traction. We migrate sales structures of hundreds of small banks permanently. So incremental gain, very organic process. And from this perspective as well, well predictable for the upcoming quarters that this trend of plus 40 plus 50% transaction volume gain will be stable and keep growing our volume here. And the end goal here is to fully migrate both sectors, all savings banks and all corporate banks with all the sales channels and branches and replace the sector internal service provider. And we keep being on track for this. So after mortgage business, an investment field which we have here in the segment, property valuation, something where we expanded along the value chain because with every mortgage and valuation is necessary. We heavily invested during the growth period until beginning 2022. And then we're facing massive market turbulences, plus two times regulatory changes by BaFin, which affect our product mix and our product portfolio. And for the last one and a half a year, you can say now we are in an adjustment process to the massively changed environment. We have traction. We are getting forward. You see the decline in losses in this business. For this, we have to reduce certain volumes which doesn't fit to our resources anymore. And we have to restructure our resources and we have to build new IT, different support for different products which are needed right now. and automate something else than we focused until 2023 on. And we are progressing with this. Unfortunately, it takes time, a little bit more than expected. But just at the beginning of the fourth quarter, we were able to release a new major part of automation for the inspection business, which will bring us forward significantly as well from the profitability level, thanks to massive automation and reduction in labor needed to fulfill this. so we we progress um but still it's something where we which cost us money this year and which um dilutes our profitability in the sector um for the current period yeah talking about uh profitability and compared um so revenues up 36 percent the There's a special effect in this. We use our group buying power and offer this as well to other Europe based partners. They join and inflate our revenue and we have some pass through commissions that we need to forward to them. So the better way to judge the segment is right now the gross profit is plus 18%. If you would eliminate the declining revenue of value AG, you are looking at close to plus 25% in gross profit growth. So in line with the transaction volume growth, slightly outperformance, thanks to some effects. even compensating the fact that the fixed interest rate period declines compared to last year by a good year, which costs us 10% in commission for transactions. So we're balanced. We are progressing. It's a transitory year. We are on track back to our usual profitability rates of around 40% to gross profit here. So with this 20.5 million in the first nine months of this year, we are back to 20%. If you eliminate the losses of value at GE, we are already getting close to 30%. It will not take us long anymore to fully recover here in line with the market, which is getting more healthy in the upcoming quarters. Okay, so this was the part which was easy to explain and well on track of recovery. Financing platform, the segment where we combine all other credit market activities and platforms is still in a different environment mainly. So let's start with housing. So here it's our support of financing and IT transactions for the housing sector, the social municipal cooperative owned housing sector here in Germany. They are usually investing 10 billion plus in buying, building and renovating homes, it's heavily reduced right now. You can see this in our volume numbers. We come from a traditional volume of somewhere around three billion per year. And for now, in the first nine months, we have 0.8 billion similar to last year, which was depressed as well already. So here the recovery didn't start. The slightly lower interest rates, which is as well applicable for this sector, didn't change the appetite for new finances here. The problems are the massive rent regulation, which helps us with our home ownership market, but which stresses them. So rent regulation limits the ability to increase the rents and let's say fund additional constructions of new homes or energy efficiency improvements. And in the same moment, the current environment of subsidies doesn't close the gap. So there's no new housing, new renting housing, renting space for the social target groups built here. Not no, but much less than the previous years. And it wasn't enough in 2021 or 2022 either. And there is still no investment in energy efficiency on the feasible level to achieve our 2045 net utility goals here in this housing stock. And we are talking about 6 million units here in Germany, which the sector is operating. So better numbers outside the mortgage business on the deposit side here, we provide as well a platform to handle rent deposits. incremental uplift 70% you can say this is 2% rent increase and 5% market share gain to a new level steadily every quarter it goes up and our revenue is transaction based or volume based better and the pretty good success of our EIP system to power this renting process and the whole um a financial um monitoring process of housing associations um here we gain 41 in uh underwritten units so 374 000 units now getting on are on or getting on our ERP system. So as I said, the whole sector has 6 million. There's huge potential for growth still. We are the new one. We are the open internet based flexible solution for housing associations here. And we are gaining traction with high investment in to be fair with high investment in the cost for migrating clients here and investing in this platform. But we see that it starts to materialize. And in a couple of years, it will be profitable. For now, we invest a significant one-digit million euro amount every year in this platform. So unexpectedly, as well, still stressed is our corporate finance platform business especially linked to state-linked subsidies and support programs we see that the demand thanks to the heavy investments that are needed to adjust to the macroeconomic environment energy carbon neutrality and so on the demand is high and for a long time we reported new projects that we acquired this is up 73 percent this for the first nine months now what we see it this number is not helpful anymore because the conversion rate changed massively because of the heavy uncertainty coming from german government regarding this support programs how reliable they are in in time and budget. And because of this, we put more focus on the, let's say, build projects where you see a stable volume compared to last year. So massive increase in demand. So clients wants more financing, wants more support programs integrated in their investment decisions and financing their investment projects. um but just a stable level compared to last year of volume really closed um this is a disappointing for q3 because we see this permanent uplift and 2023 was pretty distressed here already and we stay on this level right now and i think you are aware of this german government just collapsed the coalition broke and new elections going to happen in the first quarter of 2025, still not decided when. So the industry really needs a change in the politics, a more business-fitting environment, improvement of the competitiveness of Germany on scale again. And this is more than needed when you look on this, what is right now happening here in Germany with small and medium enterprises and what we can see as well in our project portfolio. So still something where there's a lot of potential up and we are still in the valley on a button of volumes, which are really transacted and closed and brings revenue to us. The only credit product which recovers already and is acting pretty normal is the personal loan business. Here we see further market share gains in a modest developing market. There is no quarterly or monthly numbers available, but we see it creeping up a little bit compared to 2023. We add their market share gains to 15% transaction volume gains. uh to be fair the the current uh um recession outlook or let's say vr we had two two quarters of recession now here in germany um yeah and the outlook keeps banks from being very aggressive in crediting consumers so there is a increased level of cancellation even after transactions so the the selection is higher than it was before But we take market share. So same goes for our white label business, the Ventile business for banks, which is part of the transaction volume, especially in the corporate banking sector with our joint venture with Team Bank. we are doing well and bringing more and more banks on the platform, which then have the ability to not only sell, in this case, team bank products, but as well third party loans if the team bank product is not competitive or not available because of the credit score. So in total, the segments has a small increase in revenue and a significant increase in profitability. But we are coming here from a very low level and we expected a faster recovery. I would say similar to the mortgage business, but the housing associations and the corporate finance sector still lags behind. So positive numbers, but a lot of way to go to come back to the pre-crisis environment before the interest rate shock. So last segment, insurance platform, something not really affected by the interest rate shock of 2022. So here we have a stable market environment. Total premium volume in this insurance is more or less always up with inflation rate, something around 2% right now. And this stable environment, we address free markets and try to migrate the volume on our platform. Even when we are doing this business for a couple of years, it's still early stage when you look on the market penetration that we have. It's a total of 250 billion market. And when you see our numbers here, you see that we are still early in the penetration. So personal insurance business, after acquiring a lot of traditional software products, we are for years now in the process to bring them all together on a fully centralized platform. Migration to this platform is up 40% to 4.7 billion. The matching process where it's as well validated against the information in the core systems of the insurer is up to 1.8 billion. So we are getting slowly in the area of 1% of total market share to be on the platform and be validated to really add value to the total market. We still have a far way to go. So we keep migrating. We keep going forward here. But we accept it as well that this industry is slowly digitalizing in a modern way on an open architecture. So let's say, yeah. We reduced a little bit our stairs level and we reduced the investments that we do here. The goal is here to get profitable based on a slow migration path right now. better is the situation in the occupational insurance world where only two platforms are available and roughly 30 billion market is slowly getting digital with us being in a good position to be sooner or later the market leader here we are up 36 percent getting close to 0.3 billion in in annual premium volume on ePension. So it's a migration path. It takes time for our partners to migrate their volume, to gain new partners, integrate them into platform. But our investments are paying back here already. In this unit, we are profitable already. So where we are highly investing is the industrial insurance world and our platform to manage and auction industrial insurance coverage. Yeah, the first module, which we built over a period of three years now and introduced roughly a year ago, is now seeing significant pilot clients starting to use it. So there is an acceptance path for major industry partners here. And we slowly see traction. So it will be really interesting in the next quarters how the acceptance rate develops, how much more new clients we see here. There are a lot of important market participants testing what we are doing there, and we are getting good feedback. All in all, for all three segments, including the fact that we replace one-time incomes for licenses software development with recurring revenue. We are slightly up in revenue. We are positive in profitability. So second year in a row, this was a core goal. And right now we are setting the base for a profitable growth in next year and going forward. So I would say, in general, on track, not as dynamic as the credit markets, which are in recovery right now. But that's the advantage of the stable insurance environment was that it was not affected from this crisis environment after the interest rate hike. So for the total group, we are looking on solid Q3 numbers, I would say. With a slightly disappointment from the financing platform part included, we are up in revenue and EBITDA as well on a similar level like Q1 and Q2 in Q3. It could have improved more, especially thanks to the market environment and mortgages. But as I said, financing platform had still a struggling environment. 11.5 million EBIT contribution in the first three quarter. So in line with our expectation in total. And so we see on path of a full recovery to pre-crisis strength. You see that from a total revenue perspective, as you know, diluted by our good buying power in real estate mortgages. We may even meet the 2021 numbers already, but it's a little bit weaker because less profitable would be more fair to look on the gross profit here. um from ebda we will outperform last year significant but we will not reach the pre-crisis level for now this is up for the next two years to top this 77 million ebda which we saw in 2021. So talking about group outlook. So where does the new record high level of profitability comes from? In the core from the mortgage market. So recovery started, but we are still far below the historic numbers. And this chart is not inflation adjusted. So when you adjust it to inflation, we are below everything what we saw in the German mortgage market in the last 20 years. And this makes us sure that there's still a way to go for the market to fully normalize. So what needs to happen first in the purchase market? There is still a lot of potential for more transaction thanks to a frozen renting market. Plus prices will keep trickling up and this will increase our transaction volume as well. So this is a significant uplift still just coming from this market, some double digit billion euro every quarter. So what still needs to recover is the new construction. As you saw, we are on a historic low level still. So this is not feasible. In my opinion, one of the reasons why the current coalition broke because they didn't solve the housing crisis here in Germany. So it will be a major point for the next government to solve it. And you need to build new homes if you have a housing crisis like we have. And if you don't massively want to deregulate the renting market and get a huge trouble there, you need tens of thousands, hundreds of thousands of new homes, and they need to be financed. and people are willing to do this just we need a certain level of deregulation and then less burden on on tax to do this so potential is there to even massively support the german economy just by start to build again so plus what will recover latest in 2027 is the refinancing market or if interest rates are lower earlier even earlier And plus, what is needed is massive investments. And for us, we are talking about $20 billion per quarter for investments in energy efficiency. And this is something still not in any chart, not in any history. And so if Europe wants to be carbon neutral, we need to start to invest and set the regulatory framework for the people to do this. So with all this, we see that the mortgage market will recover to 75 to 100 billion in the next couple of years. And this path there, and even long before we reach this 75 to 100 billion, we will see new profit records for Hyperport exceeding the year 2021. 2024, everything well on track with our expectation, the largest profitability growth coming out of the real estate and mortgage platform, but both financing platform and insurance platform with a small contribution as well. So we stay with our forecast 10 to 20 billion EBIT this year, especially with the breaking up of the current government. We have enough uncertainty what's going to happen in the last two quarters. It will be interesting how we start next year with a pretty uncertain start. But after a new government is formed, there is a lot to finance here in Germany to finally get back on track and out of recession. And I'm sure a new government will focus on this. So thanks from my side. I hand over to Jan for the moderation of your Q&A.

Yes, thanks for your presentation, Ronald. And how is the Q&A structured? On the right side of your screen, there is a small item which is a smiley emoji item. You can click, and then there's a blue item which is raise your hand. And we are happy to receive your questions, and then I will unmute your microphone. So just as a reminder, on the right side, the small item emoji, which is the blue sign, raise your hand. And we'll wait a few seconds for the first questions.

I answered all questions, I think.

Maybe. Okay. So no questions. Last time on the right side, a small sign. If you would like to raise your hand, feel free. If not, you see here our contact data and yes, we are happy to receive your follow up questions within the next days or weeks. And maybe we'll see on some conferences within November and December. So, I hand over to your Ronald for the last wording.

Yeah, you said already everything. So, hope to see you soon, I would say. Get in contact with us and we will be back here in March talking about how 2024 finished and how well we will develop in 2025 in this hopefully more attractive environment that the last government said. So, yeah, we will develop Hyperboard Two new highs here. See you soon. Bye-bye.