Hemnet Group AB

to this teleconference of Hemnet Group's presentation of the results for the first quarter of 2023. My name is Cecilia Beckstruth and I am the CEO of Hemnet. And before I introduce my colleagues, I want to take a moment to briefly talk about this fantastic picture that decorates the cover of the report. This is a photo from the fourth installment of Good Hemnet Gala that took place in March this year. This is an annual gala that Hemnet organizes to recognize the achievement of the real estate industry and has, since its inception, become an essential part of the annual calendar for many agents, franchise owners, and property developers. It was an entertaining and important learning and a great opportunity both for myself and many colleagues to mingle with some of the most important with some of our most important business partners. With that, let's turn to page two so I can introduce my colleagues who participate in this call together with me. With me today, I have for the last time as interim CFO, Jens Melun, as well as Nick Lundahl, our IR manager, who will be assisting with the Q&A. Now turning to page four for a summary of the quarter. Q1 was a challenging quarter for the Swedish property market. Concerns and uncertainty over interest rates and cost of living have contributed to some consumers choosing to hold off on selling and buying a home. Despite this, I'm happy to say that Hemnet grew revenue from sellers by 11.7% and total net sales by 5.8%. all while seeing paid published listings decrease almost 20%. This is the greatest decrease in listing volume that we have recorded in our data, which is why I hope that the demand for our products, especially the seller products, and our ability to execute our strategy outweighs the macro and economic challenges present for us. This quarterly result is also a clear testament that our product remains attractive even in a weaker market. ARPL, the average revenue per listing, continues to be the main driver for our growth, with growing demand for our value added services, as well as ongoing pricing work, building the main contributors to ARPL growth. It grew 2%, resulting in a margin of 45.9%, This moderate growth is partially a result of significantly lower listing volumes, as well as our continued investment into product. Overall, I'm pleased with this result, especially given the circumstances in the property market. Turning now to page five and the article development. Arpil grew 38% during Q1, driven by a combination of product, conversion, and pricing. This growth offset the 19% decline in listing volumes. The growth in Arpil is a result of increased sales of our larger packages, especially premium, and of the value-added service renewal, as well as continued work on pricing. This shows that our investments in product development are creating the desired demand and added value for our customers. For example, the increases of renewal are a direct result of the changes we made to make restarting the listing on Hemnet faster and easier. By working in an agile and adaptable manner, we can make sure that we meet our customers' needs and build more relevant and impactful products. Moving now to page six and the net sales by customers. Let's dig deeper into where the 5.8% growth in net sales comes from. The predominant driver is revenue from property sellers, which despite the all-time low listing volumes grew 12% this quarter. Our continued work with product and pricing can be attributed to this growth. Real estate agents' revenue grew 3% despite continued high uncertainty in the real estate market. Agents continued spending on Hemnet in order to secure their next seller, strengthen their branding, and gain an advantage over the competition. This growth is especially encouraging given our many product improvements since last year, and specifically as real estate agents. Property developers continue to struggle as the market uncertainty means that consumers are less willing to buy properties under construction, and material cost increases are impacting project budgets for property developers, leading to necessary reviews of the overall cost base, including marketing investments. Net sales from advertisers declined 11%. partially due to declining traffic, as well as widespread reviews of companies' cost base due to the uncertain macroeconomic environment. We attribute the traffic loss to fewer listings, fewer visits from our so-called power users, and tough comparables in 2022, when the property market was more active. Banks are a clear exception, with increased demand and marketing spend from this customer group. As Sweden's fifth largest web platform in terms of reach and with high relevance and affinity, we are well positioned as the best option for companies looking to reach audiences interested in the housing market. Let's turn to page seven and the quick update on our 2023 roadmap. During the previous quarterly report, our studio and my colleague, Francesca Cortese, walked us through the Q initiative and product roadmap for this year, 2023. I want to refer back to this roadmap shown here to provide you with a brief update on the most important product launches during Q1. As this is a page we have talked about before, I will not spend more time here, but instead turn to page nine and our product updates. For consumers, we have identified three key initiatives for 2023. These are secure listing content, content discovery, and super personalized experience. During this quarter, we spent most effort working on the first and the last of these. With regards to securing listing content, this is important to strengthen and maintain a homeless position as a go-to property portal with the most comprehensive and relevant inventory. Starting off with an important update on how listings are renewed using a renewal product. Previously, a listing would have been taking off for 23 days before being able to be renewed. We changed this rule during Q1 2023 so that now any listing older than 30 days can be renewed with real-time statistics. For HEMS premium, this service is included in the package, whereas BOS and PLUS packages pay extra for renewal. We are also testing a pay-lative feature, allowing sellers to pay for the listing once it has been sold, or after a fixed amount of time. The purpose of this test is predominantly to increase the entry barriers to HEMS and reduce the number of reasons for listings to be off-market. This is a test to secure listing content, but if and when launched, such a product will be structured in a way to have a positive impact on article and seller revenue. We are structuring the product to have a minimum impact on our networking capital, cash flow, and credit risk using a payment partner to manage these aspects. So I'm sorry about this hiccup. We have some technical issues today, unfortunately. But coming back to the presentation, I was talking about our product improvement and development on our consumer side during the quarter. And I want to finish off on this slide, also saying that we're working on providing consumers with a more personalized experience by developing our valuation product launched earlier this year. A user will receive the prompt when the valuation for the tracked property changes giving users more resources to come back to Hemlent. Now turning to page 10 and seller products. On the left side of this page, you can see our artful growth from value added services. We are making good progress on this front as a result of increases of our larger packages and of the renewal product, as well as continued work on pricing. The continued growth in ARPL is evidence that our investments in product development are creating the desired demand and added value for our consumers. In addition to ARPL growth, a key focus is leveraging the agent boss recommendation. Today, one in three agents recommend the bath to their seller, the value-added services to their seller, but two in three sellers follow that recommendation. So here we see the potential in growing the number of recommendations. We have, during this quarter, for example, added a new step in the listing package selection flow that prompts the seller to reconsider if they select another package than the one recommended by their agents. Now turning to page 11 and business-to-business. Demand for HEMD products from real estate agents remains consistent, and we are pleased that traffic to our agent search flow launched in 2022 continues to grow. Furthermore, we continue seeing conversion to Sundsmed till Säljare increase as more agents want to stand out in the agent search flow. We continue working with our attractive and diverse product portfolio for agents and are also working on new commercial products that will be launched during the year. The market for property developers remains exceptionally tough. A high hesitance discourage the buyers from buying unfinished products or projects with high leverage. Despite the challenging market, there is demand for HEMNET products also from this customer category as they are to dispose of existing inventory stronger than ever. We have updated the terms for our listing package aimed at small and medium developers to be a subscription rather than a one-time fee, and have opened up unsold Mäklä Pipsa plots to developers. Now turning to page 12 for an overview of our organization. During Q1, we added fix and produce for a total of 141. This is a year-on-year increase of 20 employees compared to 121 in Q1 2022. As previously communicated, most of the joiners for Q1 were already signed during Q4 of 2022. We continue maintaining cost control across the business. An approach we consider sensible given the current financial climate, despite the stable and cash-generative nature of our business. I want to reiterate that the recruitment stage for the remainder of the year is expected to be significantly slower than that of last year. On Tuesday next week, I look forward to welcoming Anders Ernaas as our new CFO. He will join earlier than previously communicated and replace Jens Melun, who has served as interim CFO since August 2022. And he will now go on paternity leave before rejoining him as head of group accounting and control. I want to take the opportunity to thank Jan for stepping up into this important role and doing a fantastic job during his time as interim CFO. And we wish you the best of your leave and look forward to welcome you back during the fall. I want to finish by saying that we are currently looking into how to best organize our commercial operations going forward. This is to optimize the strength of our talent pool and to leverage our investment in future growth. Now turning to page 14 and an update on the market. We, of course, received a lot of questions on the property market. even more so in the past few months, given the development in listing volume. This is totally understandable, as we are faced with unprecedented drop in listing volume. While we do not have a crystal ball for when the situation will turn, we have prepared some slides to provide you with an understanding of some of the drivers behind the current market environment, as well as potential catalysts that can lead to more normalized markets going forward. I think that the words uncertainty and hesitance summarize the current state of the Swedish property market. Uncertainty both around interest rates as well as affordability. Consumers are uncertain around the direction of interest rates and mortgage costs as well as inflation, cost of living and affordability. This hesitance in turn has a direct impact on both buyers and sellers and leads to fewer listings and transactions. We can see that transactions are being done, and there is a balance in the market, but at a lower pace than before. Nineteen percent is the largest drop in the new property listings for any quarter for as long back as we have comparable data, which is why, in particular, plans at Hemnet during this time grew its revenue for property sellers by almost 12 percent, despite the difficult market conditions. Turning now to page 15 for an overview of historical listing data. Looking at historical quarterly data for as far back as we can, we see the fluctuations have varied from approximately minus 14% to almost plus 30% for any given quarter. Q1 2023 is clearly an outliner as we have more previous lists in any quarter with a sharp drop in listing volume. What we can observe, however, is that most periods of uncertainty in recent times have both positive and negative quarters. Negative quarters are usually followed by some sort of catch-up effect. However, it is difficult to predict exactly when this effect comes into play. Looking on the right-hand side of this page, we can see that annual listing volumes tend to be stable despite quarterly variances. and we remain confident in the stability of the Swedish housing market driven by need to live. Turning to page 16 and the potential catalyst that could impact the market going forward. We are still in a hesitant market when it comes to listing volume. However, we have identified a number of events that are potential catalysts to a more fluid and normalized property market. With regards to interest rates, there is some expectation that rates will peak at some point in the near future, perhaps during this year, 2023. Once the trajectory of interest rates becomes clear, we believe that the decrease in uncertainty around affordability and higher willingness to transact could have a positive impact on listing volumes and market sentiments. During 2023, there is a high amount of mortgages up for refinancing, according to the Swedish financial institution. Refinancing of mortgages may drive homeowners to reconsider the living situation in order to manage living expenses, which could also have a positive impact on listing and transaction volume. In our internal data, we saw that sale prices and asking prices are converging, while sale times are going down from the peak we saw during Q4. This is evidence that there is greater alignment in the expectations among buyers and sellers and heads well to a more fluid property market. Finally, our buyer barometer survey, a survey we conduct on a monthly basis to measure price sentiment in the market, is showing the most positive price expectations since mid-2022. 62% of respondents expect prices to remain unchanged or increase. This, too, is true as we find that expectations are aligning as transactions volume may pick up. During 2022, I spoke about the gridlock effect, during the greatest stress to the mobility of the Swedish market, if buyers and sellers become locked into their property because transactions have frozen. It is therefore positive that expectations are moving closer between buyers and sellers, and this significantly reduces the risk for a gridlock effect. Now turning to page 17 for some closing thoughts on the market shutter. Despite the challenging property market, we remain confident in the long-term outlook of the Swedish property market and of our business. The factors that we have control over are progressing well, and we continue to invest in products and in our teams in order to be in the best possible position for when the market normalizes. This includes maintaining Hemnet's position as the number one property portal. It is important here to note that despite the dropping listing volumes, we have not seen a material effect on our market share of transactions. These are not happening off-hamlet, but instead happening at lower volumes. Focus on updating product and pricing in our seller portfolio and continuing development and commercializing the agent search flow that was launched in 2022. I will now hand over to Jan who will provide us with a financial update on page 19 for the last time before handing over to Anders.

Thank you Cecilia. Let's turn to page 19 and the financial highlights for Q1. As Cecilia has talked about, 2023 has seen a historically slow start to the year for the property market. This of course affects Hemnet's financial performance and especially so since we want to continue investing in our products. That said, I think that this quarter shows the resilience of Hemnet's business model as we have continued to grow despite these challenging market conditions. So starting off on the left-hand side on this page, we have net sales increasing 6% to 190 million. As Cecilia mentioned earlier, This is mainly driven by a strong development for our property seller revenue, which increased by 12% even though listing volumes were down 19%. Our adjusted EBTA came in at 87.2 million, up 2% from last year. The adjusted EBTA margin came in at 45.9%, down 1.7 percentage points from last year. This is, of course, a combined effect of the current challenging market conditions and that we have continued to invest in our product development capacity. Moving down to the right-hand side, we saw ARPL increasing 38% in the quarter. Cecilia talked about the drivers for this earlier on page 5, which were a combination of product updates, conversion to our more expensive value-added services, and price adjustments. As expected, we continue to see a high cash conversion, which was 98% in the quarter. This was in line with the full year 2022 and follows that we have a favorable working capital dynamic as we grow our seller revenues. Finally, leverage came in at 0.7 times, rolling 12-month adjusted EBITDA, which is a slight increase compared to year-end 2022. And this is in part due to our leasing contract for our new head office and partly due to the continued return of capital to shareholders via our share buyback program. And I will come back to the topic of buybacks in a few slides. Let's move to our adjusted EBITDA bridge on page 20. We continue to grow our profit EQ1 from 85.5 million in 2022 to 87.2 million in 2023. We have covered the drivers for the 10.5 million growth in revenue earlier in the presentation, so let's instead look at the cost side. The compensation to real estate agents continues to grow at a similar pace to our seller revenue and is up 8% from last year. As a proportion of seller revenue, This meant that the compensation was around 28% per quarter. Other external expenses excluding compensation to agents is up 1.6 million. This mainly following increased costs for our new head office and other costs related to an increased organization. Otherwise, we continue to focus on cost control in order to maintain a controlled growth journey and increase profitability over time. Personnel costs have increased by 5.3 million, or 14%, as we have continued to invest in product development capacity, which Cecilia talked about earlier in today's presentation. Moving on to page 21 and a few additional words on the buyback program. As we communicated yesterday, the 450 million buyback program initiated after the 2022 AGM is now completed. During Q1, we bought back 602,000 shares, followed by another 220,000 shares in April. In total, we have bought back almost 3.1 million shares under the buyback program, equal to around 3.1% of total shares. With this, Hemnet has in total distributed approximately 505 million to its shareholders in dividend and buybacks since the 2022 AGM. And in doing so, we are following our dividend policy to distribute excess cash back to our shareholders. As mentioned previously, the buybacks have also played a big part in the increased leverage, which has gone from 0.3 times at Q1 2022 to the current level of 0.7 times. Sending a decision by the 2023 AGM, Chemnet's intention is to launch a new program in order to continue buying back shares and thereby distributing excess cash to shareholders. Before heading back to Cecilia to wrap things up, the final slide in this section is our financial targets on page 22. Our growth rate measured as an LTM value is now at 18%. Our profitability measured as an LTM adjusted EBTA margin remains at 50%. In conjunction with our year-round report for 2022, we introduced a new long-term profitability target of exceeding 65%. Leverage was 0.7 times as previously mentioned. And as we've said before, the management team is looking to meet or exceed the set targets. So that concludes my section here today. But before I move back to Cecilia to wrap up, I just wanted to take time to mention that this is my last report as M's Interim CFO. And as Cecilia mentioned, next week our new CFO, Anders, joins the company and will be here for the Q2 report and onwards. I myself will after my parental leave instead go back to my usual role in the finance team I look forward to working closely with Anders in the future. So with that, over to you, Cecilia.

Thank you, Jan. I will now turn to page 24 for a summary. This has been a challenging quarter for the Swedish property market with an unprecedented 20% decrease in property listings on Hemnet. Despite this, we saw a 12% growth in revenue from property sellers and a 6% net sales growth, a testament to the attractiveness of our product offering. We continue to invest in product development for the future, for when the market normalizes, to the best position we can to capture the opportunities that open up. Thank you for your attention, and we will now move to the Q&A.