Hemnet Group AB (publ)

Good morning and welcome to Hemnet's presentation of the results for the first quarter of 2024. My name is Cecilia Beck-Fries and I'm the CEO of Hemnet and I'm joined today by Anders Ernulf, our Chief Financial Officer, as well as Nick Lundvall, our IR Manager. And as always, there was an opportunity to ask questions at the end of the presentation. Let's jump right in and turn to page two. This is yet another strong set of results from Hemnet, with a net sales growth of over 33%, an EBTA growth of over 37%, and perhaps most importantly, a growth in revenue from sellers of almost 50%. The growth in seller revenue is driven by our continued ability to drive ARPL through a number of levers, as well as a more confident property market that resulted in 11% more listings on Hemnet. Demand for our value added services is growing as more sellers choose to upgrade to maximize the chances of a successful sale. Conversion to Hemnet Premium is double that of last year, and that is a testament to the high demand and success of that product. We have also begun rolling out the full digital publication flow. And finally, we continue to execute on our strategy to constantly improve the consumer experience on Hemnet with a number of new features, such as, for example, updated app navigation and energy classifications on listings. Now turning to page three to dive deeper into ARPL. 33% ARPL growth is driven by a combination of factors shown on the right-hand side of this page. We will provide details on conversion, recommendation levels, demand for payment listing is removed and pricing later in this presentation. The purpose of this is to give evidence our ARPL strategy is working and to give some insights into the key metrics and thinking about the impact of our new compensation model. I want to underscore that the premium continues to be a success story that contributes significantly to ARPL growth with the conversion twice as high as last year. Turning to next page four for a few words on the property market. We are seeing a positive market momentum as the number of listings grew over 11% this quarter. We are also seeing more transactions, higher price expectations and lower inflation. Last year, we saw a listing decline of 19% in the quarter, so I don't think it's fair to say that we are fully recovered, but from our perspective, we are definitely seeing a higher degree of confidence in the market. Not only does the positive market contribute to the number of listings, but we have also historically seen a correlation between new listings and traffic. Moving on to page five for net sales per customer group. Net sales from sellers is up almost 50% and continues to be the main growth driver of the business. Many of our business-to-business customers, especially property developers, continue to be impacted by market uncertainties. And this is reflected in lower sales of our display advertising products. However, the decline in business-to-business revenue was partially offset by continued demand and revenue growth from our Hamnet unique business-to-business products. Turning to page six, where we will dive deeper into the ARPL drivers. During the previous report, we talked about believers, so I will not go into the drivers in detail. Instead, let us turn to page seven for an update of conversions. By choice, we do not want to provide regular updates on conversion. And the reason for this is that we are on a journey to drive ARPL growth. And this is the ultimate goal, not increasing conversion per se, although an increased conversion is one way to achieve this. However, so is pricing. Hence, the contribution of conversion and pricing to ARPL growth may vary over time. Having said that, We think it's time for an update on conversion as the last update was at the end of 2021 and we want to demonstrate the success of our ARPA strategy. Approximately half of all sellers upgraded to a plus or premium package in 2023. Due to the effectiveness and attractiveness of premium, this is the most common package that sellers upgrade to. This is up from about one in three at the end of Q4 2021. Turning to page eight for agent recommendations. Approximately half of all agents that publish a listing during Q1 recommended plus or premium. This metric is increasing over time, and last time we reported this number, it was one in three. This is an important driver of conversion, and as a reminder, approximately two in three sellers will follow the recommendation of their real estate agent when deciding which package to choose. We need to continue educating the agents on using the recommendation tool as a way for them to help the seller in their package selection and also a way to impact their commission payments. We attribute this increase in recommendation level to the fact that agents are more aware of this process and better understand the added value in the plus and especially premium listings. And now on to page nine for an update on pay when listing is removed. Between 40 to 50% of all sellers select to pay after a listing has been removed from Hemnet. This varies over time, hence we have provided you with a representative range. And as a reminder, every listing will eventually be sent an invoice four months after publication at the latest, but the majority of listings will likely be sold before then. The prices we show to consumers are always the pay when listing is removed price, but an option to pay them now is shown in the publication flow that gives a slightly lower listing fee. This has been a successful launch of a feature that is much appreciated by sellers and agents alike. Finally, let's turn to page 10 to talk about pricing. When we started monetizing Hemnet in 2013, all listing would cost the seller 600 Swedish kronor. This did not reflect the value of that Hemnet provided. Even though we have increased our pricing leverage since then, we are still confident that we provide the best value for our sellers looking to maximize the number of potential buyers to the property. What we are saying with the chart on the right is that as time goes by, we strive to rely less on price adjustments for the vast listing and more on plus and premium, which are products that the consumer elects to upgrade to. We believe that that creates a sustainable ARPOL journey. Today, we look at asking price of municipality of listing to determine the sale for any given property, and we will continue doing so in order to find the correct price for every listing at hand. Those were the updates on ARPL, and I will now finish my section with three slides on product updates, starting with the full digital flow on page 11. The partial rollout of the full digital flow has commenced and has been successful. The rollout will be complete in May when the vast majority of remaining agent offices will be added. We are currently testing and improving the flow before a wider launch. I have included a few screenshots of what the publication flow looks like from an agent perspective on the left, as well as from a seller perspective on the right. And on the left, you can see what the flow looks like when an agent recommends PLOS Opinion. It is a simple click of a button, which is then shown to the seller as in the photo on the right. The seller clearly sees the agent's recommendation, as well as a photo of their agent and the live example of their listing. Remember that Hemnet is unique in our direct contact with the property seller as the seller selects package and pays for the listing directly to Hemnet. The new flow will streamline the listing process by automating some of the administrative tasks for the agents as well as make it possible for the agents to select the time for the publication of the listing. Now on to page 12 and an update on the changes to the compensation model that will go on live on July 1st. As a reminder, the purpose of the updated model is to increase awareness, simplicity, and to align the incentives between Hemnet and the real estate agent community. This model will better reward agencies that often recommend plus and premium, while encouraging more passive agencies to understand the effects of these products better. We are allocating a significant portion of our time on the successful launch, including individual meetings with office managers, webinars, emails, and other forms of communication to collect feedback, answer questions, and raise awareness. And on the right, you can see a reminder of the most important changes to the model. We have been in numerous conversations with agents since we informed about the new model in January. And generally, it has been well-received. Many understand the change in the potential upside. We want to trigger a new behavior that builds on active recommendation. Those not having this behavior today might question the new model or worry that their payout from HEMNet will decrease. While this is understandable, it is quite common for commissions to build on performance, and in general, this part is understood by agents. For my final slide, let's turn to page 13 and the consumer updates. Three updates that I'd like to highlight from this quarter. Firstly, we have updated the navigation bar in our apps. This might seem like a small update, but the spirit of this update is to make it easy for consumers to access the personalized part of the Hemnet experience, encouraging more users to create accounts and enhance the Hemnet browsing. Secondly, we're happy to have added energy classifications to properties and helping consumers to make an environmentally conscious decision in their home search. And thirdly, finally, we are in the process of updating our map search experience to provide even more functionality to our users and to better their browsing experience. So I hope you found this update helpful. And with that, I will turn to page 14 and hand over to Anders for the financial update.

Thank you, Cecilia. Let's turn to page 15 and the financial highlights for the first quarter. As you have heard, we are starting the year with 11% higher number of listings compared to the first quarter of 2023. With double-digit underlying volume growth, we are experiencing a strong impact. in our core business. Although Hemnet performed strongly in 2023, we are observing a completely different financial outcome as the underlying volume evolves. So starting off on the left hand side of this page, we have net sales increasing 33% to 253 million. As Cecilia mentioned earlier, we want to highlight the strong development for our property sales revenue, which increased by close to 50% driven by the ARPL growth, of course. It's also worth highlighting that due to the increased average time in our listings, we moved from 40 days in Q4 last year, now increasing to 42 days in Q1. And remember, it's a rolling 12-month number. There are two effects to consider. As always, with increasing listing time, the revenues are recognized over 42 days, meaning that more revenues are moving to April next quarter. Furthermore, there's an effect of more revenue being shifted in from December 23 than 22, but since March is a significantly larger month than December, the overall effect becomes negative. The net effect of the increased listing time is negative 9 million Swiss kroner in a quarter. It's worth noting that with increased listing time, the seasonal effect is strengthened in our quarters. We communicate this effect, all else being equal, so we don't take into account that we have strong growth, which in itself also means that with larger net sales, a larger proportion of revenues move to the coming quarter. when compared to a previous period. Sometimes I recommend to look at our quarterly ARPL growth as a LTM value. There are some seasonality effects that you erase that way. Moving then to the right, despite the negative effect, we saw ARPL increasing 33% in the quarter. The drivers are a combination of conversion to more expensive value-added services and price adjustments across all cellular products. Our EBITDA came in at $120 million, up 37% from last year. We will dive into the EBITDA development on the following slide. It is, of course, the case that a combination of underlying volume growth combined with our ARPL results in a very favorable profit development in the quarter. The EBITDA margin came in at 47.2, up 1.3 percentage points from last year. And we will come back to the cost side later on. As expected, we continue to see high cash conversion, which was at 89% LTM in the quarter, and is further proof of our strong business model and cash generation in line with the figure in June for 2023. Leverage came in at 0.8 times, rolling 12-month EBITDA, which is the same as the previous quarter, well below the financial target, of course. This is an expected development with the current earnings and an effect of our dividend and, of course, due to the continued return of capital to shareholders through our share buyback program. And I will come back to that topic in a few slides. Let's move to our EBITDA bridge on page 16. As we have mentioned, very strong EBITDA development in the quarter, an increase of 33 million. We have covered the drivers for the revenues earlier in the presentation, so let's instead look at the cost side. The compensation to real estate agents continues to grow and is up 23 million from last year. Worth noting is that the share is increasing slightly as a result of higher conversion, meaning more upselling, but also because more and more agent offices have commission agreements in place, which is promising ahead of the new compensation model starting on 1st of July. Other external expenses, excluding compensation to agents, increased with 1 million. It's a small figure composed of several components, of course. What's pleasing is that we are seeing some efficiency in other expenses and a slight increase in marketing. Nothing major, but a mix we favor at least. Personnel costs increased by 8 million, mainly in effect of recruiting first half year 2023, and of course, salary inflation. There hasn't been significant recruitment over the past three quarters. For example, just one net increase in headcount during the quarter. This may fluctuate between quarters as we succeed in recruiting talent who were previously consulted. In summary, regarding the cost side, we can note that 2023 was a year where we were careful with the cost in investments, driven by the uncertainty, especially in the first half of the year. Two conclusions can be drawn from that. Firstly, we are facing relatively low cost levels in our comps. But more important, we have been very successful in investments and prioritization we made in new products and features. We look forward to continue that trend, meeting our growth plan going forward. Good cost control is an important component when investing in future products and futures, ultimately improving profitability, of course. These are the drivers behind the 120 million in Q1 EBITDA. Moving on to page 17 and some spotlight on the cash flow. If we start with the graph on the left, it shows a rolling 12 figure for free cash flow. Being able to generate such a stable and increasing cash flow is a very strong endorsement for the business in our model. Close to a half a billion Swedish krona in LTM Q1 2024. During Q1, we also bought back 390,000 shares equaling 116 million Swedish krona. The share buyback program announced in April 2023 is hereby completed with slightly over 2 million shares repurchased at a total amount of 450 million Swedish krona. We've stated before that Hamlet's intention is to continue buying back shares and distribute excess cash to shareholders. Now, we await the shareholders meeting on the 25th of April for a decision regarding the cancellation of old shares as well as authorization for future share buybacks. As a final remark, we must keep an eye on our leverage ratio. As you can see, it has remained stable at around 0.8. which is pleasing. Net debt should be viewed in light of our growing EBITDA and thus a stable net debt to EBITDA ratio. And again clearly below the financial target of 2.0. With that I will hand over to Cecilia to wrap things up before the Q&A.

Thanks Anders. So this has been yet another strong set of results from Hemnet as we continue to execute on our strategy for consumers, sellers and business to business. And with that, let's jump into the Q&A.

If you wish to ask a question, please dial £5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial £6 on your telephone keypad. If you are listening to the presentation through the webcast, you can ask a written question using the form on the webcast page. The next question comes from Daniel Oving from Nordea. Please go ahead.

Yes, good morning Cecilia, Anders and Nick and thank you for taking my questions. So first question on the listings and how you talked about the market because it seems like despite the relatively strong rebound you have seen here in the beginning of the year. It seems like you still believe there is a pent up demand here still, which would perhaps mean that strong listings would perhaps continue. Could you talk about a little bit where you see the market is right now, if it's far from balanced again, or where do you see it heading? That's the first question. Thank you.

Thank you, Daniel. So I think for us, it's fair to say that what we're seeing during Q1 is more positive signs. I know we communicated last quarter that we started seeing some more positive signal and more optimistic market, and that has continued throughout, I would say, the first quarter with, for example, looking at our listing volumes, 11%, but also transactions building up in the market with its present, and also more buyers expect prices to go up. With that, I think it's still fair to say that we're not really on the other end, I would say, yet. I think that it's a good trajectory in the start of the year. There will probably need to be more stable positive signals when it comes to interest rates and inflation for it to become fully, if you would call it, recovered or balanced. and we don't give any forecast but we are definitely seeing more positive thickness during Q1.

Perfect thank you very much. Then another question on the expense side here so if we turn to other external expenses so they grew now five percent year-over-year and we have previously seen them falling and they were down throughout 2023 so I just wonder how to think about the rest of 2024 Harry? rather big catch-up that you need on this line or is the kind of five percent growth is around that level that we should think about rest of the year? Any heads up on that would be great. Second question, thank you.

Without giving any forecast I would say that the run rates are a bit higher mostly due to 2023 was not the best comparison year but yeah I would expect a bit higher run rates of the cost, but nothing extraordinary or anything.

Okay, great. Thank you. Just a last question here on average revenue per listing and this seasonality impact that we get from in this quarter, it was a negative down from getting from December but giving from March, but I'm thinking about Q2 then. What would be the impact there? Is that more of a positive impact? I would just be my guess but I don't know maybe you can talk about how that's for Q2 how that should impact.

One thing for sure and that accounting principle won't change so the effect is still going to be there so it depends on how the listing time evolves together with you have to look then how in our weekly listings how big of a month March is compared to June then. And you will have the same effect, but depending on how much listings there are in March versus June. Okay. Okay.

All right. Great. That's all my questions. Thank you very much. Thank you.

The next question comes from William Packer from BNP Paribas Exane. Please go ahead.

Hi there, it's Will Packer from BNP Paribas. Thanks for taking my questions. Three from me, please. Firstly, the EBITDA miss today was primarily driven by the higher than expected commission payments. The percentage of listing revenues paid out was up from 26 to 29% year on year. I suppose it could turn out to be transitory with the changes in the commission model coming in July with better upsell, the key driver. Could you help us think through what your commission payment would have been in then you had the new model already or some kind of qualitative commentary about how to think about the trajectory of commission rates in H2? Secondly, you talked to a doubling of premium product penetration, which is impressive. And you've also commented on the 2023 performance and upsell. Could you give some qualitative commentary around 2024 trends? Is the digital workflow, for example, helping drive an acceleration in upsell? And then finally, transactions and listings are back to growth, but non-listing revenue remains very weak, considering your value add in the marketplace. When should we expect those trends to inflect back to positive growth? Thanks very much.

So, Anders, maybe you can take the first one on the EBITDA, and I can follow up on the conversion and the trends and also the non-listing revenue.

Yeah. The first part of your question when it comes to the EBITDA miss, yes, we did. We're looking at the absolute figures. We saw that the miss on net sales were 3 million, and EBITDA, I think it was 6 or 7. So, very low absolute figures, and as you say yourself, that the main reason is that the Commission to ages were, I think, 2 million more than with the same effective commission as last year. So very small figures. It's difficult to put that. That was the first part of the answer to your question. The other part is what to expect in the second half of the year. We don't know. We have a lot of simulations ourselves. How will the recommendation rates grow, the conversion rates? and how they mix together, that will affect how the commission falls out in the second half year. It's a model that we will incentivize upsell, so hopefully the absolute figures will absolutely go up, I'm sure, but hopefully we can match that with the increase in top line. That's the whole meaning within your composition model. So what would that mean in effective commission, whether it will be 26, 28, 30, we will see in Q3.

Okay, and the second question on HEMNES premium. So we're obviously very happy to see that there's been an increased demand for HEMNES premium and two things also to take with you with the value that we add in that you get in premium. One is obviously increased visibility and increasing the number of potential buyers leading to better sales. The other one is also what we added into it is, you know, free republishing. So those two things have been a key driver for this. And looking into the trends, I think that's what we want, what we addressed also in the presentation was obviously all the different levers we have in order to increase ARPL. So our strategy and our goal is to increase ARPL, and we have several levers. One is definitely products and what we're doing in the products. adding future we might add products over time and so forth and then obviously to your point that you know on the back end of things in the publication flow and how we price and so forth those are also important levers in order to make sure that as many sellers as possible go into the flow and also that you're so we capture some of the growth also there and then we have pricing so we don't disclose how we view things, but I think it's fair to say that you should view all these levers that we also gave more detail around in this presentation as important levers to grow ARPL even in the future. And the third is, yes, it's true that we've seen great growth when it comes to our core business, the listing, while the non-listing revenue, the advertising sale has been declining. Yes, there are still the same story as during last year that we see positive signs with real estate agents adding more of our choosing our more neutral products or integrated products, which is in line with our strategy, that's one thing, but also looking at banks as a customer segment that also have increased their revenue. But two things why those revenues have declined. One is definitely the market, the market sentiment last year, and that kind of continues, especially when you look at property developers, for example. So we talk about market being more positive. There are still, when it comes to marketing investments, some hesitations. And I think that will take some time before we're back on a more normal path. The other one is also coming back to, I would say, also the investments and what we did. So what we communicated last year was that during the market or in that market, we said that we will not push forward with everything at the same time because that's not really sensible we need to make sure that we prioritize our our cost of investments in the right way and we did that so we focus a lot on them our core business the the business to where our listing revenue but also in building and starting to build out the the product for for agents and the native products where we also see a greater appetite so it's also the market is a big But I would also say that we have, by choice, been more cautious on that side. And throughout this year, we'll come back to kind of a more, what do you say, normal pace when it comes to product development. So we foresee the market to stabilize over time and also that we're able to come back to the product development. It's a long answer, but maybe giving some more color.

That's super helpful. That's great. Just one quick follow-up on the previous answer around the run rate on costs. When you talk to a bit higher run rate of costs, do you mean versus Q1 or versus 2023? Thank you.

Yeah, 2023, I would say. So I think it's important to note that last year was not a normal year per se. And we were also very clear when going into that year that due to the market uncertainty, we said that let's be a bit more selective. And we're very happy that the product development investment made last year. I mean, they have really paid off.

So last Thanks for the call. I appreciate it. from Giles Thornton from Jefferies LLC. Please go ahead. Thank you. The first question is on the new consultation model, and it was to prepare comments around the consultation that you've been doing with agents Sounds like feedback's been balanced, if not positive. It would be interesting to hear that when you have had pushback, what has the nature of that pushback been? The second question is picking up on the Hemnet premium thing. and the doubling year-on-year. It's a bit of a simple question, but we've obviously now had two-fourths of a quarter of the payroll removal option for vendors. Is that conversion and again thank you for the prepared materials around awful drivers picking up on the price adjustments one

It looks like you're doing every three months or so a price adjustment sequentially, obviously sequentially because you're changing your price. But those price adjustments sequentially are at mid-single digits, sometimes double digits, a little bit all over the place. So could we have a bit of commentary, please, around how much alpha growth this year will come from price adjustments? That was it.

Thank you. So on the first question on compensation model and questions and potential pushback, I mean, obviously, this is a change to the model, and that also obviously wakes a few questions from the market. I would say that overall it's been good feedback, and I think it's appreciated because it's a more simple model, so it's easier to follow and track, and it kind of makes sense.

in those conversations where we have more of a pushback but there's obviously a few also illusions that I think even more what we're aiming for is a We want that to change behavior. We want more Indians to learn about our products and put time and effort into learning about our products. And also, I recommend the selling of these products. For some agents, they are already there in the sense that they are already on top of, whereas other agents are maybe not as on top of. And obviously, from their point of view, they want to understand more what this actually means. Because for some, this will mean lower pain levels if you don't change your behavior. So those kinds of conversations we've had. But we're very proactive in our communication with families. a lot of time, I would say, from many parts of the organization in both wider communication with, for example, webinars, but also a lot of one-to-one and being very transparent with the business. around how it looks today and how it will look tomorrow. So that's the first question. And I would say when looking at the doubling of the Hamnet premium, the main reason for And this is, I would say, the value we deliver. So I've . In our view, one part of making the process as simple as possible and kind of not putting looking at the barriers to future listing on HMDA, but I would say the main reason for that product growing is because it's a product that's very appreciated by both sellers and it's And third on pricing, and I can start and Anders can jump in if you want to add something also.

I mean, when we look at pricing, we do it in conjunction with, for example, updates on products or other things. We don't disclose how we work with pricing. It's kind of an ongoing. Sometimes we work with pricing on a broader range when it comes to all listings, but also sometimes we are changing depending on certain areas where we feel that we can work with pricing more actively. And I don't know, Anders, if you want to add some more.

No, maybe, yeah. I understand why you're asking. It's not that we have all the answers ourselves because we don't have a fixed price list. It's differentiated. So it may be that we change it due to different uptake, whether it's in pay only thing is removed or the pay now price. But, yeah, we continuously look at that. But, yeah, we'll see how it evolves.

Thank you. And just to come back on the compensation model for complete notes, will there be any changes in the timing and in the structure of the new model? No.

No. No. No. please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the console back to the speakers for any questions and closing comments. So thank you all for listening in and thank you for your questions. Have a good day.