Hemnet Group AB

Good morning and welcome to the presentation of Hemnet Group's results for the second quarter of 2024. My name is Cecilia Beck-Friis and I'm the CEO of Hemnet and today I'm joined by Anders Örnulf, Chief Financial Officer and Nick Lundvall, our IR Manager. And as always, there will be an opportunity to ask questions at the end of the presentation. Please follow the operator's instructions to ask this through the provided telephone dial-in. Before going to the financial summary, I'd like to spend some time on page two to share some thoughts on our market position. Hemnet is Sweden's largest property portal and has been since our inception in 1998. We have significantly more unique users, visits, and engagement per listing than the second closest player in the market. Our leading views per listing is especially important as we consider the value we provide to property sellers. No other portal can offer a more cost-effective way for sellers to reach the largest number of potential buyers for their property. Furthermore, we estimate that 60% of our visitors are in an active search process, meaning they are likely to transact if they find the right property. This means that we can create unparalleled value to sellers looking to market their property to the largest number of potential buyers and to agents, property developers, and other advertisers looking to be seen by a large number of active property buyers. Turning to page three for a quick word on Hemnet's share of property sold. We sometimes refer to the fact that nine in ten properties sold in Sweden are listed on Hemnet in a given year. This is a key statistic as it highlights the importance of Hemnet in the Swedish property market, illustrating that even though they have been talked about off-market or pre-market, most transactions occur via Hemnet. New data published by Statistics Sweden confirms that also in 2023, 9 in 10 properties sold in Sweden were listed on Hemnet. This is based on preliminary figures from Statistics Sweden that will be ratified in 2025. important to note that this percentage may fluctuate over time, especially in hot or cold markets, but for as far back as we have data, the figures have been stable around the current level. Now turning to page four and the summary of Q2. Hemnet's strong results for the second quarter were mainly driven by higher demand for our value added services from property sellers. We also benefited from a steady increase in the number of published listings as the positive trends in the property market continued, with more properties for sale, more transactions, and increasing property prices. Revenue from property sellers increased 68%. This is largely demand-driven, as more sellers choose a plus or premium package for their listing, driven not only by the value that these products provide, but also the launch of the full digital flow ability to pay for a listing when it's been removed from Hemnet, and of course, our win-win relationship with the agent industry. We've also seen a 10% listing growth in the quarter, further supporting our net sales growth. The portion of ARPL coming from our value-added services more than doubled compared to last year, underscoring that our growth is demand-driven as opposed to reliant on price adjustments. The new compensation model was launched on July 1st with a launch going at plan. That, coupled with the launch of our full digital flow in May, will be a key driver for future artful growth as we continue executing on our strategy. Many of our business-to-business customers, especially property developers, are still impacted by macroeconomic factors. We are seeing some positive development in the property market, but we need time for this development to convert into increased sales and commissions for property developers and agents, respectively, before we see a higher willingness to invest in product and branding from these groups. Nonetheless, we continue to see potential to use our unique data and market position to develop products for these customers. The prevalence of 50 on this page is not a typo, but a testament to the strong financial quarter that we deliver. We delivered 51% net sales growth, a growth in average revenue per listing of 52%, a growth in EBITDA of 54% and an EBITDA margin of 53.4%. And I'm very proud of these results as it underscores the fantastic business model of Hemnet and our ability to execute. as we continue to expand our product offering, in particular to property sellers and real estate agents. Now turning to page 5 to dive deeper into our main growth driver, ARPL. Growth this quarter came mainly from more property sellers choosing to buy a plus or premium listing than last year, resulting in an ARPL growth of 52%. On the right of this page, you can see a reference to the product and purchasing flow in the first bullet point, And I'd like to expand on what we mean by this. With regards to product investments, improving the product and purchasing experience of this is key to our art of growth strategy. Since last year, we have launched the ability to pay for a listing after sale, pre-republishing of a listing, including in premium, and soon we will launch the ability to purchase value-added services on invoice or to upgrade listing from plus to premium. The purchasing flow was completely overhauled in May of this year, meaning that now almost all property sellers have to make an active package choice before their listing is published on Hemnet. As soon as the quarter's strong financial, this was an important contributor to our ARPA growth. Finally, it does dismiss to say that the majority of our property sellers buying Plastro Premium are satisfied with the product, meaning that we are still in a very good place when it comes to the return on your Hemnet investment for property sellers. Now turning to page six for an update on the property market. This quarter, we benefited from a steady increase in the number of published listings as the positive trends in the property market continued with more properties for sale, more transactions and increasing property prices. The number of listings published on Hemnet grew 10% in Q2. At the same time, the number of transactions grew 16%. Price expectations remain high with approximately half of all buyers and sellers expecting prices to increase in the next six months. The rest expect prices to remain unchanged as only one in 10 expected decline. Last time we had such positive expectations was in the winter of 2020 and the spring of 2021. In terms of macro, inflation came in below both Riksbankens target of 2% and below consensus at 1.3%. We've already seen the first rate decrease in May of this year, but the recent inflation numbers paved the way for further decreases and a more confident and active property market. Now on to page 7 for net sales per customer group. Net sales from property sellers is up almost 70% and continues to be the main growth driver of the business. We've covered the drivers already. More demand for our value-added products in combination with a 10% listing volume growth. So let's talk about the business-to-business net sales category. Net sales from other customers decreased by 6.2%, which is primarily due to lower display revenue. While we are seeing some positive signals in the market, we believe that more transactions need to happen, both for agents and property developers to be comfortable in increasing their discretionary marketing spend. Revenue from bank integration, on the other hand, continues to increase after revenue from value-added services for real estate agents. In part, this is due to our new products that help agents connect with potential sellers. Okay, let's shift focus to some product and company updates, starting with page eight. We successfully launched our new compensation model on July 1st, and the first quarter where commission will be based on the new model is therefore this quarter, Q3, with the first payout based on the new model happening shortly after the end of Q3. The new model further strengthened the alignment between Hemnet and our most active partners to create the win-win situation. In order to make it easier for agents, specifically office managers, to track their historical and future compensation, we have launched a new dashboard. Some of these features will be launched in the near future. On the left and right side of this page, you can see examples of our new commission dashboard that is available to office managers through the Hemnet customer portal. On the left is an example of what an office manager sees to track the progress to the next commission level. Top right is an example of how an office manager can track the performance of individual agents belonging to that office when it comes to listing recommendations and upgrades. Bottom right is a chart showing historical commission and administration repayments to remind office managers of the total compensation that Hemnes has recently paid out to them. We strongly believe that the new compensation model is a win-win for real estate agents on Hemnet. The new model is designed to give agent offices who are active partners even better possibilities to earn more from their partnership with Hemnet. And we see this as one of many opportunities to strengthen our relations with the industry. And now let's turn to page nine for a brief product update. This is a non-exhaustive list of a number of key initiatives where we are investing time and money this past quarter. The purpose of this is to give you a sense of some of the areas that we are currently prioritizing in product development, especially when it comes to usability and consumer improvement. First of all, we have rebuilt our map experiences from the ground. At first glance, this might not be a significant change, but over time users should appreciate the smoother, faster and more responsive search experience. The updated code will also allow us to add layers such as new functions and products on top of the existing map search in the future. Secondly, we have retained a team of app developers to make some significant changes to the scalability and pace of our app development. Apps drive a large portion of our traffic, but we need to do some more work to get usability and development paid up. Going forward, we expect that this will enable us to work faster in our app development to bring products and new features to apps faster than before. Finally, we are investing in fixing some of the pain points that real estate agents may experience on Hemnet. This is an important initiative as we continue focusing on being a critical partner to the real estate agent community. Some examples here include the new commission dashboard that I showed earlier. We're also integrating seller leads straight into the agent's own CRM and some changes to plus and premium that have been requested by a number of agents, especially when it comes to payment and purchasing flow. And I want to emphasize again that this is a non-exhaustive list of some of the product initiatives and investment areas we are focusing on today. Beyond this, we continue to work on making Hemnet the best property portal for our visitors, improving our value-added products for property sellers, and leveraging our uniqueness and brand to create products for our business-to-business customers. Turning to page 10 for my last slide that covers brand and marketing. While we enjoy one of the strongest brands in Sweden and the top five brands in the media category, we consider it important to keep investing in building our brand both through product and marketing investments. Not only is baseline marketing spend best practice in the industry, but we have also made significant changes to our product offering in the past few years and to remind our consumers about our updated offering and the value that we deliver. Thus, we have upgraded some of our marketing efforts during the spring. Firstly, we did an outdoor campaign in Stockholm with the intention of expanding it to more cities after the summer. Secondly, we upgraded our social media work by updating our existing channels, such as Instagram and Facebook, but also adding new channels, such as TikTok, to reach a younger audience. Thirdly, we are investing in CEO and CEM, using external expectations to ensure our investment yields the highest ROI. And finally, we invest time and money into physical events, especially those focused on real estate agents, such as annual meetings, roadshows, afterworks, and so forth. to get our message across to the agent in a less formal setting and strengthening our relationship with the industry. And that is it from my section, and I will now hand over to you, Anders, to dive deeper into the financial.

Thank you, Cecilia, and good morning, everyone. Let's turn to page 12 of the financial highlights for the second quarter. As you have heard, we see a similar development in published listings in Q2 as we did in Q1. We started the year with an 11% higher number of listings compared to the first quarter of 2023. This trend continues in Q2 with a 10% increase in published listings. With double-digit underlying volume growth, we are experiencing a strong financial impact in our core business. With a solid Q1 behind us, growth accelerates further into Q2, and we will take you through the what and why. Starting on the left-hand side of this page, we have net sales increasing by over 50% to 405 million. As Cecilia mentioned earlier, we want to highlight the strong development in our property sales revenue, which increased by 68%, given by the upward growth, of course. It is also worth noting that due to the increased average time our listings are active, we moved from 42 days in Q1 to 43 days in Q2. And remember, this is a rolling 12-month number, so in a normalized market, it doesn't change that quickly. There are two effects to consider with the increase in listing time. One, the revenues in Q2 are recognized over 43 days, meaning more revenues are moving to next quarter compared to last year. But also, more revenues also shifted into Q2 from March 2024 compared to March 2023. And since March is a significantly larger month than June, the overall effect becomes positive. The net effect of the increased listing time is plus 6 million for Q2. It is worth noting also that with increased listing times, the seasonal effect is strengthened in our quarters. As always, we communicate this effect all else being equal, so we don't take into account that with our strong growth, which in itself means that with larger net sales, a larger proportion of revenues move to the coming quarter compared to previous year. I would recommend looking at the quarterly ARPA growth as an LTM value to smooth out some of the seasonal and in the report as well. Moving then to the right, we saw operating increasing by 52% in the quarter. The drivers saw a combination of conversion to our more expensive value-added services, price adjustments across all seller products, and a small effect of the increase in listing time. Our EVTA came in at 260 million, up 54% from last year. We will dive into the EVTA development on the following slide. combination of underlying volume growth and are also resulting in a very favorable profit development in the quarter. The EBITDA margin came in at 53%, up 1% this point from last year, and we will discuss the cost side later. As expected, we continue to see a high cash conversion, which was 91% LTM in the quarter, in line with the figure of Q4 2023. Cash conversion was impacted by a negative change in volume capital for the last 12-month period. That change in volume capital is mainly due to all has been equal. Leverage came in at 0.7 times, rolling 12-month EBITDA, which is an improvement versus the previous quarter, and well below the financial target. This is an expected development for the current earnings, and it's also due to our dividend and the continued return of capital to shareholders through our share buyback program. And I will release that topic in a few slides. Let's move to our EBITDA bridge on page 13. As we have mentioned, there's been a very strong EVGA development in the quarter, with an increase of 76 million. We've already discussed the drivers of revenue earlier in the presentation, so now let's turn our attention to the cost side. Compensation to real estate agents continues to grow, up by 48 million quarter on quarter. It's worth noting that the share is increasing as a result of higher conversion, meaning more upselling from agents, but also because more and more agents offices have commission agreements. This is very promising ahead of the new compensation model that was launched 18 days ago, actually. This represents an incremental increase of two percentage points in effective commission, which is important to keep in mind. In total, this amounted to a cost of 107 million in the quarter. Other external expenses, including compensation to ages, increased by 5 million, This increases due to high marketing activity, both digitally and offline, as well as slightly higher consulting costs. You saw some examples earlier in the presentation of what we invested in Q2, and we will continue up in the summer without destabilizing our P&L, of course. Our external expenses are composed of several components, but we are satisfied with the mix. The last explanation points require some clarification to fully understand the increase of 10 million can be translated to 21% increase in personnel costs. The underlying factor behind the personnel cost increase is that the FTE increased by 50 quarter-on-quarter compared to the number of employees at the period end, only increasing by four. The difference, the FTE increase, can be explained by low number of employees on parental leave due in 2024, as well as recruitments made in 2023. Additionally, part of the increase is also due to salary inflation. In summary, regarding the cost side, we can note that 2023 was the year when we were careful with our cost given by the uncertainty at the moment. This is in the first half of the year. And the two conclusions are, first, we're facing relatively low cost levels in our comparison figures. But more importantly, we've been very successful in investments and privatizations we've made in new products and features. And we look forward, of course, to continue that trend to meet our growth plans going forward. These are the drivers behind the 260 million in Q2 ETA. Moving on to page 14 in some spotlight the cash flow if we start with the graph on the left it shows a rolling 12-month 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 the business model close to half a billion swedish krona ltm in q124 is now increasing to 578 million q2 you and q2 we bought back 333 000 shares equaling 104 million swedish krona The 450 million shares by the program announced after the 2023 AGM was completed during April this quarter, and a new program was launched in May after the decision by the 2024 AGM. The new program also announced the 450 million and will run into the 2025 AGM. Further, the 2024 AGM also decided on the cancellation of 2.1 million shares bought back under previous programs equal to 2.2 of outstanding shares at the launch of the previous We have stated before that Hemnet's intention is to continue to bind back shares and distribute excess cash to shareholders. Of course, we must keep an eye on our leverage ratio. Net debt should always be used in the light of a growing EBITDA, thus ensuring a stable net debt to EBITDA ratio. As you can see, it has remained stable for some time, but it's now slowly decreasing, which is a consequence of our strong cash flow. It is, of course, clearly below the financial target of 2.0. As a final remark, we are delivering a strong quarter presentation today. It is gratifying to see that a combination of volume and conversion is driving the revenues. On the cost side, we have higher activity aimed at driving future results. Despite this, we have achieved an EBITDA growth of 54% and 76 million in absolute sales. A very favorable equation indeed. With that, I will hand it 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 consumer, sellers and business to business. And I am particularly proud that this quarter's growth was supported by the results of our many initiatives to make our product offering as attractive for property sellers and agents as possible. With that, let's go straight into the Q&A.