Hemnet Group AB

Good morning and welcome to the presentation of Hemnet Group's results for the third quarter of 2024. My name is Cecilia Beckstruth and I'm the CEO of Hemnet and today I'm joined by Anders Örnul, our 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 these through the provided telephone dialing. Before we jump into the presentation, I want to spend a minute on the front page, which includes a photo that I really like. This is from our recent kickoff in September, where we gathered the entire company for an all-hands workshop to review our product pipeline and growth strategy for the coming months and year. Since I took on the role as CEO, I have seen the company grow and mature into a fantastic organization with many strong and engaged leaders and competent colleagues, who you can see in this picture. So having shown you a glimpse of the people behind our great company, let us start by diving into page two of the financial summaries. In Q3, we delivered yet another strong set of results, especially driven by our continued high demand for our value-added services. A significant portion of the net sales growth came from a doubling in ARPA contributions from Hemnet Premium, underscoring that property sellers are willing to pay more to maximize their chances for a successful sale on Hemnet. The new compensation model was launched on July 1st and has been met with a very positive response. This is especially evident in the growing conversion and recommendation levels from real estate agents and a continued steady increase in the art world. We continue to invest in the future growth of Hemnet, focusing especially on enhancing our returns, improving and expanding our product offering and finding a new base level for marketing and branding investments. With regards to the property market, we saw an increase in the property listing of 3% year on year, landing on levels close to record year 2022. We continue seeing positive signs of a recovering market, but it is also worth noting that there is still a lag in something due to continued high supply and long listing duration. And I will speak more about the property market later on. A final note on our seller products. We have mentioned before that we work with four levers to grow ARPL and product building is one of those. And with the increasing demand for our value-added packages and Hamlet Premium especially, we feel very encouraged to take the next step and expand our offering for preferable sellers in the coming year. Now turning to page three and some comments on ARPL growth. ARPL grew 42 year-on-year. supported by a healthy uptake in demand for Hemel Premium in particular. We saw a step change in the conversion to Platin Premium following the launch of the new compensation model, which is a direct result of agents embracing the new model and seeing the opportunities that arise from it. On the left, you will see that ARPL tends to fluctuate quarter on quarter, and this is due primarily to the listing accounting effect, as well as the various types of properties sold during the year, which is also why I remind you to track trailing LCM articles as the best metric to follow our organic growth in revenue per listing. Now on to page four to cover conversions to value-added services. During the Q1 conference call, I mentioned that the average conversion to Hemnet Plus and Premium for 2023 was approximately 50%. And I'm happy to say that since the announcement of the new compensation model, and especially since the launch in July, we have seen a conversion growth substantially, with an average of two in three sellers selecting to upgrade their listing in Q3, primarily to Hemnet Premium, our most comprehensive listing package. We believe that the key drivers for continued growth and conversion are a combination of agent recommendation, a continued high willingness from sellers to invest in the marketing of their property, and product improvements that we have launched during the last 12 months. As I've said before, the successful rollout of the new compensation model is an important driver of this, and the model sets also the foundation for a clear alignment in our future partnership with agents as we continue to build and expand on our offerings going forward. Now turning to page five for a comment on listing volume. This is a chart that you will recognize from previous quarterly reports showing paid listing on Hemnet along with the central bank policy rates. The listing levels during Q3 are close to 2022, which was a record high quarter for listings, indicating high activity in the property market. We saw a decrease in the central bank policy rate as recently as September, providing further confidence to buyers looking to finance their property. We are approaching a period of tougher comparables during Q4. Still, we believe that the market is showing signs for a continued gradual normalization. With that said, I'd like to turn to page six for another reminder from a previous quarterly presentation about the stability of the Swedish property market. On the left, you can see rolling 12 months of new published listings on Hemnet, a number that fluctuates quite little, especially compared to many other developed property markets. On the right, I have outlined the key drivers behind the stability of the Swedish market, the main one being that Swedes buy to live, as opposed to viewing property as an investment or having the possibility of renting instead of buying. There still exists a significant shortage of supply, especially in our urban areas, and the need to move due to life events will not go away. These fundamentals are still in place as we look beyond the horizon of the property market. Turning now to page seven and some comments on net sales by customer category. Like before, the key growth driver is seller revenue, which grew 46% in the quarter, supported by a 3% growth in listings. Furthermore, we saw a trend reverse, where we are now seeing a slight increase in property developer revenue, despite continued challenges for this market. Real estate agents increased their spend on Hemnet's unique business-to-business products, but decreased spend on display, leading to an overall boost risk. Finally, lower display revenue from advertising led to a slight decline also in the revenue streams. Having covered some of the key revenue drivers, let's just focus the product and start with our logged-in user experience on page eight. Our starting position is very favorable, hemmed to the, in many ways, soon as the Swedish property market, with the largest numbers of sellers, buyers, and agents in one place. With significant room to increase the engagement we have with both buyers and sellers by delivering a more personalized user experience. And why is this important? On the right, you can see some selected metrics showing the increase in engagement from logged-in users. These users spend more time and do more things on Hemnet compared to non-logged-in users. This is why we, for some time, have been investing in a more personalized user experience on Hemnet, with, for example, the launch of MyHome and property valuation, and also upsetting the authentication platform for easier login. I expect this initiative to lead to new opportunities over time and that we will continue investing in this area. Now on to page nine for some comments on our seller products. We have said in the past that our four levers to drive our products, agent relationships, timing of payments and pricing. During the quarter, we've made several product improvements to the seller offering to make these products even more attractive. On the left, we have clarified that upcoming listings are included by default in all our listing packages, which has been the case for a while. But by using upcoming listings in combination with wholesale listings, sellers can increase their chances of driving relevant traffic to their listings. Second, from the left, we have upgraded selling columns. The seller page should track the progress of the property listing on Hemnet. This is important as it is the best page where we can show in black and white the value that Hemnet delivers in terms of clicks to listing, engagement and other relevant metrics and compare those to similar properties for sale. Third from left, we now include renewal in Hemnet Premium regardless of when the listing was upgraded. This is a feature that comes requested from agents and property sellers alike and will add even more incentive to update the listing after the publication. Finally, on the right, and as I've mentioned earlier in this call, we see a high continued willingness from sellers to maximize their listing marketing by increasingly opting into Hamlet Premium. This gives us confidence to expand the product offering to sellers during next year. The high willingness to invest from sellers, coupled with our ability to add value to and expand the product offering to sellers, sets the foundation for future growth going forward. With that, I want to shift focus for my two final slides to focus on some of the key investments, starting with marketing on page 10. We have, as communicated earlier, been increasing our brand and marketing investments throughout this year. And as a reminder, we believe in having a baseline marketing spending in order to continuously reinforce Hemnet's message as the losing property portal in Sweden. This initiative spans from traditional outdoor marketing, as you can see on the left, which is also the largest investment. In addition, we are also investing in digital marketing and social media, both channels with clear and measurable ROI and engaging users. Finally, to the right, you can see that we continue investing in our relationship with agents. The most recent news is that we have launched digital diplomas for top-selling agents that they can use in their own marketing channels, such as social media. We have also opened up a nomination for the highly appreciated Industry Gala Guldhemmet, which is in its sixth iteration since launch and remains a cornerstone in the real estate agent's annual calendar. With that, let's turn to page 11 and the organization lapses. I am proud of how we have scaled and continuously strengthened Hemnet to stay resilient and adaptable throughout my tenure. This remains a key focus of Hemnet's growth and matures. On this page, I've outlined a few changes and updates that we have worked on lately. Our third organization is moving to the next level by embracing a more holistic approach towards real estate agents. In practice, this means that we, apart from selling our business-to-business products, also support and promote our business-to-consumer products, with a great potential in helping our partners improve their business through our data, insights, and products. In recent times, we have also shifted towards a domain structure where each domain focuses on a specific area or customer group for Hemnet, such as sellers, consumers, or agents. This change enables us to increase collaboration, alignment, and pace across the organization and further future proofing up. As I've mentioned before, apps are important areas of investment for us as more high quality traffic is shifted here and we engage both internal and external talent to make improvements into the scalability of this platform. On the right, I have included some of our newly recruited colleagues in leadership positions. They are all bringing in relevant and senior experience into our organization. And I want to highlight that we are in a very privileged position right now with an incredibly high quality of inbound applicants for many of our key roles that we are recruiting for. Hemnet has retained the brand of an appealing and exciting growth company, which is reflected in the high quality of our hires. Cecilia Mettler- And finally, as communicated late August, the board is also searching for my successor, while I have no assets today, I want to iterate that i'm fully committed to ensuring a smooth transition. Cecilia Mettler- And with that I will pass on to Anders with the financial update on page 12.

Anders Fogh Rasmussen, Thank you Cecilia let's turn to page 13 in the financial highlights for the third quarter. As you have heard, we continue to see a positive trend in listing volumes with a three plus increase in listings. Naturally, there's an impact from the previous year's negative volume development, which explained the 11% increase in listings during the first half of this year. Now we meet tougher comparables in the second half of the year. However, we are pleased with the increased activity level. We continue to deliver robust growth, both on the top line and bottom line in Q3. And I'll walk you through the key drivers behind this performance. Starting with net sales on the left-hand side of the page, we recorded an increase of 37% to 372 million. As Cecilia mentioned earlier, we're particularly satisfied on the strong performance in property sales revenue, which grew by 46%, primarily by Orphan. Net sales in our B2B segment decreased by 1% this quarter, which represents our best quarterly result this year, with a strong underlying demand for our add-on services and Hemnet's unique offerings in the B2B space. However, uncertainty remains in the market, particularly among property developers, and many real estate agents are also facing challenges due to extended transaction times. As a result, many investments are on hold, which continues to impact our day-to-day revenue business. It's also worth noting that the average listing time has slightly increased from 43 days in Q2 to 44 days in Q3, based on a rolling 12-month period. The net effect of this extended listing time is a negative 4 million for the quarter. We report this effect all as being equal without factoring in our strong overall growth, essentially with higher net sales, a larger portion of revenues shifts to the next quarter compared to prior pay periods. I can only again repeat that you should also look at the quarterly ARPEL growth as a role in 12-month value to smooth out systematic effects. Now, moving on to the right-hand side, we saw ARPL increase by 42% during the quarter. This growth was given by combination of conversion to added value services, particularly premium, of course, and price adjustments. Our EBITDA came in at 208 million, up 33% compared to the same period last year. We will explore the EBITDA development further on the next slide. The combination of underlying volume growth in ARPL has contributed to highly favorable profit development this quarter. The EBITDA margin was 55.8, down 1.6% points from last year, and we will discuss the cost structure in more detail shortly. As expected, cash conversion remained high, though it was impacted by a negative change in working capital over the past 12 months. Partly due to the launch of Payment Listing is Removed feature, GIL model, which we introduced exactly one year ago today. GIL, of course, delays payment from property sellers, which all else being equal increases working capital requirements. Leverage ended at 0.6 times, rolling 12 months EBITDA, an improvement from the previous quarter and well below our financial targets. While this was expected, it's encouraging to see leverage decline even if we maintain our capital allocation strategy and execute an attractive share by the program. Finally, our headcount actually decreased year-on-year in the quarter, which is due to a more technical factor. Last year, we had a significant number of employees on parental leave. many of whom were temporarily replaced by substitutes impacting the actual headcount in Q3 last year. We will dive into personal cost later as they form an important part of our overall cost base. Let's move to our EBITDA bridge on page 14. As previously mentioned, we once again experienced robust EBITDA growth this quarter. While we already discussed the key revenue earlier, Key revenue drivers earlier in this presentation, it seems to get caught up in the milestone figure of 100 million per quarter. However, it's important that we shift our focus to the cost side of the equation. The key focus this quarter, as anticipated, is the compensation to real estate agents. To recap, this compensation is based on the administration fee for the base listing, that's a fixed amount of 600, which is krona. In addition, there is a commission tied to the recommendation of VASPA. Depending on the volumes of sold recommendations, the commission ranges between zero and 30% calculated on total revenue. Still early days, but for now it's clear that the agents have embraced the new model. And the uptake, which began in the first half year, has not only continued to grow, but accelerated further in the Q3. In absolute terms, the cost increased by 31 million. This increase is for the right reasons, driven by high conversion rates and increased recommendation levels. The key metric to track here is the effective commission, which stood at 28.8 this quarter. This is slightly higher than in Q3 2023, but lower than the previous quarter. Other external expenses, excluding agents' compensation, increased by close to 7 million. This rise can largely be attributed to increased marketing activity, we just heard, alongside marginally higher consulting fees. These costs total at 27 million in the quarter, indicating a relatively small base on which these expenses grew. We have consistently communicated our plans to increase our marketing efforts throughout the year, and the trend will continue. Examples on slide 10 represent key initiatives in this area. Other external expenses are composed of various elements and tend not to fluctuate significantly between quarters. Lastly, the increase of 9 million in personal costs requires some clarification. This increase is primarily due to a high number of full-time employees, fewer employees than parentally during 2024, And remember, from a cost perspective, 2023 was a year characterized by prudence in both cost investments largely driven by the uncertainty. Altogether, these factors are the primary contributors to the 208 million EBITDA in Q3. Moving on to page 15 and some spotlight on the cash flow. Let's begin with the graph on the left, which illustrates a rolling 12-month figure for the free cash flow. The ability to generate consistency, stable and growing cash flow serves as a strong validation for both our business performance and our business model. After Q1 2024, a rolling 12-month cash flow stands out nearly half a billion sec and is now on track to increase by an additional 100 million, approaching 600 million. In the third quarter, we repurchased 334,000 shares, amounting to 125 million. This follows the launch of the buyback program in May, approved by the 2024 AGM. The current program is set at 450 million and will extend until the 2025 AGM. As previously communicated, Hemnet remains committed to returning excess capital to shareholders through ongoing share buybacks and dividends. Moving on to net debt, it should of course be viewed in the light of our growing EBITDA, thus ensuring 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 the consequence of a strong cash flow. It is, of course, clearly below the financial target of below two. In closing, we are pleased to present strong quarterly results today. It is encouraging to see that both transaction volumes and property sellers' willingness to upgrade the listings are driving revenue growth. Additionally, our revised compensation model, which has been well received by the real estate agents, is contributing positively to our results as anticipated. On the cost side, we have ramped up activities focused on driving long-term results. Despite this increased investment, we have still achieved EBITDA growth of 33%, 52 million, a highly favorable outcome. With that, I will hand it over to Cecilia to wrap things up before the Q&A.

Thank you, Anders. I'm very proud to be able to present another step of very strong results underpinned by a well-executed launch of our new compensation model. We have a broad pipeline of exciting product initiatives and our consumers and sellers alike that will support continued growth looking ahead. And before jumping into the Q&A, I also want to take the opportunity to acknowledge that this report is the last report for Nick Lundvall, our IR manager. before he leaves for new adventures. Nick and I, we have worked closely together for seven years, and I would like to thank him for his high commitment, engagement and contribution to Hemnet and for a great collaboration. And I wish him the best of luck going forward. In January, we are welcoming his replacement, Ludvig Sigelmark, who will be a great add-on to the team. With that, let's jump into the Q&A.