Earnings Release • Apr 29, 2014
Earnings Release
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Paris, Tuesday, 29 April 2014
New home reservations up in volume and value
External growth: Oralia acquisition announced in December 2013 and finalised on 1 April 2014; PERL acquisition announced on 17 March, expected to finalise by the end of first-half 2014 if approved by French Competition Authority
1Revenue basis – previous 12-month period
2 Indicators measured using accounting methods comparable with 2013, without neutralising the share of revenue or profit earned by the Group in joint development operations. These targets take into account the consolidation of Oralia as of 1 April 2014, but do not include the impact of the potential acquisition of PERL, which remains subject to consent from the French Competition Authority. 3
FY 2013 consolidated revenue: €2,737 million
"Amidst a challenging market environment, Nexity had a satisfactory first quarter in terms of reservations, recording an increase compared to the first quarter of 2013. The Group confirms its targets for 2014 and maintains its outlook unchanged.
The market for new homes in France contracted for its third consecutive year, stabilising at a very low level (87,700 reservations, well below the annual average of 107,000 recorded between 2003 and 2013). Although French governments have systematically emphasized a need for 500,000 new homes annually (which would imply a private development market of around 200,000 residential units per year), the country's constant legislative and tax reforms do not point towards a recovery in housing starts in the short term.
The ALUR Act on housing access and urban regeneration has been voted in. But nearly 200 implementing decrees still need to be written. Anticipation of these decrees, and some of their more stringent announced content, has only served to intensify the market's stagnation. Although the Prime Minister, Manuel Valls, has positioned the recovery in housing starts as one of his two priorities – which is completely understandable since, apart from the pressing need for housing in France's largest metropolitan areas, new homes drive growth, employment and confidence in the economy – it seems as if the government has not fully realised that in order to spur a market recovery, an increase in supply must be combined with enhanced financial capacity on the demand side.
In the coming months, the government would therefore need to put in place new measures: to stimulate demand, encouraging institutional and individual investors as well as first-time home buyers to return to or enter the market in larger numbers; and, at the same time, to boost supply by facilitating the availability of buildable land and increasing density, all with the support of simplified building regulations.
These initial indications do not suggest any adjustment in Nexity's market forecasts for 2014 and 2015. We thus reiterate our expectation of a new home market stabilising at around 90,000 units in 2014 and early 2015.
And yet, Nexity is more dynamic and forward-looking than ever, resolutely positioned to seize growth opportunities in a challenging market and to set itself apart through its focus on innovation. In real estate services to individuals, the acquisition of Oralia, which has now been finalised, will allow Nexity to consolidate its market position and significantly improve this segment's profitability. In residential real estate, the acquisition of PERL in partnership with its senior management offers an unprecedented opportunity to step up Nexity's growth by enhancing the Group's product range, distribution channels and position as a preferred partner for social housing operators, and soon institutional investors as well. More generally, Nexity's unique strategy, based on integrating real estate development and services to individuals, offers considerable potential for synergies and innovative offerings that will benefit clients.
With a strong balance sheet and a return to a more "orthodox" financial strategy, based on a reasonable level of debt in 2014, Nexity plans to continue developing its activities and integrating its business lines within the Group, so as to best serve both its clients and its shareholders."
In the first quarter of 2014, Nexity recorded revenue of €505 million, down 14% compared to the first quarter of 2013, in line with Group expectations. This €82 million decrease was mainly due to a reduction in percentage-of-completion revenue in Commercial real estate (down €59 million from the first quarter of the previous year).
| € millions | Q1 2014 | Q1 2013 | Change % |
|---|---|---|---|
| Residential real estate | 340.7 | 364.1 | -6.4% |
| Commercial real estate | 55.4 | 114.0 | -51.4% |
| Services and Distribution Networks | 106.6 | 107.4 | -0.7% |
| Other activities | 1.9 | 1.1 | +71.3% |
| Total Group revenue* | 504.6 | 586.5 | -14.0% |
* Revenue from VEFA (off-plan) and CPI (development contract) sales in the Residential (France) and Commercial divisions is recognised using the percentage-of-completion method, i.e. on the basis of notarised sales pro-rated to reflect the progress of committed construction costs.
Nexity applies IFRS 10, 11 and 12 as of 1 January 2014. The application of these standards has had no impact on the Group's scope of consolidation or its revenue recognition at this time, because the Group believes that codevelopment activities should continue to be proportionately consolidated under the interpretation of said standards. This is nonetheless a current topic of debate at the IFRS Interpretations Committee, which had not rendered any interpretation as of 31 March 2014. Were the IASB and IFRS IC to conclude that co-development activities should be accounted for using the equity method, the Group's first-quarter 2014 revenue would come to €454.4 million, as opposed to €534.0 million in first-quarter 2013, a decrease of 15%.
In France, mortgage rates remained historically low and continued to decline in the first quarter of 2014 (3.00% on average4 in March, excluding insurance, versus 3.08% on average in fourth-quarter 2013), thus remaining a positive support factor for demand in the real estate market. At the same time, bank lending conditions appeared to tighten, resulting in a slightly higher rate of reservation withdrawals.
In first-quarter 2014, in France, the Group recorded a 9% increase in the volume of net new home reservations compared to the previous year, for a total of 1,815 reservations. This remains significantly lower than 2010 and 2011 figures. In correlation, the value of net new home reservations was up 8%.
The reason for this growth is essentially that twice as many units (1,154) were launched compared to a very low base in Q1 2013, when volumes suffered from the release of revised buy-to-let investment terms under the new Duflot law, causing certain project timelines to be reworked. The Group does not anticipate that new project launches over the year will exceed 2013 levels.
| New home and subdivision reservations - FRANCE (units and €m) | Q1 2014 | Q1 2013 | Change % |
|---|---|---|---|
| New homes (number of units) | 1,815 | 1,660 | +9.3% |
| Subdivisions (number of units) | 326 | 370 | -11.9% |
| Total new home and subdivision reservations (number of units) | 2,141 | 2,030 | +5.5% |
| Total new home reservations (€m incl. VAT) | 353 | 327 | +8.1% |
| Subdivision reservations (€m incl. VAT) | 29 | 28 | +4.7% |
| Total new home and subdivision reservations (€m incl. VAT) | 382 | 355 | +7.8% |
The first quarter was marked by a significant increase in sales to individual investors (+21%), during a time of the year when less appetite is usually observed for buy-to-let products. One reason for this was that investors are now more familiar with the Duflot system. Reservations by home buyers were also up (+10%). In total, sales to private individuals were up 15% from the previous year.
Reservations by professional landlords, however, were down slightly, although this does not suggest a lower level of activity in this client segment for the year as a whole. Lastly, the announcement of new "intermediate" social housing measures has so far not impacted the market.
4 Source: Observatoire Crédit Logement
| Breakdown of new home reservations by client – FRANCE (number of units) |
Q1 2014 | Q1 2013 | Change % |
|
|---|---|---|---|---|
| Home buyers | 642 | 35% | 585 35% |
+9.7% |
| o/w: - first-time buyers | 498 | 27% | 481 29% |
+3.5% |
| - other home buyers | 144 | 8% | 104 6% |
+38.5% |
| Individual investors | 627 | 35% | 518 31% |
+21.0% |
| Professional landlords | 546 | 30% | 557 34% |
-2.0% |
| Total new home reservations | 1,815 | 100% | 1,660 100% |
+9.3% |
The average price including VAT per home was down 1.3%, as effective cost control kept a lid on selling prices and boosted clients' purchasing power.
| Average sale price & floor area* | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Average price incl. VAT per sq.m (€) | 3,879 | 3,811 | +1.8% |
| Average floor area per home (sq.m) | 58.2 | 60.1 | -3.1% |
| Average price incl. VAT per home (€k) | 226.0 | 229.0 | -1.3% |
* excluding bulk sales and Iselection sales
Unsold completed stock held by the Group remained minimal, amounting to 85 homes at 31 March 2014. The average presale rate recorded at the time construction work was launched stayed very high (73% on average). The business potential5 of the Residential real estate division for new homes totalled 23,400 units at 31 March 2014, up slightly from year-end 2013.
Subdivision reservations totalled 326 units, representing a 12% decline compared to the first quarter of 2013, while the average price of net reservations from individuals was up 7% to €81k as a result of the geographic mix of sales, more of which occurred in the Paris region.
In International business, reservation volumes were not significant over the quarter.
• Transaction volumes in the French commercial investment market during the first quarter of 2014 amounted to €3.5 billion, up 35% compared to the same period in 2013. This was thanks to the completion of numerous transactions initiated at the end of 2013, and one €1.3 billion deal (acquisition of Cœur Défense by Lone Star). As euro zone worries subside and investors become increasingly wary of emerging market instability, the outlook for first-half 2014 suggests that investments may reach a level above €10 billion, versus the €15.5 billion achieved over all of 2013 (source: CBRE).
5 Includes the Group's current supply for sale, its future supply corresponding to project phases not marketed on acquired land, and projects not yet launched associated with land secured through options
In Real estate services, the portfolio of units under management for individual clients amounted to 792,000 units at 31 March 2014 (attrition limited to 1.7% compared to year-end 2013). The major efforts undertaken to boost sales effectiveness in the property management business are not yet reflected in that activity's results. The Oralia acquisition, completed on 1 April 2014, will grow the property management portfolio by approximately 165,000 units in the second quarter.
In real estate services to companies, total floor space under management amounted to 12 million sq.m at 31 March 2014, up 5.6% from end-2013.
In Distribution Networks, the number of provisional sale agreements recorded in the first quarter by Century 21 and Guy Hoquet l'Immobilier was down 4% compared to the same period last year.
At 31 March 2014, Nexity's urban regeneration business (Villes & Projets) had land development potential totalling 615,100 sq.m, up 10% ( 58,230 sq.m) from end-20136 .
In line with its ambition to rebuild its land portfolio with high-potential deals, the Group acquired its first plot in Montreuil (Paris region) during the first quarter of the year, as part of the Acacias project. The Acacias project in Montreuil's upper district is a large-scale development aimed at converting brownfield sites once used to store drinking water into a new city neighbourhood that will thrive on a combination of social and functional diversity.
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6 Floor areas are provided for information purposes only and may be subject to adjustment once administrative authorisations have been obtained.
| € millions, excluding VAT | 31 March 2014 | 31 Dec. 2013 | Change % |
|---|---|---|---|
| Residential real estate – New homes * | 2,631 | 2,604 | +1.1% |
| Residential real estate – Subdivisions | 252 | 265 | -4.9% |
| Residential real estate backlog | 2,883 | 2,869 | +0.5% |
| Commercial real estate backlog | 457 | 486 | -6.0% |
| Total Group backlog | 3,340 | 3,355 | -0.4% |
* including International business
The Group's order backlog at 31 March 2014 amounted to €3,340 million, very close to what it was at year-end 2013 and equivalent to 18 months' revenue from Nexity development activities7 .
7Revenue basis – previous 12-month period
Confirmed proposal to distribute a dividend of €2 per share in respect of 2013. The Company is considering proposing next year to shareholders to renew the same dividend
***
| Shareholders' Meeting | Tuesday, 20 May 2014 | |
|---|---|---|
Meeting: |
2013 dividend, subject to authorisation granted by the Shareholders' | |
| o | Ex-dividend date | Thursday, 22 May 2014 |
| o | Payment date | Tuesday, 27 May 2014 |
| H1 2014 Business activity and results | Thursday, 24 July 2014 |
A conference call on Q1 2014 revenue and business activity will be held in English at 19:00 CET on Tuesday, 29 April 2014. Access code: Nexity or 2639023, at the following numbers:
| - | Dial-in number (France) | + 33 (0) 1 76 77 22 20 |
|---|---|---|
The presentation accompanying this conference call will be available on the Group's website as of 18:45 CET, at the following address:
http://www.media-server.com/m/p/qbzqmaof
Playback will be available starting the next day at http://www.nexity.fr/immobilier/groupe/finance/slides-show.
8 Indicators measured using accounting methods comparable with 2013, not neutralising the share of revenue or profit earned by the Group in codevelopment activities. These targets take into account the consolidation of Oralia as of 1 April 2014, but do not include the impact of the potential acquisition of PERL, which remains subject to consent from the French Competition Authority. 9
FY 2013 consolidated revenue: €2,737 million
The information, assumptions and estimates that the Company could reasonably use to determine its objectives are subject to change or modification due notably to economic, financial and competitive uncertainties. Furthermore, it is possible that some of the risks described in chapter 4 of the Document de Référence, filed with the AMF under number D.14-0304 on 8 April 2014 could have an impact on the Group's activities and the Company's ability to achieve its objectives. Accordingly, the Company cannot give any assurance as to whether it will achieve the objectives described, and makes no commitment or undertaking to update or otherwise revise this information. This press release is considered to be a Quarterly Financial Report as defined in the Transparency Directive transposed by the AMF.
AT NEXITY, WE AIM TO SERVE ALL OUR CLIENTS AS THEIR REAL ESTATE NEEDS EVOLVE
Nexity offers the widest range of advice and expertise, products, services and solutions for private individuals, companies and local authorities, so as to best meet the needs of our clients and respond to their concerns.
Our businesses – transactions, management, development, urban regeneration, advisory and related services – are now all fully client focused, optimally organised to serve and support our clients. As the benchmark operator in our sector, we are resolutely committed to all of our clients, but also to the environment and society as a whole.
Nexity is listed on the SRD and on NYSE Euronext's Compartment A Member of the indices: SBF80, SBF120, CACMid60, CAC Mid & Small and CAC All Tradable Ticker: NXI - Reuters: NXI.PA - Bloomberg: NXI FP ISIN code: FR0010112524 ______
Nexity:
______
Florence Hocdée-Leroy, Head of investor relations / +33 (0)1 85 55 15 49 - [email protected] Blandine Castarède - Director of comunication and brand strategy / +33 (0)1 85 55 10 89 - [email protected] Isabelle Sabah - Press contact / + 33 (0)1 85 55 13 31 - [email protected]
| 2014 | 2013 | 2012 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Units and € millions | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||
| New homes | 1,815 | 3,581 | 2,099 | 2,781 | 1,660 | 3,052 | 2,506 | 2,776 | 1,857 | ||
| Subdivisions | 326 | 765 | 448 | 521 | 370 | 950 | 417 | 474 | 491 | ||
| Total | |||||||||||
| (number of units) | 2,141 | 4,346 | 2,547 | 3,302 | 2,030 | 4,002 | 2,923 | 3,250 | 2,348 | ||
| New homes | 353 | 653 | 438 | 546 | 327 | 575 | 447 | 520 | 318 | ||
| Subdivisions | 29 | 64 | 39 | 40 | 28 | 75 | 33 | 37 | 37 | ||
| Total (€m incl. VAT) | 382 | 717 | 477 | 586 | 354 | 650 | 480 | 557 | 355 |
| € millions | Q1 2014 | Q1 2013 | Change % |
|---|---|---|---|
| New homes | 298.9 | 324.0 | -7.7% |
| Subdivisions | 24.9 | 30.8 | -19.0% |
| International | 16.9 | 9.3 | +81.6% |
| Residential real estate | 340.7 | 364.1 | -6.4% |
| Commercial real estate | 55.4 | 114.0 | -51.4% |
| Services | 99.2 | 100.2 | -1.0% |
| Distribution Networks | 7.4 | 7.2 | +2.2% |
| Services and Distribution Networks | 106.6 | 107.4 | -0.7% |
| Other activities | 1.9 | 1.1 | +71.3% |
| GROUP | 504.6 | 586.5 | -14.0% |
| 2014 | 2013 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| € millions | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Residential real estate | 340.7 | 636.2 | 391.8 | 440.0 | 364.1 | 654.7 | 404.7 | 399.2 | 396.8 |
| Commercial real estate Services and |
55.4 | 97.5 | 111.4 | 130.5 | 114.0 | 204.3 | 126.2 | 105.2 | 81.8 |
| Distribution Networks | 106.6 | 115.2 | 109.9 | 113.0 | 107.4 | 120.0 | 112.8 | 112.1 | 107.8 |
| Other activities | 1.9 | 1.7 | 1.8 | 1.6 | 1.1 | 1.3 | 1.7 | 1.2 | 1.4 |
| Revenue | 504.6 | 850.6 | 614.9 | 685.2 | 586.5 | 980.2 | 645.6 | 617.6 | 587.9 |
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