HusCompagniet A/S (HCE.F) Earnings Call Transcript & Summary

Welcome to HusCompagniet Company Holdings Interim Report for the first 6 months of 2025. Today's call is being recorded. [Operator Instructions] I will now turn the call over to your speakers. Please begin.

Good morning, and welcome to the presentation of HusCompagniet Financial Results. I'm Martin Ravn-Nielsen, CEO of HusCompagniet. And as usual, CFO, Allan Auning-Hansen is with me today on this call. We'll begin with a view on the overall market condition and then present the results of Q2 and the first half of '25. We will end the session by answering your questions. We'll start with a few comments on the market condition on Slide 2. In the first half of '25, global, political and macroeconomic turmoil continue to impact overall consumer confidence. However, the Danish housebuilding market showed great resilience with a continued pickup in sales. The detached market in Denmark continue the gradual recovery at a steady pace. This was reflected in a satisfactory number of consumer and customer needs and meeting activity throughout the period. We want to maintain the momentum and to further strengthen our presence in Jutland, and therefore, we will open a new sales unit with a showroom in Horsens and a dedicated FORMIUM office in Aarhus, both openings are expected in Q4. The market development was supported by a strong performance of the economy in Denmark. This was based on an unchanged high employment rate, steady core inflation and positive views on interest rate trends. Overall, it means that we remain positive about the continued and the gradual market rebound. With this overview, Allan will take us through the highlights for Q2 and the first half of the year. Please turn to Slide 3.

Thank you, Martin, and good morning to everyone on the call. For the fourth quarter in a row, we saw satisfactory year-on-year revenue growth based on the continued pickup in sales. Revenue increased by 28% to DKK 740 million, driven by higher sales in recent quarters in the Detached and Semi-detached businesses in Denmark. The increase in revenue was driven by more deliveries and the high activity level with a good contribution from work in progress. We were pleased to note that the Detached segment continued to grow sales throughout the period, even though we were at the center of a critical media coverage related to issues with crumbling mortar joints in some Detached houses constructed during 2017 to 2022, among other things. We have been aware of these issues in recent years, and we are handling all customer requests. Following the media coverage, we have been approached by a limited number of customers and entered constructive dialogues to assess and accommodate cases where relevant. We have registered fewer new cases and a lower increase in provisions in H1 despite the media coverage in June. Back to the numbers. Gross profit grew by 13% to DKK 136 million for a margin of 18.4%. This is 2.3 percentage points lower than the same period last year. This development was largely due to the Semi-detached business and reflected that we noted unsatisfactory margins on a few HC Elements projects, which are also seen to have some impact on Q3 2025. In addition, we did not deliver any projects in the Semi-detached business in the quarter, which is a matter of timing. I also remind you that we reclassified staff costs related to production employees at our factories in Esbjerg and Sweden in Q1 2025. Staff costs are presented as part of cost of sales instead of SG&A. EBITDA declined by DKK 4 million to DKK 23 million for a margin of 3.1% compared to 4.7% last year. This development reflects the decline in gross margin and higher SG&A and staff costs due to the balanced ramp-up of our organization. We have onboarded new employees to support increasing sales across the Detached and Semi-detached segments as well as our ability to seize future opportunities. EBIT came to DKK 12 million, down from DKK 15 million in the same period last year. Free cash flow was negative by DKK 12 million in the quarter, which was a significant decline from the comparison period and as expected. The decline was driven by changes in working capital due to the higher activity level and an increase in inventories as sales growth was higher than deliveries in a period with good momentum. Let's go to Slide 4 and the highlights in the first half of the year. For the first half of 2025, revenue increased by 29% to DKK 1.375 billion, driven by all segments and reflecting the continued sales progress in recent quarters, leading to higher activity levels and an increase in revenue from work in progress. The development was also supported by a slight increase in deliveries, which totaled 394 units compared to 382 units in the same period last year, driven by the Detached segment. Gross profit increased by 12% to DKK 260 million for a margin of 18.9%. This was 3 percentage points lower than the first half of 2024. The Detached and Wooden houses segments contributed positively to the improved gross profit. The contribution from Semi-detached was lower, mainly for the same reasons mentioned for Q2 as was due to a changed product mix. EBITDA came to DKK 39 million for a margin of 2.9% compared to DKK 49 million and a margin of 4.6% in first half of 2024. The decline was due to the lower contribution from Semi-detached following the unsatisfactory low margins in HC elements and the higher SG&A expenses and staff costs already mentioned. EBIT amounted to DKK 18 million, down from DKK 24 million last year. Free cash flow was negative by DKK 26 million. And as for Q2, it was a decline compared to first half last year and also here driven by changes in working capital and deliveries. This is a combination of phasing. So we have increased sales and phasing in deliveries where the timing is slightly different. Free cash flow was in line with our expectations. Net interest-bearing debt came to DKK 304 million at end June with a leverage of 3.2x compared to a net debt of DKK 236 million and a leverage of 2.4x in June 2024. The development was driven by changes in working capital and the decline in EBITDA. We continue to monitor our leverage closely. On a separate note, we also want to provide a brief update on our dialogue with the Danish tax authorities concerning the reversal of deduction of marketing contributions to foreign subsidiaries in 2019 to 2020 as described in the annual report. In July, the authorities passed a ruling in line with our expectations, meaning that the effect was already reflected and recognized in the 2024 consolidated financial statements. The authorities also revoked their initial decision to deny reopening and correction of the taxable income statement for 2020, which could potentially have entailed additional tax and interest expenses of DKK 25 million in total. These developments provide some certainty, and we are currently considering if we will take further legal action. With this, let us go to Slide 5 for an overview of sales from Martin.

Thanks, Allan. In Q2, the Detached segment maintained a positive track and increased sales by 13% compared to the same period last year. We were very pleased to note the continued momentum based on high consumer satisfaction and loyalty. Total sales across segments was 6% lower and came to 345 units, but the decline was mainly due to timing of orders in semi-detached, where sales were down by 34% compared to a strong Q2 '24. The development was impacted by timing of building permits for several projects. And please note that the contract for 106 units with Thylander announced back in October last year is still not included in Semi-detached sales as the building permit is pending. And in addition to this, we signed a 3-stage B2B contract with Velkomn for 191 units in Ringsted during Q2. The first stage comprised of 83 units and are included in the sales for the quarter, and we will register the 2 remaining stages when they are accepted by Velkomn in line with the terms of the contract. And finally, we recently signed a subcontract agreement for 160 units in Bagsværd. All relevant permits has been obtained, and these units will be expected to be included in Q3 sales. Please turn to Slide 6 and an update on deliveries. In Q2 '25, we delivered 199 houses, a decline of 7% compared to the same quarter last year. The Detached business delivered 10 units more than last year and Wooden houses in Sweden, 7 house more. The decline was a result of timing of projects in Semi-detached segments where we did not register deliveries in Q2. Several projects are currently being executed in this segment, which will contribute with deliveries in the coming period. Let's flip to Slide 7 and our order backlog. Due to the good sales traction in recent quarters, we continue to build a strong, solid net order backlog, which increased by 40% to DKK 2.1 billion at the end of June compared to the same period last year and 9% up from the beginning of this year. All segments contribute to the positive development. Detached across -- the Detached accounts for 70% of the total order backlog, Semi-detached 25% and Wooden houses in Sweden for 5%. It is worth noting that the backlog does not include the conditional B2B orders, if you land up for 106 units, the remaining 108 units for Velkomn or the newest order for 156 units in Bagsværd mentioned before as well. Please turn to Slide 8 for Allan's comments on the outlook.

Thank you, Martin. Based on our financial performance in the first half of 2025 and expectations for the remainder of the year, we narrow our guidance for the full year. We now expect revenue to be within the range of DKK 2.9 billion to DKK 3.1 billion. This is based on an increase in revenue from work in progress and deliveries are assumed to be between 1,000 and 1,100 units. Earnings are expected to reach DKK 110 million to DKK 130 million in EBITDA and DKK 70 million to DKK 90 million in EBIT following the impact of unsatisfactory margins on the projects mentioned in HC Elements, which will also impact Q3 to some extent. Despite the continued political and macroeconomic uncertainty, we remain positive and confident that we are on the right track to benefit from the market rebound in Detached, and we are pleased with the performance in H1. At the same time, we are leveraging our position in the Semi-detached segment and winning new contracts and more business. Our leverage was 3.2x at the end of the quarter, and we still expect to stay within the covenants of our financing agreement in 2025. As previously mentioned, dividends are not expected to be reintroduced before our leverage is below 2x net debt to EBITDA. Thank you for listening in. Now please turn to the next slide for the Q&A session.

[Operator Instructions] The first question we have is from the line of Sebastian Grave from Nordea.

The first one is on the miss here on HC elements for the quarter. So just trying to get a better understanding of the nature of the issue. And also thinking of -- I mean, you talked about this also impacting Q3, i.e., I don't think -- is it to be sort of understand in the way that it does not affect beyond Q3 and that this is sort of an isolated issue? Yes, that would be my first question.

Yes. So the thing is we had a few -- and thanks for your question, Sebastian. So we had a few projects with HC Elements, which did not turn out the way that we originally had expected. We have taken actions to mitigate the risk of this happening again without me being able to be more firm on what was actually happening. But I can tell you that we have moved a lot closer to HC elements concerning this specific area, both from a contractual point of view and from a financial point of view. And yes, just to comment on your question regarding Q3, we do expect an impact in Q3, and we don't anticipate an impact in Q4 from these specific cases.

Okay. So just to be very clear, this has nothing to do with the sort of execution on your larger Semi-detached projects, i.e., the ones that you highlight in your H1 report on Page 8.

That is correct.

Very good. Then on the current trading, how does the 54 units sold in July in your Detached segment square with your sort of own expectations for the year?

Actually, it is in line with what we have expected. So overall, it is -- yes, it is positive and actually what we have expected.

And does that mean, Martin, that you've seen sort of no larger impact on the sort of the activity from this, as you also mentioned, the publicity -- negative publicity from June?

So currently -- what we are currently seeing and following the negative publicity, we are satisfied with the performance that we are currently seeing.

Okay. That's fair. And then my last question for now, and I will get back to the queue. So the 156 Semi-detached order that you've announced here this morning, noting that this is a subcontract agreement, how does that compare to a turnkey agreement? What's the difference here? And sort of what is your role in this?

That actually, we -- our contract is that we are almost filling about 90% of all the houses. So it is, yes, a subcontract, but it is mainly us, we are the entrepreneur the full contract on that.