HusCompagniet A/S (HUSCO) Earnings Call Transcript & Summary

Good morning. This is your conference operator. And I would like to welcome everyone to the conference call. [Operator Instructions] Martin Ravn-Nielsen, you may now begin your conference.

Thank you. And first of all, welcome to our conference call full year to anyone. My name is Martin Ravn-Nielsen, I'm CEO. Who's coming in with me today, I have our CFO, Mads Winther. Mads and I look forward to give you some words and numbers about HusCompagniet's result '21 and what we expect going forward. Please pay attention to the disclaimer on Page 1, and then we will move on to Page 2, the full year '21 summary. We have provided revenue growth, 20%, to DKK 4,315 million. We have provided sales growth on 24% year-over-year. We saw higher sales rate than expected in the first 6 months, and the results were in EBITDA on DKK 401 million with a margin on 9.3% despite challenging market environment. And we also have maintained our target on delivering that 98% of all our houses was delivered right on time. Our dividend per share is DKK 7.35. And also, we have made a share buyback program on DKK 180 million completed in August and a new program up to DKK 40 million is launched in January '22. When we are looking in the market, the market level decreased in second half after an extraordinary high first 6 months. We also look into some cost inflation from materials and subcontractors. Our visibility, I'll be honest to say, it reduced for '22 due to the Russian invasion of Ukraine. When we are going through the outlook, Mads will come back to the numbers later. But overall, I can tell you that we maintain our outlook from November. The outlook is based on HusCompagniet's usual solid forecast and provides for an ambitious guidance for '22. Current expectations for sales in '22 are between 1,900 and 2,100 sales. We see that the market for detached houses has fallen for a period. And therefore, we have some new expectations. If we are going to Page 3, we have a market update here. Our sales activity in '21, the detached market level increased in the second half after an extraordinary high activity in H1 '21. When we are looking into the semi-detached area, we actually, all over, have seen a very high sales activity in '21. We're also increasing the market share. We still have a huge potential in this segment. And our Swedish company, we also have seen a very high sales activity in the whole '21. We are also increasing market share in Sweden. And therefore, we also decided in '21 to make some investments in more automation in the factory. When we are going to supply chains, we have, of course, also seen some cost pressure on raw materials, such as wood, steel and postering. We also saw a distressed supply chain. But as usual, we are monitoring the market closely. The cost inflation is successfully mitigated and supply chains are, so far, overall, intact. Price on materials have increased during the year as well as we have done in our sales prices against the customers. When we are looking about the subcontractors, it has been an increased strategy creating bottlenecks in Q1 -- Q4 '21. There is a high demand for contractors due to the high building activity expected to continue here in this year, the first 6 months. So therefore, bottlenecks are expected to improve in the last half year of '22. On the next page, here, you can see the detached demand decreasing. On the page here, you can see an extraordinary high sales in the first 6 months. In the second half, we saw the sales decreased and we saw a lower market level continuing on detached. But it's important for me to say that the semi-detached segments, we still see a very high level. We, therefore, in February, adjust the detached organization with 28 employees to meet the expected lower demand. We see our billing activity having a better flow over this year '22 compared to last year, and therefore, not an extra pressure on single quarters in term of building activities. On the next page, you here can see our strategy and the purpose support our strategy. Together with customers, suppliers and other stakeholders, we will take leadership in a sustainable and digital customer journey. In our efforts to lead the future housebuilding, we believe that it is a fundamental to raise industry standard and drive continuous growth in all our business segments. We have, in '21, developed our purpose, co-creating the homes of tomorrow today. Already in the end of '21, we've decided not to offer houses with gas heating anymore. Instead, we offer some sustainable heating as solar cells or heating pumps are now more than 50% what we are selling is with sustainable heating elements. So absolutely, we are the market leader, and we also take that responsibility to also gain the market much more sustainable. On Page 6, you can see the new build advantage because from a cost perspective, new build actually have an advantage against all the -- a lot of current old houses. New build versus old build, the energy savings outweighed the increased interest rates. And remarkably, the model you are looking into here is from June '21 before energy prices began to increase significant. And therefore, new build is more competitive against buy and old and renovate market that we can see in many years. Actually, we have seen that in many years, but more and more when the energy prices is increasingly significant, then we are so sure that it will give us some new possibilities in the future when the customer is also seen in that case. So it is absolutely one of the things that we are looking positively into in the market going forward. So yes, it is not so good when we are looking at the higher energy prices. But actually, for our new-build segments, it can be an advantage going forward. Mads, maybe you will take to some of the highlights.

Yes. So if we go to the next page, Page 7. Here, we made a few highlights on our full year '21. So as Martin said, this was a year where we delivered despite all the challenges really well. It's also a result that is a nudge above our guidance previously. So if we look at our revenue, we are 20% up to DKK 4.3 billion. We guided just from DKK 4.1 billion to DKK 4.25 billion, so just above what we guided. When you look at our EBITDA, we were also a notch above our guidance of DKK 401 million, up 16% from 2020. So really a big impact on that as well. And I think, here, at least we'll come back to sort of the scarcity, as Martin mentioned. But generally here, we, of course, despite the challenging price increase, et cetera, we actually were able to almost maintain our margins, which we are quite proud of. Then, looking at EBIT, that was a little bit more above our guidance due to less depreciation and amortization, so DKK 355 million and up 61% from 2020. This is, of course, because we didn't have any special items, which we had in 2020 due to our listing. Then, also looking at our free cash flow, that's also up quite significantly to DKK 237 million, up from around DKK 120 million -- up from DKK 110 million in 2020. Then, looking at our deliveries, we came close to the 2,000 marks or 1,831 houses delivered during '21, up by almost 12%. Then, our EBITDA margin, as I just mentioned before, we were almost able to maintain our margin despite the big price increases disturbance in the supply chains but as well, especially around Q4, the scarcity of the subcontractors. So that we feel that we, as a company, ended quite well. EBIT margin, again, please note that we have 0 special items, so that was 8.2% versus the 6.1% in 2020. And then, our leverage ratios were also below 2x, of course, driven by our strong activity that we saw in the full year. Moving into Page 8, this is the Q4 results. So Q4, a very busy quarter for us. So we had a revenue that was up with almost 19% to DKK 1.2 billion. We had EBITDA, which was slightly down due to lower margin in Q4. And then our EBITDA, again, up with almost DKK 50 million, so almost double, but -- due to no special items. Then looking up to our deliveries. Q4 was a big quarter for us, a busy quarter. A lot of these deliveries are also related to our semi-detached. So we should keep that in mind. And EBITDA margin, as I mentioned, Q4, 2% lower than in 2020. And the main reason for that was, of course, due to the scarcities. But as well, we had some corona rebates, which also played a little bit into the quarter. Looking at EBIT margin, again, up quite significantly from last year due to no special items. Then, if we move to the next page on Page 9, this is our deliveries year-on-year. What we are especially proud of around our businesses that we see, as Martin also mentioned in the beginning, we actually see that we are performing very well in '21 on all 3 segments. So it's not one-trick pony. It's basically all our segments that are doing really well. So when you look at our deliveries, we are up in index in all quarters. When you then look at to the middle of the page, the development from the segments, we can see that our semi-detached came with almost as many increase in deliveries as our detached. And Sweden, of course, as Martin also mentioned, we are automating the factory. And there, we will see the real effect coming -- during this year, but especially in 2023. If we move to the next page on sales. We, of course, as Martin said, we had 2,376 sales in 2021. We can see that we were, index-wise, it was very much in the first half year. We really performed above 2020, where we can see in Q3, we came at the level of '20. And in Q4, we saw sales slowing down a bit probably also because of the Omicron virus hitting in that period as well. But then again, moving to the middle of the page, we can actually see that from a sales perspective, it's -- in the past, it would have been driven by detached only, but here, we can actually see our semi-detached. But especially here, you can see the effect from our Swedish business that are both seeing an improved market but again, also gaining market share. So basically, all 3 segments are performing well, which, of course, is something that we are extremely proud of as a company. Then, I think noting just that we sold in our semi-detached, which we are very proud of, the 387 units. I think when we were listing in November 2020, there was debates whether or not this semi-detached was -- had some real material impact. And I think what we are demonstrating in 2021 is that it actually has an impact of these 387 houses sold, 322 of them were to our B2B effort, which was really the one that we initiated in November 2020. Moving to the next page, 11. Here, we can also see an impact of what I just went through on especially the -- of course, the deliveries, which is what you basically see the effect from here. By the way, if you look in the future, you will see more coming from the 2 smaller segments. But we can see when we look in 2020, we said 90% of our business was detached. Now we can see that that's now down to 80%, not because of detached not performing. Actually, it was a great year from our detached business, but mainly due to the 2 other segments were increasing, and we will see that continuing moving into 2022. Then, also looking at -- and I think our revenue growth, we can also see here that we can see good growth in detached with almost 9%, but of course, significant increases, especially in our semi-detached. When it comes to margins, we can see that our Swedish business is the one that had the highest margin, given that it's prefab, which is a fairly attractive way of producing, of course, versus building out on the different plots here in -- actually do in Denmark. But we can see that our detached business was the one that was hurt the most on margins in Q4, whereas we can see that we are starting to see the development in semi-detached moving onwards as we are gaining more and more activity versus the buildup that we are doing along the way. So we believe this is a very good development we are seeing in our business. If we then move on to the next page, Page 12. Here, we have listened to some of the feedback we have received. So we have always -- or we have previously shown our gross backlog, which is basically reflecting the cash flow that is coming in. So as you can see, we have maintained our order backlog from a cash flow perspective. And we can basically see that the backlog increase from year end is, of course, a lot of it detached but as well Sweden and semi-detached. So that, again, is demonstrating again that this -- that we now have 3 segments that are increasing in size. And then, we had added, to the right, which is I think is a quite important illustration, that is what is our net order backlog. And by net order backlog, we mean that -- the meaning of that is that is the order backlog that you will see in the P&L and in EBITDA. So that is excluding the work in progress that we have already from our gross, net backlog have already taken into the P&L. So here, we can see that when we look at the year end of 2020 and the guidance of our '21, that we can see we're at 48%. In the midyear, it was 67%. And now we are at 63% of our 2022 midpoint guidance. So a really strong backlog moving into '22, which makes us, of course, quite comfortable around what we have guided from the activity level. And then looking at our outlook. Martin has been through the main changes. We have in the middle of the page, I think I will probably start with. So our 2022 outlook is, of course, revenue. We have guided that we are between DKK 4.35 billion to just shy of -- sorry, it's Page 13, sorry, if I didn't get that -- the next page. Thank you very much. So we are at of 4.4 -- just shy of DKK 4.4 billion to DKK 4.65 billion in revenue; EBITDA, DKK 420 million to DKK 450 million; EBIT, DKK 370 million to DKK 400 million; and leverage ratios, below 2 turns. What we have added in our assumptions for the guidance is that we are, of course, also looking at what is happening in the world. And clearly, we have increased geopolitical uncertainty in Europe. And therefore, we should note that it is increased uncertainty that we are guiding at, at this point of time. So we're maintaining our guidance but with noting that we are seeing increased uncertainty in Europe. As Martin mentioned, we had lower sales in our detached market in Q4. Therefore, we have taken things down with these 300 units. So it is notable. But despite that change, we are maintaining our guidance for 2022. When you go to the next page, this is around our capital structure and dividend policy. We have not changed anything around the sort of capital structure, but around our dividend/payout policies. We have made a modification on our dividend policy. So we have had a policy of paying out at least 50% by means of dividend. We have spoken to a lot of investors through this over -- almost 1.5 years. And we have listened to the investors. And therefore, we have modified our payout. So we will -- moving forward, we will pay at least 25% in dividend. And then we will supplement that by a share buyback of around 25%. And I think what is important for us to stress around this is that we see this still as a payout of minimum 50%. So it's not a change of what we have done in the past. We are just modifying the tools. So we will have 2 different tools. And we hope, at least that we have by our power history and our documented actions, we will not sit on cash. We will distribute it to shareholders. So if we have cash that is up and above the 50%, we will provide those to the shareholders, either by increasing our dividends or by share buybacks or both. Then, we are very happy to announce that we will propose a dividend in our AGM of DKK 7.35 per share, which is -- which will be paid out in April, if approved by the AGM. And this, we believe, is again a very high dividend versus our share price. So we're very happy to give that back to our shareholders. Then, moving to Page 15. Here, we -- just to reiterate that we really feel that this money should be in the shareholders' pocket. We have actually been distributing around DKK 400 million to shareholders, either in the form of dividends or share buybacks. So we launched a share buyback here in Q1 of up to DKK 40 million. We will use part of those in our share program. So RSUs, we will start those, but the rest will be canceled. Then, we bought DKK 180 million in the exit of EQT. So we are proposing to the AGM that we cancel 9% of our shares and those will not uphold dividend, which is why we come to the high amount. Then, we will hopefully approve -- distribute this DKK 132 million in dividends. And then we also, just to reiterate that, we also paid out a dividend of DKK 60 million in April. And all of this combined is distributing around DKK 300 million to DKK 400 million to our shareholders. And if you look at the closing price yesterday, our market cap was just above DKK 2 billion. So this is approximately 20% of our market cap we have paid back these 1.5 years, which we feel at least a little bit proud of. So we hope sales will also flow that way. So with that, moderator, will lead you over to the Q&A.

[Operator Instructions] Your first question comes from the line of Kristian Johansen from SEB.

A couple of questions for me. So first of all, in terms of your backlog coverage, you obviously indicate that 37% of your revenue guidance at the midpoint is not covered by the backlog. So how can you significantly lower your assumption on houses sold without changing your revenue guidance for 2022?

So do you want us to take them one at a time? Yes. But Kristian, I think we still feel -- we, of course, have a pretty good view on what is coming in, in our pipeline for us. So we feel quite comfortable around the levels we have guided here. So in that sense -- and remember, we also have work in progress that we will benefit from in the beginning of 2023 as well. So that will also play into our results in '22. So therefore, we are still quite comfortable around the levels we have guided at. And yes, so that's the response.

Your next question comes from the line of Claus Almer from Nordea.

Okay. And just to make sure I want to ask several questions, and I'll take them one by one. The first question goes to cost headwind and inflation going into 2022. When -- what do you actually see? Have you raised prices enough? Or would there be a margin pressure? That would be the first one.

What we look into is that we have raised the prices against the customers enough. We are looking into strong margins, what we are building for now and also what we are calculating in what we have sold and start up building now. So we are comfortable around the margins, yes.

And do you see -- compared to Q4, do you see an additional cost inflation? Or are your input costs starting to stabilize, excluding energy cost, obviously?

We see that there still can be some cost inflation going forward in '22. And we also is aware about that when we are talking about the prices against the customers. So we are absolutely in control.

Okay. Then coming off back to Kristian's question regarding this lower number of houses sold embedded in your guidance. What does that say about your houses sold in Q1? Or is it more about uncertainty for the second part of 2022? That was the second question.

Q4 was lower, absolutely. And the first 2 months in this year is also in a bit lower level than expected. But there's a lot of possibilities going forward. But there also is -- yes, it's another world actually looking forward. So we are a bit conservative going forward and as usual, you can say. And therefore, we are guiding already now that it could be a lower sales.

Okay. And then just the final question. When you look at your Q4 performance, then the revenue was up by DKK 190 million or around that level but EBITDA was flattish. So this extra revenue did not contribute with more profitability. Is that due to mixed cost inflation? Or what's really behind that performance?

We have seen a lot of bottlenecks actually, primarily in Q4 because we have a very, very high activity in Q4. And it has given us, and especially this quarter, an extra margin pressure. But when we are looking into '22, we see a much better flow all over the year in our activity. And it is also -- it will also become our margins better. But of course, the...

But I think also, Claus, so what happened was, of course, that when you increase prices throughout the year as well, then there will be months of -- or potentially, a quarter where you're a little bit behind the curve, but then there will be other quarters where we are above the curve. So of course, when we see the extraordinary situation in the world with these price increases that we saw basically in Q4 as well right before even Ukraine, then it will not necessarily be matched month by month. So what we are making hopefully clear is that we feel very comfortable around our margins moving forward. We, of course, cannot say what is happening with Ukraine, et cetera. So if that suddenly changes the world significantly, it will also change our world. But if things are as it is today, we are very comfortable around our margins because we saw a significant pressure in Q4 but we also saw that we will see more price increases playing into the houses we are delivering in Q1, but especially in Q2. And there, we feel very comfortable.

Sure. That -- just to be sure. So when we look at Q1 '22, then hopefully not that same amount of bottlenecks. And with the pricing in the backlog, we should see already Q1 '22 a better margin. Is that what you said, Mads?

Yes. I think I would mainly say it's Q2. So you will mainly see it in Q2, Q3, Q4. Yes, we're pretty comfortable that Q1 is still a busy month where there's still overhang from Q4. So I think we wouldn't set your hopes too high up in Q1, which is traditionally also a less strong quarter from the company. But basically around -- especially in Q2, Q3, you will see definitely that it will shift around.

Your next question comes from the line of Kristian Johansen of SEB.

I do have a couple of more questions. So if I could be cut off this time, that would make a bit easier. Back to your assumption on houses sold. So obviously, you also showed on your slides that the level of houses sold in detached in Q4 was somewhat lower, and what you indicated January and February seems to be along the same line. So you also state you expect a more even distribution throughout the year on houses sold. So your assumption for detached, is that we should continue at the level you've sort of seen Q4, January, February for the rest of the year? Or are you assuming any kind of sort of recovery in houses sold for detached?

We are looking into March being much better than January and February. And we also -- what is important for me to say is that the land plots in Denmark has been on a very low level during the COVID-19 where everybody bought houses and apartments and plots and so on. And therefore -- and also HusCompagniet's land plots is a very low level. And now we are also coming with some very good land in the next month. And it will again give us some extra sales as we normally always have sales on customer's land, third-party land, and we have on our own land. And we don't have had so much own land as usual. You also can see in our numbers here in '22 that we only deliver around 10% of our revenue number of houses. It is from own land. And normally, it is around 20%. So therefore, we now see into again that a lot of the land that we had developed and so on, we get the municipality permissions over this year, and then we will see that gaining again.

Okay. So just to clarify, what you're saying is what you've seen here in the first 2 weeks of March has been better than what you saw in January, February?

Yes.

Good.

But one thing also -- just to mention, Kristian. As you know, I've been in this industry for many years. I've been part of HusCompagniet's journey since the very beginning. And I know when it is difficult out there, the customers are going to safe haven, and we see it again and again. So therefore, is it a better market out there in March compared to -- combined to -- compared to January or February? I don't know, but I can see that the customers are going our way.

Okay. That's obviously interesting considering, I mean, the uncertainty around your the risk really increased in March. So I would have thought that sentiment continued in the same way.

Yes.

Then turning to these organizational changes. Can you describe what kind of functions that it is that you have got? And similarly, I mean, if considering your guidance on houses sold, do you see the need to continue to reduce your organization to adjust for a declining profile?

We have -- we are very agile. We have -- when we are seeing growth, we are preparing for that. When we are looking into the opposite, we also are ready for that. And therefore, we have made that change with 28 employees in February. And it has become some sales. It has become some -- and some architects primarily because we have a lot of houses that we will deliver in this year. And therefore, all our construction managers are going out on site, we still have the same numbers there. So we have now the organization that we -- that can -- you can say, it is the right number of employees to that market that we expect going forward. But of course, we are ready. If something when we are going forward to also to '23, what we're looking into there, then we have to revisit that again. We will do that, Mads and I, absolutely.

Okay. That's quite clear. And then my last question is just on gross margin for the semi-detached. So you're 12.5% to 2021. Is this the run rate we should expect? Or can you comment a bit? I know there's obviously a huge mix effect going from B2C to B2B, but any flavor on whether this sustainable level would be appreciated.

Yes. So I think -- so you're asking about the gross margin now, semi-detached, and of course, I think that you will see this increase. I think as also mentioned, you must see our -- we have always said our EBITDA margin will come up to our average level. And we expect, of course, to come back to 2020 levels. And thereby, you can say you have at least a margin -- 1% margin that you should come up with and that we believe you will see when we start getting into a more normalized level, you can say that.

Understood.

Likely to increase. I think that's what I'm saying. And I think just a point to Kristian, you asked about Martin said, we expect the market to increase in March. Just to manage the expectations, we're seeing an average market level. And when we say increase, it's to that level that we have seen historically as the average level for detached. So we're not seeing anything in the tunes of first half '21, just so that's clear.

[Operator Instructions] Your next question comes from the line of Claus Almer from Nordea.

Just a follow-up on this FTE reductions. As I have seen so far, you've only provided the average FTE for 2021, which was flattish versus 2020. So these 28 fewer FTEs, what does it mean versus end of the year? Yes. Or yes, can you put some more color to that?

Yes. So you're asking about how many people we are basically, right, Claus?

Yes. Yes. Salary costs, how will that be in '22 versus '21?

Yes. I think that's fair. I think, Claus, the way we would illustrate it is we are seeing this higher activity in '22, but we don't expect to see salary SG&A increasing. So in that sense, you will see higher efficiency coming into 2022. I think that's the closest we can guide you in that sense.

So salary cost '22 will be flattish versus '21. Is that what you're saying?

SG&A yes, that's probably what we are looking into.

Okay, the full SG&A. So no cost inflation [indiscernible] to be aware of from the -- not the input cost, but from the normal cost?

Correct.

But just to mention, salary is, as you, of course, know many things because we also have our semi-detached who's absolutely increasing. So therefore, we have to use some extra SG&A that way. And we also have a clear ambition that we will develop the, you can say, the digitalization and sustainability. And it is also some headcounts that we are having now into our company also in '22 that we don't have in '20 or '21 because those investments, we absolutely are so clear that we will do because we are the market leader around the sustainability in our industry and it will also have some costs. But this is an investment in the future.

But it is certainly more [indiscernible] houses. We'll come back to you with a little bit more guidance on this. I understand the question, but as Martin said, we will continue to invest. And of course, depending on how much we push on the pedal, you will see some of that. But it will be more flattish than we have seen in the past.

There are no further questions at this time. I would like to turn the call back over to the presenters.

Then, we will close down here now -- for now. And thank you for dialing into this call, and have a nice day.

Thank you. Bye-bye.

This concludes today's conference call. You may now disconnect.