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

Hello, everyone, and welcome to HusCompagniet's Interim Report Q1 Earnings Results and Conference Call. [Operator Instructions]

Thank you for joining us today. My name is Martin Ravn-Nielsen. I am CEO of HusCompagniet. With me is CFO, Allan Auning-Hansen. And together, we will present the developments in Q1 '24 before taking your questions. Let's turn to Slide 2 for the overall market development. We had to navigate in a challenging market, again in Q1, but we saw a few positive developments in key macro indicators. Consumer confidence improved gradually from a level at around -25 in Q1 last year to around -8 in the reporting period. And at the same time, the job market is still very strong, and the employment rates remain high. The core inflation showed a downward trend in the beginning of the year and stabilized in March at a significantly lower level compared to Q1 '23. The interest rate seems to have peaked and stabilized in the quarter. There is still considerable uncertainty as to when and if there will be interest rate cuts in '24. And these positive trends are somewhat counterbalanced by the impact of the continuous geopolitical turmoil in Europe and the escalation of the situation in the Middle East. And this has a negative effect on the customers' willingness to make the key decisions and investments. All in all, we see small signs of recovery in the macro environment. While we remain a bit optimistic, it is still important to note that we operate in a market where uncertainty remains high, and the near-term visibility is limited. Based on our learnings from early last year, it is too early to talk about a regular pickup in the point at this point in time. With this, Allan will provide an overview at the Q1 highlights, and please then turn to Slide 3.

Thank you, Martin. Based on the lower sales in 2023, our revenue decreased 26% to DKK 483 million in Q1 2024. The decline was seen across all segments and had the most significant impact in the detached segment. Here, we are making targeted efforts to turn the negative development around and have sharpened our focus on gaining stronger traction in central Jutland. The Swedish business recorded a drop in revenue in a very tough market, while the decrease in the Semi-detached business was less pronounced. The revenue development impacted gross profit negatively, but we were able to increase gross margin to 25%. This was driven primarily by a higher gross margin in the B2B segment in Q1. EBITDA came in at DKK 21 million and a margin of 4.4% as the improved gross margin could not fully offset the revenue decline. The solid performance in the Semi-detached business had a positive impact on EBITDA as well. As previously announced, we expect investments in SG&A to increase during 2024 to ensure that we are ready to step up when the market rebounds. EBITDA amounted to DKK 9 million, down from DKK 29 million in Q1 last year. Free cash flow amounted to -DKK 3 million, impacted by fewer deliveries. Our gearing level increased to 4.0 because of the lower activity level and earnings. This increase from year-end 2023 was expected and remains within the leverage covenants on our financing agreement. We continue to monitor our leverage closely. Let us flip to Slide 4 and a few comments from margin on Q1 sales.

Thank you, Allan. The sales activity is picking up from a very low level, and we increased sales by 20% in Q1 '24 to 272 units. This development was driven by the Detached segments. And we should keep in mind that we are comparing with low sales of 226 units in Q1 last year. We are pleased to see a better number of leads and note increased use of our digital customer tools as well, especially through our HusOnline, where our customers can design their own houses based on several predefined models, while activity is picking up at a moderate pace. We're also expecting longer lead times. And in the B2B segment, we added 88 Semi-detached houses to the order book, largely on par with Q1 '23. And this reflects the signing of several smaller projects contracts, which should contribute to a diversified portfolio include projects on bearing sizes. On that note, we are pleased to remain top of mind among longer investors, larger investors, and we remain engaged in constructive dialogues for longer projects as well. As we said before, measuring these dialogues and converting them into sign contracts take time and it is a different game than the Detached market. I conclude the sales overview with a short remark on the Swedish business, where the market conditions remain very challenging and with fewer signs of potential near-term recovery. This is also reflected in the numbers of this slide. Let us go to Page 5. In Q1, we continued to see the effect of lower sales in '23. Our deliveries declined by 51% year-on-year to 167 units. We should keep in mind that the Q1 '23 deliveries were based on significantly higher sales volumes in the first part of '22 prior to the [indiscernible] Consumer Conference and the drop in demand. As shown on this slide, the downward trend is mainly driven by the Detached segments and the Swedish market. Deliveries were lower in Q1 than in Q4 '23, mainly due to the seasonality. Houses sold in Q2 normally have a slightly longer production time, classification during the summer period typically impact and slightly prolonged the early stages on the projects. And let's look at the order backlog on Slide 6. Our gross order backlog was DKK 1.7 billion at the end of Q1, largely on par with the same quarter last year and up 14% year-end '23, and we are pleased that the net order backlog has continued to stabilize and even increase from year-end '23. The segment overview reflects the beforementioned sales increase in the tax and the decline in unit sales in Semi-detached and Sweden. Please turn to Slide 7 and a few comments from Allan on the segment overview.

Thank you, Martin. I will not spend a lot of time commenting on these figures, but please note the revenue split where the Swedish business declined to 5% from 14% in Q1 2023 following the continuation of the tough market conditions. EBITDA came to DKK 21 million in the quarter. And depreciations and amortizations were in par with Q1 2023, leading to an EBIT of DKK 9 million. This development in earnings was in line with the expectations. Lets also pause at the average selling prices. We saw a stable level in the Detached segment and improved the average sales price in the Semi-detached segment. But please notice that the ASP in the semi-detached segment can rely a lot depending on the projects. We also secured higher selling prices in Sweden. We have already covered the developments in gross margin and earnings. So, let's move on to Slide 8 and the outlook. While we are seeing higher activity level right now, we still expect 2024 to be a challenging year. Uncertainty remains high, and visibility is very limited because of geopolitical tension and significant sensitivity to macroeconomic fluctuations. Based on our Q1 performance and current order book, we maintain our full year guidance. We still expect revenue to be within the range of DKK 2.3 billion to DKK 2.6 billion, assuming that we will be able to deliver between 800 and 1,000 houses in 2024 based on the moderate pick-up in sales during 2023 and the higher activity level seen in these months. On this background, we still expect EBITDA to reach DKK 80 million to DKK 130 million and EBIT in the range of DKK 30 million to DKK 80 million. This also means that we expect to stay within the covenants of our financing agreement. Thanks for listening in today. We will now open the line and take your questions. Next slide, please.

We will now start the answer and question session. [Operator Instructions] The first question will be from the line of Sebastian Grave from Nordea.

First one on the sales. So, on the Detached segment, 172 units sold in Q1 implicitly. I get to 60 units sold in March month. This is an [ up attack ] from the run rate of January and in February. But I guess sort of within normal seasonality here. So, could you provide us the number from April?

Thank you for your question, Sebastian. We are not providing numbers for April, but we can confirm that we see the same activity levels in meetings in April as we have seen in the first 3 months. But what we also are seeing is a slightly longer decision time, so to say. So it seems like people are thinking slightly longer about their decision of making investments the size at this period of time.