Metrovacesa S.A. (MVC) Earnings Call Transcript & Summary

Hello. Good morning, and welcome to the webcast from Metrovacesa on the First Semester Results of the Year 2023. My name is Juan Carlos Calvo. I'm Director of the Strategy and Investor Relations, and today, we also have Jorge Perez de Leza, CEO of the company; and Borja Tejada, CFO. We are going to present an overview of our activity and key developments during the first semester of the year. The slides of this presentation have been released to the market earlier this morning, and they are available through the CNMV website, as well as the company website. We have also sent it by email to our usual distribution list for analysts and investors. At the end of this presentation, there will be a question-and-answer session. [Operator Instructions] Now, I hand it over to our CEO to start the presentation. Please, Jorge.

Yes, thank you, Juan Carlos. Good morning, everyone, and welcome to our mid-year 2023 results presentation, and thank you for attending in these busy days. I would like to start on Page #5 with some highlights of this first half of the year, and in terms of market context, what we see is a resilient housing demand fueled by good Spanish GDP growth and also employment data, which continues to be quite consistent and positive. The volume of transactions we see that is holding up in the market despite the spike in mortgage rates, and the outlook is still volatile with keeping an eye on the evolution of interest rates and job creation. Nevertheless, the cloudy future on those 2 issues seems to be clearing up. That -- as a result of that, the operations on the Metrovacesa side are quite solid for the first half of the year, and we see improvement in pre-sales on coverage ratios for 2023, 2024, and 2025 deliveries, and also a pickup in land sales. As you will see later, we've had an increase -- a slight increase on year-on-year and quarter-on-quarter on our pre-sales on BTS. Also our coverage ratio for 2023 to 2025 deliveries continues to grow, and the land sales, which were somehow weaker in the first quarter, are now under a solid deal flow, both in residential and commercial land. In terms of financial, Borja, our CFO, will enter into more detail later, but we confirmed our targets for the years, and it's true that we have more deliveries concentrated in the second half, but with the coverage that we have in terms of pre-sales and construction advance, we are quite certain of complying with our targets. On appraisal values that we did -- we do on mid-year every year, we have almost a 1% like-for-like overall growth, although a negative or a decline in the value of our commercial assets, close to 3% on a like-for-like, as we all expected, given the cloudy, let's say, environment on the commercial assets for now, and that leads to an impairment on the P&L. The full-year estimates, as I mentioned at the beginning, we confirm our cash flow targets for the year of between EUR 100 million and EUR 150 million operating cash flow. After these highlights, I'll hand it over to Juan Carlos to give us a brief view on the housing market.

Yes, thank you. Well, just a summary here with a few charts on the statistics of the sector. The reality is that, the housing market is performing relatively steady during the year, and with only modest declines or deceleration in some of the ratios, and certainly performing better than other European countries for the housing market, showing that, there is less sensitivity to increase in interest rates or mortgage rates than perhaps was feared by many observers at the beginning of the year. If you look at the number of transactions, the accumulated figure for the first 5 months, which is the statistics, is a decline of 4%, which is a modest decline after actually a significant increase in the preceding years. The last 12 months, the figure is around 640,000 number of transactions, which is still a relatively solid number. The demand is holding up, but we are saying, compared particularly with the supply. The supply continues to be very much limited, constrained below 100,000 units. This remains clearly below the number of household creation in Spain, which last year was around twice that figure, and this is one of the keys for the performance, particularly of the new construction homes. House prices and construction costs are softening, but it's still in positive territory. Certainly, the scenario in the last 6 months has been holding up relatively well. The reality is that, the context is still volatile, so we have to be monitoring very closely the evolution of interest rates and mortgage rates to see whether there will be a different impact in the rest of the year, and particularly the evolution of the macro situation with the impact on job creation. Those should be the 2 main variables to monitor in the next few quarters, but the situation so far is so good.

Thank you, Juan Carlos. Moving on to Page #9, as I mentioned at the beginning in terms of pre-sales, what we see is that we have an increase in volumes, and not only in volumes, also in the ASP, the average selling price in the second quarter. We sold a total number of units of 483 net sales, which represents a 17% quarter-on-quarter increase and 14%, almost 15% increase compared to last year, which is quite positive. And I would like to really highlight the ASP, which stands at EUR 345,000 per unit, which is -- which shows a better mix of product as well as the ASP growth that we've had in the preceding quarters and still hold for now. The total number of pre-sales for the first half of the year is now 908 units with an ASP of EUR 325,000. The monthly absorption rate, as we measured, it is now at 2.5%, which is a very healthy figure. We always like to be around between 2.5% and 2.7% so, and this is slightly above our average for 2020 to 2023, so good figures. Moving on to Page #10 about deliveries, we've delivered 572 units, and as I mentioned at the beginning, this year we are more back-loaded in deliveries, and we will see the figure picking up in the third quarter, and we are fairly confident of fulfilling our -- not just the cash flow target. As you know, we've always mentioned that the cash flow target is what we focus on, and that's a combination of land sales as well as deliveries, deliveries similar to last year, and we're very confident that we will hit that figure at the end of the year. Again, important to highlight that the average selling price of the units delivered is close to EUR 350,000, and again, higher than in previous quarters. I think it's good to highlight as well that the gross margin has picked up a little bit, 22.2% compared to lower figures. We still stick to our guidance of being in the low 20s, and we continue to deliver on that. And finally, I would like to just focus a little bit on how our client looks like, because I think that, it's one of the reasons of probably, having a solid pre-sales field, which is we see that 32% of our clients are buying without a mortgage, and that is consistent again with what we saw in the full year of 2022. Also, of those taking a mortgage, the LTV, the average LTV is 72%, so not hitting the full -- the full figure of 80%, but in some cases even higher than the banks are giving. And the average affordability ratio is 4.3 years, so very far from the 7 years that, that is considered 7 to 8 years that is considered to be, above that to be an unhealthy number. So we are very far from that figure. Moving into Page #11 and looking at the operational activities, what we see is that we are well on track to, achieve the 2,000, to be above the 2,000 units per year down the road. In terms of our pre-sales backlog, we have now 3.5 - 3,500 units in the backlog with 1.1 billion in total sales value, and again with an ASP above EUR 300,000. More than 80% of these 3,500 units are in contract, and I forgot to mention that cancellations are not an issue, so therefore, 80% contracts is a solid figure. Units under construction, we are at 4,100 units, which indicates the potential deliveries within the following 24 months. And then finally, units under commercialization, we keep on growing, and despite -- sorry, after subtracting deliveries, the net figure is still growing. So, it means we are launching more products and we're putting more products into commercialization, which will also help to fuel future sales. Potential revenues with an ASP above 300,000 units, of those units under commercialization is more than EUR 2.2 billion. Our presales coverage for 2023 to 2025 is, as I mentioned at the beginning, solid. So 2023 is 93% now, 2024 is close to 75%, 74% exactly, and then 2025 is at 36%, so a good growth compared to the previous quarter as well. And obviously, we have under construction everything for 2023 and 2024, otherwise it would be difficult to deliver in those years. And then 2025, I think, it is close now to 50% under construction. In terms of moving to Page #12, in terms of land activity and land sales specifically, I think the deal flow is somehow solidifying, and we are now at a total figure of binding contracts signed for the year of EUR 52 million, 1/3 coming from residential and 2/3 coming from commercial land. Most of them -- these binding contracts are to be completed, formalized, or signed notarially within the year, and with prices slightly below book value, but just only slightly. And again, with pipeline is still solid for further contracts to be signed in the second half. And finally, before we move into financials, I would like to spend a few moments on ESG, and how we are progressing on that. We are now -- in terms of the environmental part, 100% of our launches are now with A-A certificates. Also, 100% of our launches have the Green Building Council certificate. And finally, we are now measuring our footprint, in 100% of our footprint, which will allow us in the future to be more -- let's say, to be more sustainable and to reduce that footprint as we progress more environmentally-friendly design and construction. In terms of the social part, we focus on this presentation in talking more about the work of our DSU department, which is the Department of Sustainability and Urbanism, in which we are working very hard on participatory diagnostic studies in most of our non-fully permitted land and progressing with different stakeholders in the municipalities and in the areas that we're working on to create the best possible environments from a functional and also environmental point of view. And finally, in terms of corporate governance, I would like to highlight that we now have the AENOR certificate ISO 27001 for Information Security; the 9001, we already have it for Quality Management; and the 14001 for quality -- Environmental Management. So, progressing quarter-by-quarter on our ESG commitment. And now I hand it over to Borja for -- our CFO for the financial part of the presentation.

Thank you, Jorge, and good morning, everyone. In terms of profit and loss account, just some key figures. Revenues from development, EUR 164 million with more than 22% gross margin for beating our guidance. Our EBITDA, EUR 10 million and EUR 34 million of impairments, mainly in commercial land. And with reference to recurring pre-tax profit breakeven. Now, in the Slide 16, in terms of gross operating cash flow, in line with our budget, more than EUR 26 million after having invested EUR 20 million in land purchases and have monetized more than EUR 51 million in deliveries and land sales. Well-tracked for achieving our guidance of EUR 100 to EUR 150 million before year end. In the Slide 17, we can check our net debt with a very solid financial position, as always. It's a gross debt of EUR 416 million and net slightly above EUR 300 million. 12% of loan-to-value, a very comfortable ratio, below our reference of 15% to 20% and no relevant maturities up to 2026. And in terms of treasury, around EUR 200 million, out of which EUR 150 million is fully available after dividend distribution of EUR 50 million in May. Now, finally, about our asset appraisal. Net asset value of EUR 13.73 per share after the distribution of EUR 0.33 of dividends in May, meaning plus 1% for like-for-like versus December 2022, with an increase of more than 2% in our residential portfolio and decrease of circa 3% in commercial land. EUR 2.5 billion in gross asset value, out of which 78% represent our residential portfolio and 22% commercial land. Now, I will hand over Jorge with the closing remarks.

Thank you, Borja. And as closing remarks, I would again like to highlight that the market trends, we saw a good first half of the year. And despite uncertainty still being present, we still see that demand is being solid. And we will nevertheless always adapt to eventual trend changes if any happen. But as of now, we continue full speed with our launches and putting product into commercialization and solid performance in operating KPIs. Strong visibility for 2023 to 2025 deliveries, as I mentioned, and keeping up with our strategy of, as I mentioned, of launches and working towards surpassing that 2,000 deliveries per year figure. And finally, we reiterate again our full year guidance of operating cash flow between EUR 100 million to EUR 150 million, which is a combination of residential deliveries plus land sales that, as you have seen, have had a solid performance in the first half of the year. And with that, I hand it over to Juan Carlos.

Yes, thank you, Jorge. We are now ready to start the question-and-answer session, starting from our participants in the conference call. [Operator Instructions] We have a first question coming from the line of Ignacio Dominguez from JB Capital. Please, Ignacio.

I have two. Firstly, have you noticed any changes in the average buyer with non-residents buying a higher proportion of homes compared to domestic clients? And in terms of household wealth, how has the wealth of the average buyer changed compared to previous years? And secondly, my second question is on cost inflation.

Excuse me, Ignacio. I think the line -- the sound of the line is not very good. Can you maybe speak up a little bit or start over again, please, Ignacio, because I didn't catch any of the questions.

Okay. Okay. Yes, my first question was if you have noticed any changes in the average buyer with non-residents buying a higher proportion of homes compared to domestic clients? And in terms of household wealth, how has the wealth of the average buyer changed compared to previous years?

Okay, Ignacio, I would say in terms of non-residents, I think we are at a figure which is 22% of international buyers, which is, I would say, similar to what we had last quarter, and maybe slightly higher of what is the average for many years, which is around 20%. So I would say, slightly above average, but consistent with what we had last quarter. And then in terms of household loans, no real change. I mean, last year, again, we had a little bit more than 30% buying with equity, and that still stays the same. And then of those buying with a loan, the average LTV now is 72%. Maybe it's slightly higher than what we had last year, but no significant change.

Okay. We have a second question from the conference call from the line of Ignacio Romero from Banco Sabadell. Ignacio, please.

A quick 1 on my side regarding the impact of land sales on cash flow this year. Should we expect the EUR 52 million of land sales that you have highlighted in Page 12 of the presentation to be actual cash flow for this year, 2023?

Yes, Hi, Ignacio, Jorge here. So I would say about 3/4 of that would be, as I think we mentioned, would be formalized and meaning full payment of that. So around third quarter would be an estimation. And then on top of that, we'll see what happens with the second half of the year.