Hemnet Group AB (publ)

STO:HEM

Earnings Call Analysis

Hemnet Reports Resilient Financial Growth in Q4

During a challenging first half with a 20% listing drop, Hemnet's annual listing volume ended down only 12%. The fourth quarter shone with a 5% listing increase, driving a 37% surge in net sales to SEK 275 million. Property sales soared by 55%, thanks to average selling price (ARPL) growth. Notably, listings took longer to sell, averaging 40 days, shifting revenues into Q4, and benefitting the quarter by an added SEK 22 million. Despite a 9% slide in B2B revenue, Hemnet's diversity in value-added services to real estate agents and consistent bank customer demand mitigated declines. Impressively, EBITDA rocketed 60% to SEK 142 million, expanding the margin by 7.3 percentage points to 51.5%. Share buyback activities remained robust with 2.3 million shares repurchased equating to SEK 418 million throughout the year.

Strong Performance Amid Market Challenges

As Hemnet, a leading Swedish property market portal, closes Q4 and the year 2023, CEO Cecilia Beck-Friis, alongside Financial Officer Anders Ornulf and Operating Officer Lisa Farrar, detailed a robust performance despite the real estate market's challenges. Revenue from property sellers surged by 55% year-over-year, buoyed by a nearly twofold increase in value-added services (VAS), indicating stirring demand and acceptance of these offerings among sellers. In a show of operational strength, the Average Revenue Per Listing (ARPL) escalated by 46%, propelling net sales up by nearly 37%, while a robust EBITDA margin of 51.5% presented Hemnet as a resilient, expanding enterprise despite a tough market. Q4 also saw an improvement with listing volumes edging past those in 2022, reflecting a business model efficient enough to sustain and drive growth even during market downturns.

Investing in People and Technology

Hemnet's workforce remained stable at 154 employees, with strategic hiring contributing to the company's success amid a period when many tech enterprises faced downsizing prospects. This human capital investment aligns with Hemnet's ambitious goal to propel the organization forward in 2024. In sync with this growth, Hemnet surpassed a significant milestone of SEK 1 billion in revenue while maintaining a laudable 52% EBITDA margin. The firm eyes to maintain this trajectory, targeting a 15% to 20% annual net sales growth in the foreseeable future, boosted by strategic achievements, including the introduction of products like My Home for users, Pay when removed for flexible sales, and an agent search tool indicative of a client-centric approach.

Compensation Model Revamp to Drive Growth

Hemnet has revamped its agent compensation model, aiming to pay out a total of SEK 225 million to the industry, marking a 22% year-over-year increase. This change complements an impressive 37% ARPL growth witnessed over the year. The adjusted model is set to encourage more agents to recommend Hemnet's value-added services, in turn spurring the company's ARPL and empowering agents with more streamlined tools and visualization capabilities—offering a sneak peek into future potential earnings and past compensations, shaping an advantageous proposition for both Hemnet's partners and its own growth metrics.

Digital Transformation to Enhance Operations

A significant operational overhaul is on the horizon as Hemnet transitions to a digital publication process starting from Q2, which promises to eliminate the necessity for physical paperwork for listing properties. This technological leap is anticipated not just to smooth-out agents' workflows, but also to generate a conducive environment for increased VAS recommendations. By bringing in more clarity and ease of access for agents, Hemnet's strategy is clear: enhance compliance, and customer satisfaction while driving internal efficiency. The anticipated outcomes are in line with Hemnet’s vision of fostering a user-friendly platform that benefits all stakeholders and mirrors Hemnet’s own performance aspirations.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the Hemnet Q4 2023 Report Presentation. [Operator Instructions] Now, I will hand the conference over to the speakers. CEO, Cecilia Beck-Friis; CFO, Anders Ornulf; COO; Lisa Farrar; and IR, Nick Lundvall. Please go ahead.

[Cecilia Beck-Friis, executive]

Good morning, and welcome to Hemnet Group's presentation of the Q4 and year-end results for 2023. My name is Cecilia Beck-Friis, and I'm the CEO of Hemnet. And today, I'm joined by Anders Ornulf, Hemnet's Financial Officer as well as Lisa Farrar, Hemnet's Operating Officer. As turn on Page 2, the plan for today is to start with an overview of the fourth quarter results as well as a summary of the 2023 results.

Afterwards, Anders will dive deeper into some of the financial updates. And following this, Lisa will be taking us through a business update relating to our agent compensation model. As always, there will be opportunities to ask questions at the end of the presentation, and you can submit your questions via telephone or using the link shown on Page 2 of the presentation.

Starting with Page 3 and the executive summary of Q4. I'm proud of the strong results that we have presenting -- that we are presenting today, particularly in that revenue from property sellers increased 55% year-on-year. This is largely driven by continued growth in demand for value-added services as evident in the fact that ARPL contribution from VAS almost doubled from last year, meaning that sellers continue to sell our value-added services as attractive investments in their property marketing strategy.

Overall, investment in product pricing strategy and growing demand for VAS resulted in ARPL growing 46%. Net sales grew almost 37% during the quarter with an EBITDA margin of 51.5%. And these numbers further show that we have a resilient business model and that we can grow even in challenging market conditions. We saw some improvement to the market environment and Q4 listings were higher than the listing volumes in 2022 for the first time this year.

As I mentioned earlier, Lisa is joining us today to provide you with an update on the agent compensation model. Hemnet has a truly unique relationship with the Swedish agent community, and the compensation model is an important tool that enables the win-win relationship between agents and Hemnet.

The changes that we are now making to the model are meant to increase simplicity, fairness and to drive the right incentives to ensure that the win-win relationship can continue to flourish in line with our strategy.

And we want to continue growing our business hand-in-hand with the agents, and we believe that we have found a sustainable bottle to enable this. But more on this later. Hemnet continues to build the place for buyers and sellers to meet, and I want to turn to Page 4 to give you more color. Hemnet is the Swedish property market and the best portal to maximize a property listing or agent brand.

Our strategy is to show the most complete inventory of for sale properties combined with the best possible user experience. On this page, you can see 2 reminders. On the left, that 9 in 10 properties sold in Sweden are listed on Hemnet. Last Friday, we received early data for 2023 from statistics trading for villas and can see that best of this official data, our reach is in line with last year.

We can also see that our users continue to be the most engaged with Hemnet clicking on average, 19x more on Hemnet listings than on listings on other portals. It's therefore, safe to say that as a property seller or a buyer, you can be comfortable in the fact that Hemnet is the most relevant platform for your property transaction.

Turning to Page 5 for an update on ARPL development. Q4 ARPL grew 46% year-on-year as the ARPL contribution from value-added services almost doubled. Increased demand for premium, driven by our investments in products throughout the year as well as our ongoing pricing work continue to be the largest driver of this growth.

Pay when listing is removed has now been live for several weeks, and the impact it has in line with our prelaunch tests, specifically with regards to the increased flexibility for sellers.

Now on to Page 6 and the note on the market. While we'll continue to see encouraging signs in the market, as shown on the right side of this page, we are still not out of the woods as volumes have not fully rebounded to 2023 levels.

Early January numbers suggest that listing volumes are slightly above last year, and the market continues to be challenging for real estate agents and property developers, as you will see on the next page.

So turning to Page 7 and net sales by customer category. I've already touched on the main drivers for seller revenue. So let's look at the remaining categories on the business-to-business customers.

Marketing investment continues to be under pressure as our main business-to-business customer groups, agents and property developers continue to be restrictive about further investments. Q3 data from IRM showed that the display market decreased 16% and has likely continued on a similar trend in Q4.

On a more encouraging note, though, we saw growing demand for Hemnet business-to-business products, so-called business-to-business and value-added services, such as Mäklartipset [indiscernible]. This accounts for 1/4 of total business-to-business revenue for the full year and underscore that there is a high demand for unique Hemnet products that deliver clear value to our customers.

So on to Page 8 and an update on the organization and recruitment. We remained 154 employees at the end of Q4, the same number as the quarter before. For the full year, we've added 19 employees. I consider it to be a successful year for recruiting as we remained focused and successfully filled key roles in a market where many tech companies were instead forced to downsize. The market continues to be favorable to Hemnet, and we remain focused on our investments in talent, especially as those investments are yielding clear results in execution of our strategy.

We will continue to grow our organization during 2024 with a focus on key roles with product and tech. With that, I want to leave the quarterly update behind and focus more on the full year results, starting with Page 9. I am thrilled that Hemnet has finally passed the milestone of SEK 1 billion of revenue while also delivering a respectable 52% EBITDA margin. As you can see on these 2 charts, we are growing at a consistent pace and with high operational leverage. We continue to aim for an annual net sales growth of 15% to 20% and the long-term EBITDA margin of over 55%.

And as a reminder, Hemnet does not provide financial forecast or guidance but those figures are our financial targets, which we are in for. ARPL grew 37%, driven by the same forces as during Q4, increased demand for Hemnet premium and ongoing pricing work.

Now that we have touched on the high-level financials for 2023, let's turn to Page 10 and talk about the operational achievements for the year. On the left, I have included 3 achievements that I'm particularly proud of. We managed to grow the business double digit despite a double-digit decline in the listing volume. We remain in the Swedish property market with 9 of 10 properties sold on Hemnet. And our employees enjoy working here at Hemnet, and we are -- have a high eNPS to support this fact.

With regards to some of the product launches, I have included some of those that I consider most noteworthy on the right side of this page. Our new rules for republishing have a positive impact on the value of premium as well as to our user experience. Our upstart to the premium package, in particular, including a free renewal, also yielded strong results as can be seen in growing demand for the product throughout the year.

Total of sold properties give us a unique competitive advantage and was on one of the most requested features from users. And this launch is truly a milestone that delivers significant value add to both users and agents. We've also seen engagement with My Home increase and our planning on adding more features to this product going forward. We launched the ability to pay for a listing once it's been sold or removed from Hemnet and the most requested feature from real estate agents.

Finally, we launched an agent search tool, and we'll continue to develop this to better connect the potential sellers and real estate agents going ahead. All in all, it has been a productive year, and I expect nothing less from 2024.

Besides the concrete launches on Page 10, I want to turn to Page 11 to discuss our work with ARPL. We think of ARPL growth as derived from 4 distinctive levers: product and packaging, agent partnerships, payment and pricing shown on this page, if you work each lever separately and at any given time. Some periods, we may focus on certain features and other periods, we will have a different focus.

The key here is that we have built and are even expanding a toolbox that should allow us for consistent ARPL growth to support the growth target of 15% to 20% annual net sales growth. Turning now to Page 12 for a quick reminder on our view of the Swedish property market.

This year has been an anomaly when looking at the market and especially lifting volumes historically. We've never seen listing drop like a dose during Q1 and Q2 of last year. But despite the drop in listings of over 20% in the first half of the year, annual listing volume came in at just negative 12%.

Uncertainty around affordability, interest rates, price trends, financing and the shift in tendency to sell person by thereafter have all contributed to the state of the property market. That said, there continues to be a shortage of supply as the functional rental market organization and immigration to Sweden, all of which increase the need for people to buy and sell property. We believe that in the long term, the Swedish market will continue to be stable over time, driven by the underlying need to move as it has been in the past.

Now turning to my next slide of this section on Page 13, an update on ESG. I am pleased to say that our long-term target for net-zero greenhouse emissions have recently been approved by the Science Based Target Initiative, giving us a clear goal by which to reduce our carbon footprint.

Furthermore, we are preparing for the upcoming CSRD regulations and defining the process going forward. And finally, we have conducted 2 initiatives with our CSR partners during the Christmas period.

With that, I will hand over to Anders for some color on the financial update, starting with Page 14.

[Anders Ornulf, executive]

Thank you, Cecilia. Let's turn to Page 15 directly and the financial highlights for the fourth quarter. As you know, the first half year started very challenging, which resulted in around 20% fee relistings published during the first half year compared to '22. These listings have improved during the second half of the year, and in Q4, the listings were up 5%. And then we ended the year at minus 12% as Cecilia mentioned.

Even though Hemnet performed strongly in the first half of the year, we are seeing a completely different financial outcome as the underlying volume develops with the fourth quarter as a shining star. So starting off on the left-hand side on this page, we have net sales increasing 37% to SEK 275 million. As we mentioned earlier, we want to highlight the strong development for our property sales revenue increasing 55% driven by the ARPL growth.

It is also worth highlighting that due to the increased average time on our listings, we moved from 37 days in Q3, now increasing to 40 days in Q4. And remember, that's a rolling 12-month number. There are 2 effects to consider. With the increase in listing time, the revenues are recognized over 40 days, meaning that more revenues are moved into January.

But in Q4, you also have the reverse effect since September has bigger volumes than December. And more revenues were carried into Q4 this year. The net effect is plus SEK 22 million in the quarter. Reduced investments in marketing and display advertising from our B2B customers, particularly property developers, is behind the decline of 9% in B2B revenue over the quarter.

However, we continue to see increased revenue from value-added services to real estate agents and a stable demand from our bank customers. The decline is also a small improvement versus the first 9 months. Our EBITDA came in at SEK 142 million, up 60% from last year. We will dive into the EBITDA development in the following slides.

The EBITDA margin came in at 51.5% up 7.3 percentage points from last year. With our business model, we had a great effect combining [indiscernible] and ARPL growth, of course. Moving then to the right-hand side, we see ARPL increasing 46%, and Cecilia talked about the drivers for this earlier, which were a combination of product updates, conversion to more expensive value-added services and price adjustments across all seller products.

As expected, we continue to see a high cash conversion, which was 92% in the quarter and is further proof of our strong business model and cash generation. The small decline versus last year is primarily related to somewhat higher investments in the quarter.

Leverage came in at 0.8x, a rolling 12-month EBITDA, which is in line with the third quarter. This is an unexpected development with current earnings and an effect of our dividend and of course, due to the continued return of capital to shareholders through our share buyback program. And I will come back to that topic in a few slides.

Let's move to our EBITDA bridge on Page 16. I will go through the EBITDA development for both the fourth quarter and the full year as a summary. As we have mentioned, very strong EBITDA development in the quarter, an increase of SEK 53 million. We have covered the drivers for the revenue earlier in this presentation. So let's instead look at the cost side. The compensation to real estate agents continues to grow at the pace similar to our seller revenue and is up to SEK 24 million from last year.

It is, of course, recorded as an expense in our P&L that we also view it as an investment in the agent's commitment to our business. Lisa will still take us through the update we are going to do this summer.

Other external expenses, excluding compensation to agents, is down SEK 5.5 million, lower activity is generally driven by market conditions. But in this item, we also find to some extent an effect of successfully recruiting consultants as permanent employees for specific expertise, for example, IRS developers, which naturally have a positive impact on the cost item.

Personnel costs have increased SEK 3.4 million and effective recruiting between the quarters and salary inflation. Again, OFCs were added in Q4, and that is the driver behind the SEK 142 million in the quarter. Since it's a year-end report -- sorry, let's move to EBITDA bridge on Page 17. Since it's a year-end report, I will also do an overview of the full year, even though the message is very much the same.

As we have mentioned, full year EBITDA development, an increase of SEK 77 million, 17% that is. The compensation to real estate agents continues to grow and is up SEK 41 million from last year. The absolute amount is SEK 225 million that will contribute to the real estate agent industry. As a proportion of listing-related services, meaning the compensation was around 28% for the full year.

Other external expenses, excluding compensation to agents, is down SEK 3 million despite new increased costs for new head office and other costs related to an increased organization. Personnel costs increasing SEK 16 million as we continue to invest in product development for future growth, which Cecilia also talked about earlier in today's presentation, and that is, in summary, good cost control, which is one important component when investing in future products and services and features, ultimately improving profitability for the growth journey ahead of us.

The billion is an important milestone, but I also want to highlight SEK 0.5 billion in EBITDA for the year, that's also milestone satisfying to break. Moving on to Page 18 and a few additional words on the cash flow. If we start with the graph on the left, it shows a rolling 12-month figure for free cash flow.

You have heard me say this before, but being able to generate such a stable cash flow, close to SEK 500 million for the full year in the market conditions we have had in the first half of the year, it's a very strong endorsement for the business and our model. We now live with the 2023 AGM decision to buy back SEK 450 million for the coming period. Hemnet's intention is to continue buying back shares and distribute excess cash to shareholders.

During Q4, we bought back 506,000 shares, equaling SEK 110 million. And for the full year, a total of 2.3 million shares equaling SEK 418 million have been bought back under both buyback programs. The buybacks have also played a part in increased leverage during 2023 to the current level of 0.8%. It is gratifying to see an improvement and stabilization in the third and fourth quarter driven, of course, by the increased earnings.

So with that said, if there's one takeaway from the financial update, listing down double digit and revenue up double digit, combining that with an increase in EBITDA margin that is a merit to our business model.

And with that, I would like to pass it over to Lisa Farrar to give a deeper understanding of an important update for 2024.

[Lisa Farrar, executive]

Thank you, Anders, and good morning, everyone. This is my 12th week as Chief Operating Officer at Hemnet, and I have so far spent the majority of my time meeting customers, agents and getting to know the team. I've joined the company with an amazing culture and a unique relationship with customers and especially with the real estate agent community.

And I see many opportunities going forward. However, we continue to develop win-win products to further grow those relationships. Today, I will focus on a specific update we are doing to the compensation model.

Turning to Page 20. Our starting point is a mutually beneficial win-win partnership with the real estate agent community. From our foundations in 1998 to our growth strategy that is founded on growing ARPL, we work in close partnerships with the agent industry.

I want to specifically focus on the point in the bottom left that says agents grow with Hemnet through the compensation model and spend some time on this on Page 21. I think this is a powerful chart as it shows that our success is closely linked to the agent's financial success.

This year, we will pay out SEK 225 million in total compensation to the industry. That's up 22% from last year. At the same time, our ARPL growth has been 37% for the full year. We have designed a model that can benefit Hemnet as well as the agent industry. Since launching Plus & Premium in 2019, we have revised the compensation model twice. Once when we added the sales commission on top of the administration fee in 2019 and a second time in 2021, when we adjusted the commission levels and administration fee.

We regularly review the impact of the compensation model to make sure that this is a signed investment for Hemnet, both from a relationship as well as an economic perspective. However, as our product portfolio for sellers has matured and both conversion levels and recommendation levels have increased, we consider the timing to be right to review this again.

In line with the more mature product portfolio, we have gathered richer data and insights, and it is based on these insights that we have decided to make changes to the compensation model. I therefore want to turn to Page 22 to walk you through the rationale behind the changes as well as an overview of the updated model.

Plus & Premium have become the obvious choice among sellers. We see that the potential for a successful sale increases with these products, especially since listings with Plus & Premium generate more traffic, which statistically leads to a higher sale price. Furthermore, increased exposure from such listings may generate more contacts and business opportunities for real estate agents.

The agent recommendation play an important role in seller selection of packages with 3 out of 4 sellers following the recommendation of their agent. By changing the commission levels and calculating the commission based off total revenue from all products sold, not just all vast products, we can better reward agencies that recommend Plus & Premium.

We will also make significant improvements in the publication process by removing the need for paper contracts for most sellers. And therefore, consider making the administration fee a fixed amount an appropriate move following this change. We want to pay for performance similar to previous model and have therefore made a vast recommendation, a prerequisite for an agent to earn sales commission.

Starting 1st of July 2024, we will change the way we compensate agents in line with the updated model. I want to highlight that the primary driver for this change is to increase our VAS revenue and to provide agents and offices a fair, simple and incentivizing compensation model to grow their business alongside Hemnet.

Let us now turn to Page 23 for more details on the updated compensation model. Here, you can see the previous model on the left-hand side and the updated model on the right. We've also included the main changes in bullet form for clarity. Today, we have approximately a 50% recommendation level from agents.

And as vast recommendations has become a natural part of the agents workflow and that the publication of the listing has become standardized and will become even easy going forward, we believe that these changes will create the optimal foundation for agents to continue growing their total compensation alongside our ARPL.

Turning to Page 24 and a comment on the change to the publishing flow of a listing. Agents have a number of tools at their disposal to promote and inform about Hemnet's VAS. Educating agents about key selling points and advantages of VAS is a priority for our sales team. We will also be launching better visualizations so that agents and office managers can better track their compensation levels and to be able to see both future as well as historical compensation.

By launching a digital publishing flow, we are creating yet another tool for agents to better sell VAS. Historically, agents have had to carry with them a paper contract to their sellers for signing up to a property listing. Starting in Q2, we will replace most physical workflows with a digital publication process enabling agents to skip having to carry a physical contract with them to the INTECH meeting.

Furthermore, by digitizing the publication flow, this will create opportunities for more agents to recommend the VAS and for more sellers to see this recommendation and to closely track the progress of the listing online than before. This is a great benefit to Hemnet for increased compliance and satisfied customers and partners.

And with that, I will hand you over back to Cecilia.

[Cecilia Beck-Friis, executive]

Thanks, Lisa. And I want to say again how proud I am of the results as well as the upcoming changes to our business. We have shown not only that Hemnet can grow in a challenging market, but that we can grow in close partnership with our customers to create a great user experience for both property sellers as well as buyers.

With that very brief summary, I want to thank you for your attention and turn to the Q&A.

[Operator]

[Operator Instructions] The next question comes from Daniel Ovin from Nordea.

[Daniel Ovin, analyst]

Yes. Cecilia, Anders and Lisa, congratulations on a very strong report. So the first question is on the very strong uptick we have seen here in the average revenue per listing. And it had also been strong previously this year, up around 30%, but now you have this very strong uptick here.

And, Anders, perhaps you can elaborate a bit on this effect of longer duration of listings going up to 40 days. And if I hear correctly, you mentioned a number of SEK 22 million positive from that. So that seems to explain quite a big share of that uptick. So maybe you can talk a little bit more if that is correct? And also, how should we think about this for Q1? What will be that effect? That's my first question.

[Anders Ornulf, executive]

Daniel, thank you. Of course, I will. And I also can start with, again, telling you all that this is about a new accounting principle or something, new that we have changed in our way of reporting is just an effect of the increased listing time as you also said, Daniel.

But then again, there are 2 effects to consider. The special effect you have in Q4 is the fact that September has bigger volume than December. So we are carrying over more revenues from Q3. I mean, it's the old Q3, we talked about now into Q4 this year. And that effect, if you combine those 2 effects, the net effect is plus SEK 22 million in Q4. And how to think about in the future, we will have the same effect going further, but it's also very much depending on how the listing time are developing.

But if you have a SEK 22 million on revenue, that is, yes. And of course, we will have the same story next year, meaning that if you end the quarter with a big volume month more volumes will be carried over to next quarter, all else being equal, of course. I hope that gives you a little bit more understanding of the effect.

[Daniel Ovin, analyst]

But for Q1 than March, is that considered a big milestone because the effect then for Q1, is that typically negative then?

[Anders Ornulf, executive]

Yes, much big volume in March, yes. [indiscernible] how listing every time are developing, and we don't know that.

[Daniel Ovin, analyst]

Yes. All right. Then just following up on that uptick in average revenue per listing. So even including that SEK 22 million, it seems to have been a bit of an uptick as well. And I just wonder if this launch of Pay when removed has been a meaningful driver of that? And if that is the case, maybe you can just mention if that conversion related to higher premium or premium listing, for example? Or is that more based on pricing up for that service? That's the second question.

[Cecilia Beck-Friis, executive]

Yes, I would say that the payroll listing is removed. It has the flexibility for the sellers, so they can now choose the twin piling upfront when they remove the listing. And I would say that it's one part of kind of increasing the flexibility and ARPL, but I wouldn't say that the uptick is linked to the listing.

I would say that we have many like -- I mentioned we have many different levers, but I would rather point to that these products are really sought after. It's very demanded [indiscernible]. And we've seen on the upside for, especially premium during last year increased over time and especially then during Q4 moving up to year's end.

[Daniel Ovin, analyst]

Okay. Perfect. Then just one final question here also, and that's on the cash flow side here. And there seems to have been a quite big negative impact from net working capital much larger than we have seen in previous quarters. And I'm just thinking here that, that is related to this pay when removed service.

So perhaps you can, Anders talk about that, if that is the case? And also how to think about that going forward? Is that -- should we continue that to come up even further? Or will you still be kind of operating with negative net working capital going forward? That's my last question.

[Anders Ornulf, executive]

Sure. It's -- yes, you're right. Pay when listing is removed is one of the reasons why the capital movement is negative in the quarter. But again, looking at the working capital movement for the full year, you see something else, only a negative SEK 4.0 million or so. But there are one other effect that you need to understand. It's -- Q3 again ends with a high revenue month, September, with a correspondingly high amount of deferred income liability, where the Q4 ends with a low revenue month with a correspondingly low amount of deferred income liability.

And of course, this seasonal effect amplified the longer listing duration. I mean, capital liabilities are essentially free financing for the operations. So going down, that's negative for us. So -- I'll say there are 2 big explanations of the negative development in the quarter. But you should also see positive cash flow development, the line below.

[Operator]

The next question comes from Pete-Veikko Kujala from Morgan Stanley.

[Pete-Veikko Kujala, analyst]

Guys, it's Pete. Three questions from me. Could you give some color on like how common has the Pay when removed become amongst consumers? So I'm not talking about the upsell impact of that, but has it become a popular product with sellers?

And the second question is, on the commission share with agents and more precisely, the fixed SEK 600 fee per published listing. So will this fee be updated on an annual basis? Or do you expect it to stay at that SEK 600 over time? And then the last one would be how do you think about hiring new heads for product development in 2024?

[Cecilia Beck-Friis, executive]

So the first question I can answer was on Pay when listing is removed. And we don't disclose the exact numbers, but we'll do so -- we can see that it's very well reserved, and it's in line with during the test that we ran during last spring. So I think it landed very well. I mean our strategy going forward is to continue working with kind of giving our customers the flexibility and this is one step in that direction.

Maybe I can take the second question as well. And just to mention on the commission that I mean the starting point now is SEK 600 and we might review that going forward. But that's the question for later. But we will review it on the regular business, I would say.

And on the third question with recruiting. We have the successful recruitment year this -- last year, especially when it comes to certain talent and certain -- that will have been lacking actually before. So we're very happy with that. But as you saw also during Q4, we were quite flat.

And looking into this year, we will continue to recruit if there are any specific competence or any specific skills, but we will also put a lot of effort into making sure that we are fit for fight with the organization that we have and that's also one part of Lisa's job now to kind of make sure that in the stage that we are in, that we have the best possible way of working with the total that we have today. So that estimate focus that we will add a competence and people were needed in order to deliver on our long-term growth strategy.

[Pete-Veikko Kujala, analyst]

So it sounds like you are a little bit more like opportunistic in terms of personnel needs as opposed to saying that, yes, we already know that we have a need for at least like 20 new people next year. Is that correct?

[Cecilia Beck-Friis, executive]

Yes. I would say I think we're in the middle of right now of making sure that we are fully set to take on the next step on our journey. And we know that -- I mean, that's been the case for the years that I've been here that we need to make sure that we add on people while we'll grow.

For example, in the last year, we had a lot of focus on App developers, for example. We've also brought in more BI and so forth. I think that it's in a way natural to bring in an upgrade and upskilled organization with new competence as we go. But I would say we haven't really set. It's rather making sure that we'll have the people and the skill set to be able to deliver on the strategy and the plan going forward.

[Operator]

The next question comes from Giles Thorne from Jefferies.

[Giles Thorne, analyst]

The first question, not surprisingly, on the -- in fact all questions are on the new commission model. So the first question was, it would be interesting to know how many agents would see the total compensation go down under the new model, assuming no change in their behavior -- no change in their level of recommendations.

The second question is, it would be interesting to hear at what point the value of premium to a seller begins to diminish because so many people in that area have taken it. And actually, whether you're seeing that in any particularly popular areas of Sweden.

And then finally, and forgive me for asking the obvious question, and apologies if I completely missed it. But what's going to be the impact, you think, on margins from the new compensation model?

[Cecilia Beck-Friis, executive]

So what we consider on the compensation model is that we have soon increased uptick on agents signing on this provision agreement and also that more and more agents are recommending these products. It's a very positive momentum, I would say.

And we have also -- I mean, we are in a way, maturing as we go along the journey and we'll get more data as we go. One thing that we had that I don't know if it was a year ago, maybe 1.5 year ago was also the possibility to follow and track and make sure that they could link the agents -- the work that the agents are doing and recommending the product with actual sales.

So when reviewing this model, I think it's a very natural step to kind of review the model based on the data and insight we will have. And it's clearly so with this model that we want to award an incentive. And we won't incentivize everyone to put some time and effort into recommending and selling those products.

But it's also clear that it's a pay-for-performance model. It was the case before as well, but I would say is then a bit sharper this time, meaning that we want to make sure that we award the agents that actually put the effort in there. So there will be agents that get more rewarded that -- and some people that will in a way lose out. But I would say everyone has the same possibility going forward.

And we will also put a lot of effort in time and resources during the spring to make sure that the community or the offices that they are aware of the model and making sure to hand them how to kind of address this. So we want to be a partner in that sense that we have some time now to explain the model and make sure that they are fully aware and we have development model is launched 1st of July.

So the second question was on the value to sellers. And I think that it's -- again, coming back to seeing this as a journey where we are maturing and that we're improving adding future functions into different products and packaging. And for example, if you look at premium as a product and then there are 2, I would say, clear value adds to that.

One is that you can stand out in the south list. They have more pictures, for example, and the other one is also the full renewal. And both of them are, I would say, drivers behind the sale. We don't hear from our customers that the value is -- of those seller products are diminished rather actually that the sellers appreciate this product.

And this is obviously something -- I mean we follow and track that and make sure that we have the most relevant products depending on the market situation. And I've said this before, and I think it's worth repeating that.

Now this is the product portfolio we have to do is the one we have today. But going forward, in the next coming years, that will probably continue evolving and making sure that we'll add value, change value or change to packaging, maybe as a new package and so forth to make sure that we always are on top of -- and delivering value to our sellers and to our customers?

And the third question, impact on margin. I think this compensation model, we didn't change -- and now it's 3 years ago when we did a bit of a change where we changed the foundation of the model, and this is the next step. I would say that this is another type of change. It's another update.

And the main focus now -- our main ambition here is to increase sales of our products. That's the main part. And we're very happy with partnering with the agents and also tuning the value that they add into the process.

So that is kind of our key focus. And hopefully, this will also -- I mean, this will help us continue growing for the years to come and reach our 50% to 20% and also making sure that these are part of that growth. So that was a very long answer without answering your specific questions.

[Operator]

The next question comes from Eirik Rafdal from Carnegie.

[Eirik Rafdal, analyst]

Eirik from Carnegie. I've got a couple. I think -- maybe this first one goes to Lisa. You said that around 75% of the sellers follow the recommendation from the agent and that around 50% of agents actively recommend today. Could you say anything about those 50% that are actively recommending a package today. How many of them are already recommending a plus or a premium package?

[Lisa Farrar, executive]

Thank you for your question, Eirik. We don't comment on those details, unfortunately, further than what I gave in the comments earlier.

[Eirik Rafdal, analyst]

Okay. That's fair. And just a follow-up on the commission model as well. Again, beyond the alterations to the pricing and the structure, would you be altering any other terms with the new model that we should be aware of?

[Lisa Farrar, executive]

No, Eirik, nothing further than what we already shared with you. So no other changes.

[Eirik Rafdal, analyst]

Okay. Perfect. And just a final one from me as well. You're heading into a year where volumes will be more likely of a tailwind instead of a headwind. If you were to overshoot your long-term growth guidance like you did in 2021 and 2022, how should we think about capital allocation and excess cash in 2024?

[Anders Ornulf, executive]

I think -- should I start, Cecilia? I think there's no change to that. I think the dividend policy we have together with the saying we have done this year and together with the AGM decision that we will continue to use excess cash to distribute to shareholders. That won't change.

[Eirik Rafdal, analyst]

And then we couldn't anticipate the proposal for a new buyback program by the new -- or the next AGM, maybe?

[Anders Ornulf, executive]

Yes. That's what you can prepare for at least.

[Operator]

The next question comes from Giles Thorne from Jefferies. Please go ahead.

[Giles Thorne, analyst]

I think it's got to get back on so quickly. It was a single question. It would be useful to understand how involved agents were in the development of the new commission model. Were they in the room giving feedback as you went along? Or were they nowhere and they're just being -- they're learning about it today? Just some color there would be very useful.

[Cecilia Beck-Friis, executive]

Yes. I think for us, it's been very, very important when reviewing this model to make sure that we put the right incentives in place. And I would say that the team here has put a lot of effort into looking at different alternatives to make sure that we reasonably truly find a win-win and sustainable model over time.

And we are -- we have not communicated this model until today actually. So this is the first time we communicated. We have had some agents having some true information. But otherwise, we're now putting a lot of effort from today and the rest of the spring to make sure that everyone understands the benefit of the model and the change that will take place from 1st of July.

[Nick Lundvall, executive]

[Operator Instructions] Thank you. It looks like there are no further questions on the telephone line. So we will address a couple of the questions that we have received in the chat function starting with the following: as you have started to digitalize the listing workflow, still early days, but can you discuss any initial signs, trends in package selection? Is it developing as you expected so far?

[Cecilia Beck-Friis, executive]

It's a bit too early. We're still in development stage. This is an initiative where we have had a lot of differences back throughout the journey from agents, making sure that we put a good workflow in place. But it's still too early. It's something that we will roll out during the spring. So no data as of today.

[Nick Lundvall, executive]

Thank you, Cecilia. The next question is, can you talk through your revenue recognition of the Pay when listing is removed and Hemnet's premium products. Should we expect cash flow from operations to lag revenues? And similarly, can you talk about when agent commission costs are recognized?

[Anders Ornulf, executive]

Yes, a bit of background, short one, before introducing Pay when listing is removed, we had a pricing structure based on Pay when published. When we introduced the additional payment option, we were naturally required to differentiate them in terms of pricing, a practice that is common today.

So we established a regular price and another one is a shot to pay early. And of course, we take that into consideration and -- of this and everything else that we do determining our pricing. But what you also should remember is that when you choose to Pay when listing is removed option, it's actually based when Pay when listing is removed or at the latest for a month. And then you also know that the average listing period is 40 days.

So then you can calculate fairly well how the effect will be. So the people choosing the later option will pay for the listing in average 40 days after as per today, at least. When it comes to premium, it does not change. And when it comes to revenue recognition, it does not change because, I mean, the revenue recognition is steered by the average listing period and not the payment option.

[Nick Lundvall, executive]

Can you talk about...

[Anders Ornulf, executive]

There's no change when the agent commission costs are recognized. It will be the same as previous.

[Nick Lundvall, executive]

Thank you, Anders. Here's another question for you. We mentioned that SEK 22 million was carried over to Q4 due to longer listing times. Is that total accrued income carried over in Q4 2023? Or is it plus SEK 22 million compared to Q4 2022?

[Anders Ornulf, executive]

So that's a comparison with Q4 2022. So the net effect in Q4 2023.

[Nick Lundvall, executive]

Thank you. The next question, I believe, is for you, Cecilia. You commented that 9 out of 10 sales in 2022 went through Hemnet. However, there has been media talk about this now being only 8 out of 10. Do you monitor this yourselves? And do you see a negative trend?

[Cecilia Beck-Friis, executive]

First, I think it's important to say that there has always been properties sold outside of the open market, and that will probably continue doing so going forward. When we look at our data -- I will base our data on the statistics within this down sold properties, I would say. So that's the official data. And we can see that 9 out of 10 sold properties have been advertised on Hemnet sometime during this journey, and that has not changed.

That has been very stable over time, a bit up, a bit down but very stable over time. So we haven't seen anything -- any change. And I would also add that last week, we also received the first preliminary data from the statistics was in for bill of last year.

And when we're looking at the data and analyzing that, we cannot see any change, then I would like to add also that looking at different services, I mean I've been with the company for 7 years. And I think that a couple of times, once -- sometimes we do get the surveys. And I think it's very important also to make sure that you ask yourself who is actually behind the survey, what's the purpose and how is the survey conducted.

I think it's a very -- it's important to look at -- I mean, we build our debt on the fact and the sold data versus some of the surveys are also based on the feeling or subjective feeling of something. So obviously, I mean, we monitor. This is very clear to us that we'll get as many properties for sale at our platform, and we haven't seen any change to that.

[Nick Lundvall, executive]

Thank you, Cecilia. We have one more question in the chat. And then after that, we can address a final question in the telephone queue. But here's one more for you, Cecilia. Could you please elaborate on how the Pay when listing is removed adds flexibility to the historical setup as well as how it adds value to Hemnet?

[Cecilia Beck-Friis, executive]

Okay. So flexibility, I think we're coming from a place where everything was quite fixed. So you had one product, you had one way of paying and so forth. And we're moving into now a world where we will add flexibility to cater for different modes. So from a seller perspective, you can choose now to pay up front or you can wait with the payment until you remove your listing or when your listing is sold or your property is sold.

So that adds a big flexibility and it's also been a request from both agents and sellers. And obviously, from Hemnet and then this is also adding this new flexibility. I mean, we work with pricing and packaging in different ways. And today, if you would choose to pay now, you pay one price. And if you pay at the later stage, you pay another price.

[Nick Lundvall, executive]

Thank you, Cecilia. Those were the questions in the chat queue. We'd now like to address the final question in the telephone queue, please.

[Operator]

The next question comes from Pete-Veikko Kujala from Morgan Stanley.

[Pete-Veikko Kujala, analyst]

Guys, it's Pete again. I actually have 2. But one follow-up on the commission changes still -- was not necessarily the change. But I know Giles was asking about like whether agents have been involved in this update process or not. But I guess I would frame it a bit differently, like how actively does Hemnet have discussions with agents about the commission in general? So what portion -- essentially, what portion of agents in the market might not even notice this change that you're making? That's the first question.

[Cecilia Beck-Friis, executive]

I mean we have an ongoing dialogue with agents regarding different matters always, like on a daily basis from our sincere customer support to our business development and product development. So there is a lot of dialogues and a lot of feedback coming in. So -- and I think with this model, I mean our model says we have an agreement with the agent office. And as I said, now we have some time to roll this out, during the spring to make sure that everyone is involved.

We did pay out almost SEK 0.25 billion last year to the agent community, and we're very proud of that. I mean, our ambition is to increase our sale and also make sure that we grow and the agents grow with us, and that's our key messaging and our key ambition here.

[Pete-Veikko Kujala, analyst]

Right. So basically, like the agents out there on the street like helping their customers, how closely do you think they are thinking about this commission structure when they are guiding and talking with their clients?

[Cecilia Beck-Friis, executive]

No. But I think today, it varies. I think it varies a lot. And I think that we also need to make them aware also of the different benefits and will need to make sure that they understand our product, the value our product deliveries and so forth. So that's our focus during the spring to make sure that everyone is on board, so to say. So that is our focus.

But then also from another perspective, I would say that the model that we are bringing out there, it's also very important. We know that these products are adding a lot of value. But this could vary depending on [indiscernible] with them, what kind of product you need to take on. And we trust that the agents have high integrity, and they are the ones that know the local market and know what's legal.

So the model is also -- we're not forcing everyone into recommending plus or premium. That's also very important to say. So it's a flexible model in that sense.

[Pete-Veikko Kujala, analyst]

Yes. Understood. And then the second one is a quick one, kind of triple checking on the SEK 22 million impact that you were talking about from the listing duration. So just to be clear, like is this SEK 22 million that the impact was SEK 22 million larger than it was in Q4 last year in 2022. Is that the way how you interpret this?

[Anders Ornulf, executive]

Yes.

[Cecilia Beck-Friis, executive]

So thanks, everyone, for dialing in, and have a good day.