Hypoport SE

XETRA:HYQ

Earnings Call Transcript 2018-Q4

[Operator]

Dear ladies and gentlemen, welcome to the conference call of Hypoport AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Ronald Slabke, who will lead you through this conference. Please, go ahead sir.

[Ronald Slabke, Co]

Yes, thank you. Welcome from my side as well to the presentation of the results of 2018 of Hypoport Group.But as you know, we are digitalizing the German Credit, Housing and the Insurance market. We are doing this with a network of companies. We have expanded the network throughout 2018 by a lot of acquisitions. And we ended this year 2018 with strong growth, 36%-plus in revenue, a 2-digit plus in EBIT with 26%, and with our segments performing all double digits, all companies in the network growing. It was a great year of 2018 for Hypoport overall. And I will introduce to you now a little bit more in detail what's going on.We start as always with the market overview. In Germany, the housing market is, let's say, a stable environment all in all. There are some very positive trends going on and keep going forward in 2018 and 2019. We see a strong net migration from European Union to Germany as the economic powerhouse of Europe. Even then the economy in Germany is expected to slow down in 2019. The demand for jobs is high and people from South and East Europe migrate.We see an increasing life expectancy, which increases the demand in housing. And we see an increase in single-person households, so young people staying longer alone and moving earlier out of their parents’ home, so that -- the number of households are increasing out of this as well. And all of this leads to an exceeding demand of up to 1.9 million apartments, especially in the metropolitan areas. They're up too because, let's say, different studies comes to different results, but all agreed that there is more than 1 million apartments missing in metropolitan areas in Germany.So what happened in the market when there's such an high exceeding demand, we see, again in 2018, strong increasing property prices and strong increase in rents.Everywhere in Germany and especially, in the metropolitan areas, there's a higher speed in this case. In an overall market, you would expect them to -- construction to speed up, so a fast approval process, faster constructions. Not like this in Germany, still the -- let's say, the political agenda in the metropolitan areas is focused on the current voter base, not the ones which are coming. So the perspective of lots of local government is to somehow, let's say, depress the inflow of new voters. And by doing so, they suppress the new construction of homes. We still are on a low level. In 2018, we listed roughly 300,000 apartments in Germany, which is not even enough to handle the additional demand of 2018. So the surplus of exceeding demand is increasing in the metropolitan areas.This -- so not more constructions than the years before and the increasing prices and the expectancy in the market that prices will keep going up -- going higher drives the numbers of properties on the market down. But the supply side is even weaker than last year, and we saw less towards access in the private client environment than in 2017. This and the increasing property prices leaded to a new business volume of mortgage shares, roughly or slightly above 2017. We saw over the whole year a plus of 5%, which is only a small amount above the inflation rate right now.So in this market environment of plus 5%, Hypoport grew 36%. So how we did this is especially amazing when you look on the diversity of our companies we are running right now.We start as always with the credit platform, our core of the group right now. In the center of the credit platform, as you know, is the EUROPACE system. It's supported in addition by the sales platforms for savings banks FINMAS, and for cooperative banks GENOPACE, and with our own pooling activities for small intermediaries, quality pool and star pool. We offer all ecosystems for everyone in the market to be connected to EUROPACE. EUROPACE grew in 2018 by 20%, a new record high. Double-digit growth in all product areas, exceeding market by a far double-digit in every market, in every product area. In the mortgage market, there is no going around EUROPACE anymore in Germany. Out of the EUR 250 billion, EUR 45 billion were transacted in EUROPACE. So this -- it's the market standard, where everyone agrees that sooner or later every mortgage will go for EUROPACE.Building financing, Bausparvertrag is a product heavily linked to mortgages in Germany, grew as well 23% last year to a new record high. And what is especially good for us because it increases the diversity of EUROPACE we saw a 34% plus and acceleration of adoption in the personal loan protection world. So even personal loans are more and more migrating to EUROPACE, and there's still a huge market in front of us for this.The transaction growth was supported by all sectors in 2018. So the independent financial advisers and mortgage brokers that's growing heavily because of the demand of the consumer for independent advice. But as well, private banks, savings banks and corporate banks grew their projection volume. And in addition to this, Hypoport grew its base. We went up 23% to 618 contractual partners across all segments in the market. Today inflow of new contractual partners is high and their usage as well.Especially, we wanted you to focus on what's going on in the cooperative banking sector and the public banking sector, savings banks because they combined are responsible for roughly 60% of this total sales in the mortgage market in Germany. While the savings banks, there's a plus for the whole year of 74%, show after a strong year 2017, again, a strong growth rate. The cooperative banks, this GENOPACE needs more detailed view. So the corporate banks started slow, after a slow migration process in 2017, they started with 18% in the first quarter and speeded up throughout the year and ended up at 59% in the first quarter.Very helpful is here our new cooperation with the largest German Bausparkasse Schwäbisch Hall. We teamed up with them to digitalize the broker relations of the cooperative banking sector. And by teaming up with them, we initiate together a lot of projects in the cooperative banking sector to drive GENOPACE forward. And this leads to this acceleration of the growth rate in GENOPACE over the year 2018.Looking on 2019, we expect that the savings banks will keep their pace to high double-digit growth of transaction volume and the savings banks growth. We expect to -- we expect GENOPACE to accelerate even more from fourth quarter, so that from the first quarter on -- in 2019, we see a high double-digit growth as well for GENOPACE so that there is a race between these 2 sectors, who is digitalizing faster their sales organization and who is migrating faster to EUROPACE. So this is great news. And this is an exceptional base for us for strong growth of the EUROPACE transaction volume in 2019 as a whole.2018, we finished with a record year, first time above EUR 100 million in revenue, plus 37% and a strong backing for the group results. And slightly, or let's say, similar speed EBIT growth and EBIT margin growth to EUR 26 million in EBIT. What we want you to understand here is that the credit platform, as it says is operating with a high operational leverage. Every additional transaction leads to an 100% increase in profitability. But we invest as much as possible in growing our technical engineering base and our sales force, to keep the pace high in the near-term future of migrating organizations to EUROPACE and to setting technological -- new and newer technological goals and achievements to convince the market that there is no alternative to EUROPACE to use it in the credit business. And by doing so, we invest heavily in all kinds of technologies with the engineering skills necessary for this to make EUROPACE, for this industry, a must have. But any innovation we bring to the platform, it's getting stickier, and it's getting more important for the German industry.Next, linked to the same core market, mortgage business of Private Client. Clients is -- the Dr. Klein business. Here we are an intermediary that win online-generated leads and customers and growing franchise network with 200 branches in Germany.In 2018, we were able to grow our sales force, the number of advisers under the brand Dr. Klein to close to 600 people by 10%. And because of higher efficiency in numbers by using EUROPACE, you get more efficient as an adviser and higher-average mortgage loan contracts. We even increased the transaction volume by 30% to a new record high of 60 -- EUR 6.5 million. So Dr. Klein is well outperforming the market, roughly 25% higher speed gaining market share and in the described environment of housing atmosphere in Germany. So these new record numbers lead to a new record in revenue as well, plus 15%. It's not as dynamic as expected when you look on the 30% transaction gain. The fast growing in numbers of savings bank and cooperative banks, which are working with Dr. Klein, increased the, let's say, complexity of the business. We bring this volume of EUR 6.5 million to more and more banks. This is from a risk perspective, great that we, let's say, reduce the dependency from the larger lenders. On the other side, it take some effort to cooperate with them and to support them in working well with the local Dr. Klein franchises and to negotiate with them, I'd say, from a financial perspective attractive contracts for Dr. Klein. So what we expect right now is lower margins in this kind of business to reduce our dependency from larger banks and to add value for our customers because from a client perspective, it's great to have a one-stop shop for 500 banks in Germany.This increase in, let's say, complexity and effort to diversify the lender base leads to a slower gross profit growth and then EBIT growth of only 9% to a new record high of EUR 10.8 million. Looking forward, we expect 2019 to be as well a successful year for the Private Clients division, a new record year with double-digit growth as well. But at this stage challenging to achieve a similar growth speed like the EUROPACE system, simply because it's still based on humans. We need to recruit advisers, train them, and we need to further expand our lender base to be, from a consumer perspective, the point of independent adviser in Germany.So new to the Hypoport network is the Real Estate Platform segment, and the one of you who are following us for a longer time already know that in the housing industry, for 70 years, the -- our financing platform under the brand Dr. Klein, where professionals of the housing industry transact mortgages with the lenders. We added, in 2018, more stable business models in this space by acquiring FIO SYSTEMS. They are running software-as-a-service management platform for housing associations. And with this, we are able now to provide technical insurance and lending services to this industry. As well as FIO, we acquired a trusted platform for real estate agents. Typically and strong holder FIO, our retail banks where FIO has a huge market share, and where we see a lot of synergies with our mortgage approach to retail banks.And as the last segment, for the credit industry and linked to housing, is our appraisal business, Value AG. We added Value AG to our service catalog and evaluation platform in the industry. And with Value AG, we are now the only service provider for appraisals from the smallest to the largest property in Germany and are able to offer the retail banks, using EUROPACE, a full outsourcing solution for their appraisal business.So how does this -- how did the different divisions product lines perform in 2018? We start with the housing industry and the financing platform. Here we saw a slowdown in new transaction volume because of, let's say, an interest environment, which didn't force them to act fast, so we see longer sales cycles in our financing projects here because of steady decrease in interest rate over year. The numbers of social housing projects and the backlog of our partners is increasing, but because of the, let's say, political environment and especially, the Metropolitan areas, there's no speed up in realizing this social housing projects. So not a important flow of new mortgage business from this side, so that the overall mortgage volume decreased and just by expanding our commission, we were able to stabilize the revenue base in this unit.We see a strong future for financing social housing in Germany because the exceeding demand needs to be covered sooner or later by social housing. That's why we expand our sales force still in this segment, even then the volume was down in 2018 from this record year 2017.So the cost structure went up so that the EBIT delivered to the group by this product segment went down in 2018 slightly.So the new acquisition of FIO with their strong position in the cooperative and savings bank sector for agent software supported and stabilized the revenue structure of this segment. And we considered it only for 7 out of the -- sorry, 8 out of the 12 months this year, we went to EUR 11 million in revenue for software-as-a-service businesses or services. And this is stabilizing factor for the near-time future. It's a profitable business for us. And by integrating the services with the EUROPACE system, we offer full technical solution for every real estate center of German bank, if it's about agent or about mortgage advise, both solutions are from us, both solutions are perfectly integrated and allow a smooth information flow between the different specialists in the retail banks for these 2 kinds of services to their clients.The aviation business is in expansion along the value chain with every new mortgage in Germany, there is an appraisal necessary to qualify a property for mortgage, and it's paid and charged to the bank. And we see that a fully digital mortgage or a millisecond mortgage is only possible by digitalizing the appraisal business more than it is digitalized right now.So we started with this venture 2 years ago in 2016 with a small acquisition, and then a scaling of this business and added now, in 2018, the Value AG acquisition, so that we now offer a full stack of services. Out of the more than 600 banks on the EUROPACE system, already 200 are using services of our appraisal business. Value AG is advise to the market, is accepted by our clients and starts to deliver more of the necessary evaluations for the mortgage business of our banks.It is a huge potential for us beside the fact that there are still 400 banks not served out of the EUROPACE community and even the 200 not using all services around that path. EUROPACE will grow. And right now, up to 2,000 banks in Germany need this kind of service. And with the betas of EUROPACE and with the position of the value chain, we are pretty sure that we are in the lead to be the one in Germany who knows the value of a property at any moment and are able to monetize this knowledge to banks and as well related to third parties.The revenue base in this business is as well very stable because of long-term relationships with the banks using these services. It grew to EUR 8.8 million last year as well only recognizing Value AG for 8 months out of 12, to expect higher numbers for 2019 plus a strong organic growth in this unit.Overall, this unit grew in 2018 through a new -- in a new segment, EUR 34 million revenue, 64% plus, mainly based on the acquisitions. And even when core -- the old core business of financing platform of Dr. Klein slowed down and went down in EBIT contribution, a EUR 6 million EBIT for the whole segment is a strong growth and let's say, it makes the valid segment in the group of this 4 segments which we report right now.As I mentioned, it's a young segment and its growing fast, and this is good growth for next one as well. Our fourth segment, the Insurance Platform was formed over the last 2 years by a lot of acquisitions. We base our strategy on a developed software solution, which we started to market to the community in 2015 and by acquiring different supporting software companies and competitors in a market. We are in the process of setting the market standard, how insurance products and information about insurance products are handled in Germany between consumers, insurance brokers and insurance companies.In 2018, the B2B platform Smart InsurTech, which we rebranded and joined forces of all acquisitions in 2018 is supported by a broker pool, a quality pool, so that we are able as well to serve here small and medium and large participants in the insurance space. Our stronghold are the medium ones and the new market entrances, the InsurTech apps for consumers, and we see even banks coming to the space because they are interested in leveraging their consumer base and getting high and newly splitted insurance broker route.With these 2 business models and after all the acquisitions in 2018 and valid from 1st of July, 2018, we added the additional services of ASC by an acquisition. ASC is able to underwrite insurances in the name of insurance company and take care of the end cost of the premium buyer for the consumers so that the service infrastructure of the InsurTech platform grew by these 2 services with the acquisition of ASC. What made ASC especially interesting for us, is that their services are paid by the insurance company, so their costs are included in the premium calculation of the insurance company and after collecting the premium paid by the insurance company.This is a model we like, and we know from the mortgage growth that the price for the EUROPACE system is as well included in the pricing structure of the product and transparent for the client, so every client knows how much he pays for the market infrastructure, EUROPACE and/or, in this case, you have Smart InsurTech. And this is a future we see. And where we push the insurance companies to start to take the fee of Smart InsurTech into their sphere, so that we are able to market the Insurance Platform to brokers for free. Because in the old world, they have to pay a license fee to use the software. But the gain in efficiency is spread along the value chain, so a fair pricing model is the inclusion in the premium calculations to consumer.In 2018, we doubled our revenue, based on the acquisition, which put a strong dynamic here and additional services rendered to clients we gained by all the acquisitions in 2016 and 2017. So strong growth of this segment, top line, gross profit as well, up 56%. From the pure profitability, we are still in an investment phase. We are hiring engineering as many as possible to keep the pace of integrating our platform and adapting it to the different needs of our clients' high to modernize it as fast as possible, to set the pace for potential competitors. And we add sales force and integrate the current sales force. Yes, and we did acquisitions and had some costs at the acquisition side. This all lead to a net of cash EBIT of EUR 2.7 million 2018, something that is really hard for us because it's a race for a EUR 600 million market and this huge goal and incentive is for us pretty visible, and we are going for this, and I'm not looking what we spent right now to get in this position.From time to time, we look left and right and in the deck mirror if we see competitors in this race and still no one is there. So by keeping the pace high, we want to make sure that there is no competition who is setting the standard in this industry on the technical side, and we are pretty well positioned in this race.So there we are, a strong growth of all 4 segments leads to a strong growth of the Group. As you know already, 36% up, EUR 266 million, new record high with even a strong increase -- incremental increase over the period of first quarter through the fourth quarter. So we are gaining market share in all segments we are in. That we expanded our workforce even more heavy is a promise for the future. 1,500 people now work for Hypoport and its subsidiaries more than ever. And that the EBIT and EBITDAR and profit per share underperformed and went up only between 22% and 30% is a result of this strong investment in talents for future growth on the sales and technical side, so expect more. And when you look on our forecast for 2019, where we see that the revenue growth of Hypoport organically, we will keep a high pace. We expect something between EUR 310 million and EUR 340 million in revenue, which is in line with the organic growth of 2018.We expect to add some acquisitions in the insurance world and the property or proptech world to add value through the value chains of our customers, the base of our customers, but not as many acquisitions as 2018. We expect profitability to increase even then we will keep accelerating our growth part in 2019, expect profit before interest and tax of EUR 32 million to EUR 40 million this year. And I promise at the end of the year 2019 that 2020 will be even better.So that's from my side. I give back to the moderator, Florent, this questions -- the opportunity to ask questions from your side.

[Operator]

[Operator Instructions] There are no questions. I hand back to Mr. Slabke. Mr. Slabke, are you still on mute?

[Ronald Slabke, Co]

Yes, sorry. Okay. Yes, thank you. I hope I answered all questions already during the call. I had the training session, and it's a German version and Nordic questions which came there. So hopefully, it was an interesting talk with you and for you. I will see you in 2 months here again. We promised a lot for 2019. I'm pretty sure that we will not surprise you with what we will deliver in the next quarters. Okay, thank you. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.