EuroBusiness Media (EBM): Nexity just announced its results for fiscal year 2016. I am pleased to have Alain Dinin here to tell us more. Welcome. You are Chairman and CEO of Nexity. What can you tell us about the results you just released?
Alain Dinin: Well, we put out a pretty straightforward and factual press release with the figures, etc. Actually, we at Nexity are very pleased with the results. All of our business lines did well. So, looking at all of Nexity’s business lines—and we have around 50—they all posted growth this year. For example, our residential business grew 35% in volume, outpacing market growth of just 20%. So, we gained more than 1.5 points in terms of market share. As for our commercial real estate business, we feel that we are one of the leaders on the French market. Even our services businesses, which for years struggled a bit due to the need to bring in digital technology and implement a number of business transformation projects, are now performing honorably at more than 10% growth.
Therefore, on the whole, we posted an operating profit of €266 million, up more than 21% and a record-breaking order backlog of more than €4 billion. I would like to point out that five years ago we were at €2.2 billion. So, our order intake has gone up 75% in five years, which gives us a good idea of things to come practically until end-2018. Nexity’s “problems” today, or rather the areas we will be working on, are 2019 and 2020. There are not many companies out there that can say that.
EBM: You recently announced changes in Nexity’s governance. What does this mean for the company?
Alain Dinin: The changes in governance, as they currently stand, are completely consistent with my previous points. Across all of our business lines we are seeing growth. Our businesses are doing well. And, at the same time, we have a broad portfolio of individual business lines. It is now time to focus on customer relationships from a more holistic perspective. All of the markets have changed, as has our understanding of how the world works.
Considering these issues in light of all of Nexity’s business lines, we basically have three or four clients. The individual is one. In our property management business lines, in our transaction management business for new and existing properties, that’s nearly a million clients. We also have our commercial clients, the ones whose headquarters we build and who turn to us to manage their properties. We currently have nearly 12 million square meters of commercial property under management in France.
We also work with local authorities on major urban development projects.
Those are our three clients. And those three clients have to manage the full range of real-estate issues. And we are positioned to respond to their needs.
The fourth type of customer we need to be careful not to forget is the internal client. These are the people who work for this company and who, when you get down to it, are also clients–and who should be in a situation where the profound changes their work is undergoing, deskless work, digital transformation, the widespread rollout of information technologies across an entire function, and employability, are major issues.
All of these factors led us to believe we should be doing what everyone else was doing, setting up open platforms. And we are a services platform. So I feel we should fully commit to our mission, which is to serve our internal clients—as well as our individual, commercial, and local authority clients. The latter three don’t necessarily need to know everything that is going on in the wings of our 50-odd business lines across the company, but do need a comprehensive solution when they come to Nexity. Whether we are talking about students, first-time homebuyers, or commercial clients, we have to meet their specific needs. And a Nexity employee has to deliver the solution knowing that the solution is backed by a broad slate of services available to the client.
EBM: To hear you say it, this client-centric strategy makes you sound more like a services company than a real estate company…
Alain Dinin: Actually, we aren’t. It might sound like a contradiction in terms, but although we are a company that operates on real estate markets, we are not a real estate company. A real estate company owns and manages assets. A real estate company will take advantage of, or at least consider, a number of financials on the debt, the interest rate, and will speculate—and I don’t mean that pejoratively—on an asset’s future value. Real estate investment companies, for instance, are real estate companies. An asset manager is in real estate. We are neither one of these. The only assets we hold at Nexity are perhaps the few lands we have in our portfolio. For the rest, we are business intermediaries. So let’s play that role and serve our clients the best we can.
EBM: And what the client—the individual client—is seeing in rising interest rates, higher mortgage rates.
Alain Dinin: If interest rates go up 1%, for example, what will happen? Let me tell you. The first-time homebuyer’s monthly mortgage payment will go up €47. And that is money, the €47. But it is not going to change the market. At Nexity we feel strongly that interest rates will continue to rise. If not, the governments won’t be able to sustain it. Remember, Europe and the United States are two different ballgames. If you look at 2017–2018, we think that interest rates could go up 1% to 1.5% for home mortgages. That would mean a monthly payment increase of €45 to €55. Which is what I was saying. €47 for a 1% rate increase. That does not fundamentally change the market. That said, for 2017, we feel that the market will remain flat and that we will see zero growth on the residential market in 2017, just at the same level as in 2016. And remember that 125,000 residential units per year, which will be the case in 2017 just as in 2016, is still up 21% from the previous year. So, the market is pretty active, and if we are correct, we will continue to gain market share in 2017, because we also have external growth, which doesn’t show yet in the 2016 results.
EBM: As far as business in 2017, you just gave us your thoughts. But what about the figures? What is your outlook for the year?
Alain Dinin: Well, we have a very good idea of things to come as I said earlier, due to our backlog of 19 months and €4 billion, a record number. So, basically, we already know what our revenue and profits will be in 2017 give or take a few percent. I would even go so far as to say that we already know the figures for the major part of 2018. With 19 months of activity, that takes us to September 2018. So we are in a position to tell the markets that we know we are going to post an operating profit of €300 million in 2017 up from €266 million in 2016. That’s another year of double-digit growth. We are even saying that in 2018 we will grow again and that we will be at around €325 million in operating profit. We also know that our backlog, given that the market is stable and that we are capable of gaining additional market share, because we are going to gain an additional 1% market share in 2017 compared to 2016 when we gained 1.5%. So, ours is a growing company, a vibrant company with a very good idea of where our profits will stand. We are confident for 2017–2018. We are not underestimating what could happen to the global economy depending on what decisions will be made in the United States, for example, with the different interest rate hypotheses out there. Or if there were to be a substantial rate increase, with inflation also increasing, which would be good for real estate. But Nexity’s business lines, when taken together with the common goal of serving our clients, spread our eggs over several baskets. We are much less sensitive to booms, busts, and other fluctuations on a given market than most companies that only focus on one business line.
EBM: You mentioned €300 million in operating profit. In the past, I have heard you say that the dividend payout, the amount of the dividend, would depend on operating profit. And that a target of €300 million would bring the dividend to €2.20 per share if I remember correctly. Will there be an increase?
Alain Dinin: We are announcing operating profit forecasts for 2017 and 2018, something not many companies do, and a dividend increase from €2.20 to €2.40, subject to it being approved at the Annual General Meeting and by our shareholders. So, why are we doing it? First of all, our working hypothesis has fundamentally changed the structure of our company, with a shift toward a client-centric services model, with operating profit targets and future growth targets. Growth in 2017–2018 will be fueled by our traditional business lines. For our future growth beyond 2018, and in our 2018–2020 roadmap—by the way, in early 2018 we will be releasing our strategic plan for the three subsequent years—our growth hypotheses need to be confirmed by the market and by the fact that we are very confident in how we are managing the company, our cash flow. We know how we will use our working capital, even in a world that not only seems, but that actually is, complex– although not as unpredictable as one might think when comparing real estate to other businesses. Therefore, we feel it is appropriate to tell our shareholders that—without impacting our debt ratio or our capacity to fund our growth—we are able to raise our dividend. So, we are going to put it at €2.40, which is an increase of nearly 10% for 2017 and 2018.
As for our shareholder structure: Nexity is basically a listed company with a free float of 74%. However, management and employees hold a substantial stake. What you need to keep in mind is that our employees account for nearly 15% of our shareholder base and that these people also need to receive dividends. Therefore, our interests and the market’s ones are aligned. Which shows our confidence about the future to anybody who might be wondering if this dividend is just something over the next year or two or if it is a longer-term thing.
EBM: It is a trend.
Alain Dinin: Exactly. It is a trend. It is important for all Nexity stakeholders to be satisfied with what we are doing. First, our employees, because they are working on growth. And, because they are shareholders, they benefit from the company’s growth and receive the dividends of that growth. Second, our purely financial shareholders, because the whole point is that they receive a return on their investment. And of course our future shareholders, because we want them to be able to see the company’s plans for growth, business transformation plans, and, at the same time, returns. Which means that everything is going well.
EBM: And your clients, as well. Alain Dinin, Chairman and CEO of Nexity, thank you.
Alain Dinin: Thank you.
