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Edited Transcript of NXI.PA earnings conference call or presentation 21-Feb-17 5:30pm GMT

Thomson Reuters StreetEvents

Full Year 2016 Nexity SA Earnings Call

Paris Feb 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Nexity SA earnings conference call or presentation Tuesday, February 21, 2017 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Julien Carmona

Nexity SA - Deputy CEO

* Domitille Vielle

Nexity SA - Head of IR

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Conference Call Participants

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* Jean-Christophe Liaubet

Exane BNP Paribas - Analyst

* Pierre Clouard

Natixis - Analyst

* Christophe Chaput

Oddo - Analyst

* Mehdi Boudokhane

Raymond James - Analyst

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Presentation

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Operator [1]

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Good day and welcome to the 2016 Business Activity and Annual Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Julien Carmona. Please go ahead, sir.

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Julien Carmona, Nexity SA - Deputy CEO [2]

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Thank you. Good afternoon, ladies and gentlemen. Thanks for being with us to review our 2016 annual results. I will run you through the presentation, the key slides and then we'll have a Q&A session.

Let's start right away with our key figures and highlights on page 4 of the slide show. Nexity had a very good performance in 2016 and reached or exceeded its targets. In residential real estate, we have traded very strongly over the course of the year with close to 16,000 reservations of new homes in France, a 35% increase compared with 2015. This is the highest number ever achieved by Nexity, well above the guidance and also above the annual growth of the French market, which we estimate to have been at 21% in 2016.

Nexity's growth outpaced the market and was also supported by the integration of the Edouard Denis business in H2 2016. We won market share at 12.7% in 2016 compared with 11.3% in 2015. The market share increase is half organic, half M&A driven. We also beat our target in commercial real estate with EUR356 million orders, well above the EUR250 million target. Our backlog from development activities reached EUR4 billion at year-end, a 22% growth compared to December 2015.

The revenue is stable as anticipated at EUR3.073 billion. But our current operating profit is up by 21% at EUR266 million, above the revised guidance, which stood at EUR245 million. The operating margin rate goes up by 150 basis points reaching 8.7%. Finally, the net debt is just above EUR300 million, in line with our expectations. The increase over December 2015 is pretty explained by external growth. And we had a good free cash flow in the period at EUR168 million.

The next two slides, page 6 and page 7, are about the evolution of the business model and of the top management of Nexity. Our Chairman and CEO, Mr. Dinin, has decided to reshape the Group's organizational structure in order to make it fully aligned with our key client groups, individuals, businesses and local authorities. The objective is to create a truly customer-centric organization and to break the barriers between products. Nexity has around 1 million retail clients and our objective is to provide them with solutions to all their real estate-related needs, new homes to live in, buy-to-let investments, transactions, rental management, student residences, senior housing, advisory and so on plus a host of new offerings, which would be gradually rolled out. Thus, Nexity wants to become an integrated service provider, or to put it differently, a real estate services platform.

Alain Dinin has appointed three Deputy CEOs and one Deputy Managing Director, whose responsibilities are based on these client groups. Jean-Philippe Ruggieri is in charge of the new individual clients group which will combine new homes and real estate services to individuals who will manage this group with Frederic Verdavaine who is leading the PMI business. Bruno Corinti is in charge of two client groups, corporate clients and local authorities. And I am personally in charge of a group called internal clients, which manages group functions including finance, legal, HR, IT, as well as strategy and the transformation of Nexity. Herve Denize who had been Deputy CEO of Nexity since 2006 has stepped down in order to allow a new younger management team to step in. This new organization will be gradually implemented across the Company. At this stage, we're not changing our business and financial segment reporting.

Let me come back to the French residential market and the drivers on page 9. Demand has been very robust over the course of the year. Very low interest rates played a significant role, even if they started to increase at year-end. The government's stimulus measures are working very well. The Pinel for buy-to-let investors and the PTZ for first-time buyers are in place until the end of 2017 at least. We have also seen a gradual recovery in consumer confidence.

On page 11, you can see that the French housing market is indeed on a good trend with both building permits and housing starts showing double-digit growth.

Let me go to page 12 to talk about the market in general. We estimate that the French market has reached 125,000 reservations in 2016, a number which stands slightly above the high end of our revised guidance. That's a 21% growth compared to 2015. We are seeing a stable market for 2017, but stable at a very high level, again 125,000 sales close to the historical highs. We see no signs of a slowdown in the market at this stage, but we'd rather be very cautious with potential risks stemming from interest rates, of course, but also political risks linked with the upcoming election in France as well as our political developments worldwide.

In terms of mortgage rates in a nutshell, we think that the increase will continue, but a gradual increase in rates is manageable as long as it doesn't exceed 1 percentage point compared with the level we had at the end of last year. Above that, we might start losing some first-time buyers, although investors are probably less vulnerable in terms of solvency and affordability.

Moving onto page 13, Nexity's reservations in France. In 2016, we recorded 15,893 net reservations in France, 35% year-on-year increase by volume and 29% by value. It's been a healthy growth with stable prices, good performance in all client segments and a good geographic balance. If we strip out the impact of the consolidation of Edouard Denis sales over six months, sales of new homes totaled a little bit more than 15,000 units and growth rates, like-for-like, are 28% by volume and 23% by value. The gap between growth by volume and growth by value is driven by mix effects with, for instance, a high number of sales of units in managed residences, which have a lower unit price and also mix effects with respect to bulk sales. Average selling prices to retail clients are perfectly stable at EUR214,000 per unit.

With respect to subdivisions, sales increased by 14% relative to 2015, in line with the recovery of the market for single-family homes. Reservations outside France are up by 64% at 479 units with a good contribution from Poland. Overall, Nexity's residential reservation in 2016, including subdivisions and the international business are close to 19,000 units and the value of the order intake rose by 29% at EUR3.2 billion including VAT, a EUR700 million increase compared with prior year.

Focusing on Q4 on page 14, in the fourth quarter of 2016, new home reservations in France totaled 5,201 units, a 23% increase compared with Q4 2015 on a reported basis and a 10% increase at constant scope. So, we did have a deceleration in the growth rate due to the tough comps in Q4 2015, but not as bad as we initially thought.

Going to page 15, key client segments, as I said, we saw growth across all our client segments plus 45% for homebuyers, plus 30% for individual investors and plus 15% for professional landlords.

Talking about the first-time buyers, the most significant change of the prior year, this is a result of improved mortgage availability of the PTZ (inaudible) interest-free loan and also of the QPV areas, which benefit from a reduced rate of VAT for homebuyers. Individual investors, also surging from 2015 with a 30% growth, partially driven by the Pinel scheme and also by sales of units in managed residences, which grew by a very dynamic 58%. All in all, for the year, reservations by private clients were up by 35% compared with 2015.

Finally, sales to professional landlords grew at a slightly slower pace, plus 15%, which makes sense in a context where demand from private clients is so dynamic. Regardless, sales to social housing operators and to other investors reached their highest level ever for Nexity in 2016.

On page 17, a few comments on the supply for sale. On a like-for-like basis, Nexity's supply for sale dropped by 12% compared with 2015, although it increased by 5% if we include Edouard Denis and Primosud. This decrease demonstrates that the sales basis were good and improving, the pre-sales rate is high and improving at 72% for the full year of 2016 versus 67% in 2015, the unsold completed stock is quite low, slightly above 100 homes and the number of units launched increased by 8%, a reasonable rate.

On page 18, which is the last slide for the residential market, the business potential, as you can see, we've continued to increase our options pipeline. Number of plots is now well above 40,000, which is equivalent to 2.6 years of business activity. The organic growth was 6% and the acquisitions of the year added more than 5,000 plots to the pipeline. The share of the Greater Paris region increased to 49% of the total business potential. We booked a number of large deals and we see good opportunities in the future for strategic plan. We had, as usual, strict criteria before signing land options, in particular we don't factor in potential price increases, but we are able and willing to invest.

Moving onto the commercial market on page 19, 2016 was another strong year for the commercial investment market in France with EUR24 billion invested. Paris office values are up, yields are down to 3% for prime offices and investors with an appetite for risk are turning to new office projects including those done on a speculative basis. But the real good news is that the rental market in the Paris region has improved, showing a 7% increase compared to 2015.

On page 20, you have two indicators on Nexity's performance in commercial real estate. It's been a good year with EUR356 million booked, a bit less than prior year, but above the guidance. We signed off-plan sales of new offices and hotels in the first ring of Paris, Rueil-Malmaison, Clichy (inaudible) and we also strongly increased our business outside the Paris region with close to EUR100 million of new orders, particularly thanks to the wood-frame segment. The order book increased by 12% reaching EUR544 million.

On the services, page 21, we had a small growth in volume managed and real estate services to companies and as usual, a small decrease, 1.9%, in real estate services to individuals with a total portfolio of units under management around 900,000 units. But the brokerage business was quite dynamic with provisional sale agreements up by 6% for the Nexity network and up 10% for our franchise networks, Century 21 in Guy Hoquet.

We'll now move onto our financial statements and start with revenue that's on page 23. In 2016, stable revenue of EUR3.07 billion. Residential real estate is growing, commercial real estate decreased and the services were more or less stable. Residential real estate is, again, our largest segment with a EUR2.27 billion revenue, 74% of Group total. We have a growth of 5%, growth rate, which is lower than the growth in business activity, but gain and as usual, you should keep in mind that there is a time lag of about two years between order intake and revenue recognition. That's a growth simplification, but in this perspective, in FY 2016, we recognized revenue stemming from the orders booked in FY 2014, two years ago, which were more or less flat at that time.

Also, because of the IFRS purchase price allocation method, the contribution of Edouard Denis and other acquisitions of 2016 to consolidated revenue is exactly 0 in 2016 and should remain marginal in FY 2017. Therefore, the residential division's revenue trend should accelerate in the future.

In commercial real estate, we have a revenue drop of 19% in 2016 at EUR307 million. This is due to the volatility and to the lumpiness of the order intake pattern. In FY 2015, again that the two-year rule, the division's high revenue level was due to large orders booked in 2013 being delivered or approaching delivery. Conversely, the division's revenue in 2016 is lower, in line with a low level of orders two years before. However, and we're providing Q4 -- quarterly, sorry, revenue in the appendix to the press release. We had a strong Q4 2016 revenue in the commercial division, EUR117 million, which is twice the revenue booked in Q3, which suggests that the more recent orders are starting to contribute to the P&L.

In the services division, we had a revenue of EUR494 million, 2% decrease with respect to 2015. Property management for individuals including the franchise networks is slightly up, thanks to a good level of brokerage fees. Meanwhile, services to corporates and Studea showed decreases in revenue for different reasons, a tough market and an ongoing restructuring for services to corporates and a voluntary reduction in the number of managed residences for Nexity Studea.

Page 24, operating profit, Nexity's current operating profit for 2016 stands at EUR266 million, 21% increase compared with 2015, which in turn was 20% above FY 2014 and that's after an EUR18 million expense coming from our digital and innovation operations. The current operating profit and the profit margins increased in all Group divisions in 2016. For Nexity as a whole, as I said, we have an improvement of 150 bps in the current operating margin rates.

Starting with residential real estate, operating profit is up by 9% compared with 2015 at EUR203 million, an EUR18 million increase. The division's margin at 9% is back at its normal level. All our residential development subsidiaries had a good year. We have a particularly good year for, for example, subdivisions or (inaudible). The contribution of commercial real estate is quite high at EUR57 million, a EUR16 million increase over last year despite lower revenue. The operating margin stands at 18.6%, well above the normal level of [9% to 10%] for the third year in a row. And we expect to continue seeing above-average margin rate in 2017 and probably in 2018 as well. This performance is due to a very good management of ongoing projects, but also to reversals of provisions on delivered projects.

Finally, the services division generated current operating profit of EUR45 million compared with EUR35 million in FY 2015, a 26% growth. The division's margin is at last in line with our expectations, 9.1% for the division as a whole compared with 7.0% in 2015 and above 10% with respect to property management for individuals. Most of the improvement came from operational efficiency and we were also helped, as I said, by a good level of brokerage fees.

Finally, the loss posted by other activities minus EUR38 million is more or less in line with FY 2015. This segment is where most of the digital and innovation expenses as well as some unallocated overheads.

On page 25, we have a focus on the long-term performance improvement of the services division. You can see continuously improving trends in 2013 coming from cost cutting, digitization and also positive contribution from acquisitions, particularly Oralia which we brought in 2014 and which is doing quite well. The other interesting message here is about the quality of earnings. 10 years ago, three quarters of the operating income of the services were coming from financial products, earned from managing clients' accounts. The proportion is only 12% today. So, the underlying performance has markedly improved, although we obviously still have a lot to do in this area.

Going to the consolidated income statement on page 27 and focusing on the bottom part, we had no goodwill impairments in FY 2016. Net financial expenses were EUR28 million compared to EUR20 million in 2015, mainly due to some one-off costs arising from the redemption of the 2014 convertible bonds. The tax expense EUR89 million increased by EUR15 million, in line with the pre-tax profit. The effective tax rate is more or less steady at 37.3%. Equity-accounted investments made a EUR7 million negative contribution, higher than last year and the main driver here is the contribution from our website Bien'ici, equity accounted since January 2016. Net profit came in at EUR139 million for the period, a 13% increase.

Now, let's talk about some balance sheet and cash flow items. On working capital, page 28, operating working capital requirement at year-end 2016 was just below EUR700 million, EUR170 million higher than in December 2015, largely driven by acquisitions in the year in residential real estate, acquisitions explaining EUR134 million. At constant scope, the working capital is well under control.

On page 29, you have the change in the net debt position. Our net debt increased by EUR214 million over the year, reaching EUR317 million at end December 2016. If we want to disaggregate this debt figure, we have exactly the same amount, EUR214 million coming from the acquisitions of the year, Edouard Denis, Primosud, Costame and AEgide-Domitys, in particular. We also have this EUR31 million impact of the refinancing of convertible bonds and a EUR18 million negative impact due to other items, some of which are related to M&A as well. So, our EUR317 million net debt stands as a reasonable level, 20% of Nexity's shareholders' equity and around one-time EBITDA. We still have room to increase our debt, which would mostly depend on M&A opportunities and strategic and acquisition opportunities.

On the cash flow statement on page 13, cash flow from operating activities before interest and tax totaled EUR289 million, a 22% increase compared with FY 2015. Cash flow from operations decreased slightly to EUR191 million compared with EUR240 million in 2015, due to a positive variation in the operating working capital. Operating investments, particularly in IT, increased to EUR23 million and the free cash flow to that EUR168 million, well above the annual dividend payment, which was at EUR120 million last year.

Page 32, the backlog, our total order book at December 31 is touching a new record high at EUR4 billion, showing a 22% growth rate compared to December 2015. The commercial backlog is growing by 12% and the residential backlog by 23%.

Let me go to page 33 and 34 to give you our outlook for 2017 and 2018. On new home reservations, we expect to grow our market share by around 1 percentage point in a stable market to 125,000 units, a high level as I said. Our reservation numbers will of course be helped by the consolidation of Edouard Denis over six more months than last year and we continue to see opportunity for further growth, for example, with our Nexity Partners initiative which aims at doing joint ventures with smaller developers. Overall, in terms of number of units, if we're getting the right number for the market as a whole, we are guiding to around 17,000 reservations in 2017 compared with 15,900 in 2016.

In commercial real estate, our target for 2017 stands at EUR350 million, in line with the 2016 performance. We are guiding to a 10% revenue growth for Nexity as a whole with the backlog providing a good visibility. And in terms of the current operating income, our target for 2017 is EUR300 million, a 13% growth compared to 2016. One year ago, as you remember, we had set a EUR300 million target for FY 2018, so we expect now to reach it one year in advance.

The operating profit target for 2018, the medium-term target has now been reset at EUR325 million.

Finally, the Board of Nexity has decided to increase the dividend at EUR2.40 per share in 2017 and 2018, the EUR0.20 increase. We are confident that our long-term strategic focus will continue to deliver strong returns for our shareholders. For the avoidance of doubt, this means an increase in the dividend that we expect to pay in June 2017 and June 2018 as well if our general assembly of shareholders, of course, agrees with that.

At that point, I would like to open up for questions and answers. And I'm happy and willing with the IR team to deal with any questions that you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Jean-Christophe Liaubet, BNP Paribas.

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Jean-Christophe Liaubet, Exane BNP Paribas - Analyst [2]

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Congratulations for the stronger figures. First question is on the (inaudible) can you elaborate why you expect further gain of market share of 1 point this year, in which region -- area do you expect to gain some share? Second question is on the working capital which deteriorated a little bit. Can you give us some color about [reduction] from residential and commercial?

Third question regarding your dividend target. You increased your guidance, still relying on an absolute number while some of your competitors like (inaudible) target to pay out. So why did you stick to an absolute number rather than the payout given that you have a set of (inaudible) payout could be not that harder for you given that you have EPS range you may have higher dividend to be paid to investors.

And the last question on the digital where you continue to invest in, you can speak comparing to your peers which is a positive measure, can you give us some color about where do you invest and what is a digital strategy?

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Julien Carmona, Nexity SA - Deputy CEO [3]

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Okay, thank you very much, Jean-Christophe. On the market share gains, wanted one percentage point, I could say it's not a very challenging target, because as I mentioned, we booked only six months of reservations coming from Edouard Denis about 800. So if you add another 800 and we hope that this figure will be higher for the let's say H1 of 2017, this is 0.7, 0.8 full point of market share, so the rest should come from organic growth, here or there, and also from the development of the Nexity Partners venture, which I mentioned. So, I wouldn't say that it's a very ambitious target that the result that the full year impact of Edouard Denis as well as Primosud, which is much smaller and which had no contribution at all in 2016.

On the working capital, as I said, that we can go back to the figures, most of the increase really comes from the integration of Edouard Denis and Primosud. So, roughly EUR134 million -- sorry, I'll go back to the slide 28. Yes, EUR134 million out of the total plus EUR170 million working capital requirement increase for the residential business. So, as I said, it's well under control. We could and we should see some positive working capital formation in 2017 which makes sense, because we booked a lot, but now we will have to build to open new construction sites to buy land as well. So, of course, we have a good, I guess, cash flow pattern, no issues at all. We are getting cash from our customers, but in line with the growth in the underlying business it makes sense to have some sort of small growth in the working capital.

The commercial business is still negative, minus EUR3 million and maybe it will turn slightly positive next year. And the services are still fully negative, minus EUR63 million. On the dividend, it's a good question, why do we stick to an absolute number, because we don't think that the payout ratio based on the EPS on the net income Group share really makes sense for a company like ours.

I think the real driver of the dividend is now the cash generation and the free cash flow. So, at the same time, we consider that we can pay out to the shareholders a vast majority of the free cash flow, but if we have a ratio, which is based on the annual figure of the free cash flow generated by the Company, then we will have a lot of volatility in the dividend payment, which we believe is not what our shareholders are expecting. So, we are trying to have something which is not only stable, predictable, but also growing step by step. The dividend growth is a bit less than 10%, so in a way it's less than the growth in the operating profit generated. Ideally, we would like to keep growing, but at this stage, we have set the dividend level for 2017 and 2018.

Finally, on the digital, that's the, let's say, very big open question, because we are doing a lot of things. If we want to have two categories in our digital investments, we have investments which are aimed at improving the, let's say, operating processes of Nexity. In the service business, in particular, digitization is key to, first of all, having a better relationship with customers, offering a better customer experience and reducing the operating costs. So, we are going to keep investing heavily in this direction. And as I said in the beginning, we are making a new turn towards a model which is much more a model of a service company versus the model of, let's say, a specialized real estate player. And in this context, it's very likely that we will keep spending more and more in digital, IT and so on. And so that's the first part of our investment.

The second part, it's a series of new ventures, really innovative services. We talked about some of them, the Blue Office in co-working spaces. At this stage, we are losing money, but we think that it's really an emerging trend, which is quite significant. So, we'll keep working on that and also Bien'ici, which I mentioned, so it's real estate ad listing website, which is a small competitor to [Saloje] and we're making a lot of progress, but still with a negative contribution at this stage. We may come back to that either in the, let's say, following part of the discussion and of course -- and it's a message to all analysts and investors based in Paris, we'll have a press conference and analyst conference tomorrow at our head of office with Mr. Dinin and the top management of Nexity. We will also have a visit where we are going to show some of our innovations, innovative services in our building. So, it would be a good opportunity to ask further questions.

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Operator [4]

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Pierre Clouard, Natixis. (Operator Instructions)

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Pierre Clouard, Natixis - Analyst [5]

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I have two questions on my side. The first one is to come back on the working capital, in absolute terms we are at 20% compared to [two-third] today. Do you have a target for 2017 and 2018 in mind? And the second one is on your view on the reservations. I know it's early, but at least on the first two months of 2017, do you have a view of the dynamic of reservation for 2017 and especially for the February and January? Thank you.

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Julien Carmona, Nexity SA - Deputy CEO [6]

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We don't have an actual target for working capital. We want to manage it well. In a sense we have an objective to generate as much cash and free cash as possible, so working capital requirement is of course playing a key role here, but having an annual target, given the volatility of some of the working capital items is, in my view, a little bit complicated for a company like ours. You are looking at a ratio between working capital and revenue. I think probably the best ratio would be working capital compared to its backlog. So, in a way with the backlog increasing by 22%, the increase that we are having in working capital is fully explainable.

In terms of the reservations, and again you may ask the same question to Mr. Dinin tomorrow, but in the first -- the first six weeks and in the first two months, as I said, we're seeing no slowdown in the market and probably slightly better figures in early 2017 compared to the early 2016. But still we are talking about numbers which are not very representative, these are small figures. If you look at our quarterly reservation pattern, Q1 is always very small. So, we don't want to extrapolate.

What we are -- the message we are carrying and in a way we are cautious when we're talking about the stable market in France in 2017, the message in my view is to say, everything else being equal and if we're on the same trend as 2016, the market will be good and could show some growth, but let's wait for the elections. We may have some good news, we have some bad news and we could very well have a good H1 and a bad H2. So, given a little bit of uncertainty, we are providing you with a, let's say, forecast and a guidance of a stable market and a gain in the market share of Nexity. So this is the scenario in which we're working at this stage.

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Pierre Clouard, Natixis - Analyst [7]

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Okay. And everything equals to 2016, can you quantify at least the potential growth without any, I would say, bad news relating to election?

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Julien Carmona, Nexity SA - Deputy CEO [8]

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No. Otherwise, we would have provided two scenarios, bad scenario, good scenario. So, as usual, we'll try to do the best we can.

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Operator [9]

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(Operator Instructions) Christophe Chaput, Oddo.

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Christophe Chaput, Oddo - Analyst [10]

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I just would like to come back on your mid-term guidance or your guidance in terms of 2017 and 2018. So basically my understanding is that stability was fairly more or less at the same level as in 2016, which means about 7% or 8%. Could you give us more insight relative to your (technical difficulty) business in terms of profitability, (technical difficulty) division is supposed to be close to 10%. You said that 9% for residential is normative, but previously I have from your part that you can reach 10% and commercial seems to be high for the next month of year. So, again, could you give us more detail about the level of profitability per division? Thank you.

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Julien Carmona, Nexity SA - Deputy CEO [11]

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Thank you very much, Christophe. As you know we're not giving guidance business line by business line. What we are promising to you is the overall number, nevertheless I will try to answer your very good questions. First of all, in terms of the residential division, it's indeed possible that the margin rate will gradually go up, and as I said, 10% is certainly our new target. I hope it's going to become the new normal. The old normal was 9% and the new normal could become 10% and we were -- what I described again the percentage of completion method, the two-year lag between order intake and revenue recognition (technical difficulty) true which is a fact that the potential margin on the new business is slightly higher, but the margin in the old business, which is going through the P&L in 2016. So, overall, there is some (technical difficulty) or an upside, which will not be dramatic.

In the commercial business, this is a little bit more difficult to predict.

As I said, we expect to continue to have high margins, well above 10%. But will it be 12%, 14%, 16%, 18%, it depends a lot on the phasing of different projects, when they are delivered, do we have some reserve that we can release, when and so on. But clearly over the next two years, as I said, we will continue to live in a high-margin world.

And in the services, I talked about continuous improvement. And this is exactly what we want to continue, keep improving the margin. Again, it will not be maybe as spectacular as what we had in 2016, but we still have some room to increase the efficiency of our services operations.

Overall and in a way the consensus was right, meaning that our new guidance, which is more or less the consensus, but in terms of the, let's say, margin rate of Nexity as a whole, I think, yes, we'll start to show some revenue growth, but we hope to see an increase in the operating profit which maybe will be a little bit higher than the revenue growth in 2017 at least.

I talked about a 10% increase in revenue, a 13% increase in operating profit, so the idea is to keep trying to improve our margin rates. I don't know if this answered your question.

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Christophe Chaput, Oddo - Analyst [12]

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Yes, it answered the question. Thank you very much.

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Operator [13]

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Mehdi Boudokhane, Raymond James.

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Mehdi Boudokhane, Raymond James - Analyst [14]

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Two questions from my side. First one on reservation, so you had another solid year and I don't know if this is possible, but could we have an idea of the split between the main contributing elements here and especially mentioning the stimulus measures on one side and on the other lower interest rate environment.

And secondly, I don't know if I can go or --

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Julien Carmona, Nexity SA - Deputy CEO [15]

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Yes, go ahead.

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Mehdi Boudokhane, Raymond James - Analyst [16]

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Okay. And maybe -- so following up on the interest rates environment, so you mentioned this threshold of a 1% increase in mortgage rates. Could we have here kind of a range or precise figure, just to have an idea of this threshold of which the overall sentiment and demand start to be impacted.

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Julien Carmona, Nexity SA - Deputy CEO [17]

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Okay, it's more guidance way to give you what our scenario is rather than, let's say, how the threshold settings stone. I would say that the 1% threshold which corresponds more or less to slightly above 2% in terms of the mortgage rates, 2%, 2.20% where we were one year ago. And one year ago as you will recall the business activity was already very good. So it's now to say if we reach this level our work will collapse. It's to say -- and I'm sorry, we didn't put this slide in this presentation, but we will have it in our investor presentation, which will be on the website tomorrow, Domitille, yes?

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Domitille Vielle, Nexity SA - Head of IR [18]

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Tomorrow, yes.

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Julien Carmona, Nexity SA - Deputy CEO [19]

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We will provide you with some simulations based on real-life example for homebuyers and investors. All of you, let's say, if we have 1 full percentage point increase in the mortgage rate then at this stage, we start losing some first-time buyers. But we probably won't lose investors, because as I said their own solvency and affordability framework is much more solid.

Assuming we lose -- and I think it's really a stress scenario. Assuming we were to lose 10% of the first-time buyers, well, first-time buyers represent a bit less than 20% of our total sales, so that would mean minus 2% if this were to materialize. So again, it's not a clear forecast, it's a way to guide you.

I'm not saying that interest rates don't matter, but even that we are -- even today at such a low level by historical basis, really there is a lot of room for interest rates to increase without starting to hurt our business.

And to your other question, what are the respective impacts of the rate environment and the government measures, it's very hard to give you a precise answer and to disaggregate the different elements. To give you an example of a strong connection, if you take the PTZ, the interest free loan, it has been increased, as you know, in January 2016 to up to 40% of the acquisition price of a property which can be financed by the PTZ. And in a way the existence of this government loan is in itself a protection against an increase in interest rates because it means that the increase in mortgage rates will weigh only on 50% of the total price given that you have 40% cash earn provided by the PTZ and a 10% cash contribution from the customer. So it's very much interlinked.

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Operator [20]

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(Operator Instructions) It appears there are no further questions at this time. Mr. Carmona, I'd like to turn the conference back to you for any additional or closing remarks.

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Julien Carmona, Nexity SA - Deputy CEO [21]

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Thank you very much for your attention and for your questions. As I said a few minutes ago, for those of you who are in Paris, you are really invited and we'd be very happy to have you tomorrow at our event. And for those of you who are elsewhere, we'll start road showing in the UK, the US, Germany, Switzerland, a few other countries in the coming days and weeks. So, thank you again and good night.

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Operator [22]

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This concludes today's call. Thank you for your participation. You may now disconnect.