Welcome to the HusCompagniet Q3 2022 Conference Call. For the first part of this call, all participants are in a listen-only mode. Afterwards, there'll be a question and answer session. To ask a question, please press five star on your telephone keypad. I'll now turn the call over to our speakers. Please begin. Thank you so much. First of all, thank you everybody for dialing into this Q3 conference call. My name is Martin Ravn-Nielsen, I'm CEO HusCompagniet. With me today I have our CFO, Mads Dehlsen Winther. After the disclaimer, we can go to page two, then we can look into the summary. Yeah, just next page. Just the next please. Thank you. Here we have our summary. The sales is decreased, but a bit more than half year-over-year. The Q3 decrease was around 75%. We have in October made redundancies with a total in October of 61 FTEs, and we have closed five offices. We are pleased actually that we can present EBITDA of DKK 280 million. We also saw a margin, it was 8.4%. Actually we are trending up compared to Q3 despite an extraordinary challenging market and this environment. All in all, we present here some strong numbers. The target of delivering is still maintaining 98% of the houses on time. We also could mention that we have bought the factory in Esbjerg which was closed the third of July. It is now renamed to HusCompagniet Production. The factory in Esbjerg is absolutely a clear strategy going forward, also to a part of our B2B segment going forward as a clear strategy. The market I will come back to later and when we are looking at the outlook, we maintain our outlook from August. If we are going to the next page, then here we actually can see more around the market. I would say we are seeing a market that absolutely is worse, maybe more than the financial crisis for now. We also record high bankruptcies in Denmark in the building industry. The sales activities is very strong also for now. We continue to see a decrease in the demand, and the rising interest rate and the high cost inflation also is absolutely one of the parts that we see that our sales is at a significantly low level for now. Also, the B2B market, the professional market is also impacted by slowdown, and the sales level for 2022 is also expected to be lower than 2021. When we look about the subcontractors, we can see now that there is pressure here, if you can tell about that, it is more normalized with the supply chain in Jutland and Funen. We still see the order backlog in our industry is longer in Zealand, and therefore we still have a bit of stress around the subcontractors in Zealand, but over time, the next coming, I would say the quarter, three four months, then we will see a more normalized situation around the subcontractors. The supply chains, we also, yeah, the visibility has also reduced further, but we are pleased that we still can deliver 98% of our houses on time. When we are looking at the prices, it is a bit mixed picture actually because some of the subcontractors we now see some decreased prices when we are looking at the materials. We have increased prices of some of them, and the other is we can look into the decreasing in the prices, for example, wood. We see now that the prices is going down there. It is, as I mentioned before, it is a bit muddy pictures, but we are on top of the model that we have. We are looking. I will say every week around our cost base, and then we all the time secure that we have the right sales prices going forward. It is also actually what we have provided when we look on this latest number here, that we are on track with our margins that Mads and I all the time have told you that it was actually our main focus. If we are going to the next page. Page four. Here you can see the figure around the demand when we are talking about the Detached sales. It is a significantly different picture what we have seen here in 2022 compared to the last year. Especially here in Q3, it is on a very low level. What we are looking into, we don't have the right data and statistic for now, but what we're looking into is that we maintain our market share. It is just the market who is, it is down on a level that we haven't seen before in new times, you can say that. Therefore we now have, over the time since the last in February, we have now made four times redundancies in 2022. Total we have made it with 150 employees. The last one was in October, with around 60 in total. The reorg in 2022 are expected to generate an annual [audio distortion] around DKK 105 million-DKK 150 million, it will cost more in 2023. In connection to redundancy, we also have closed now eight offices but we still are a company [audio distortion] in the small areas we have closed down and now we actually more in the full-scale offices but we still around near the customer [audio distortion]. If we're going to next page we just have some highlights for this year, for now, and some numbers you can see it in our revenue is now DKK 3.3 billion and it is up compare to 2021. Our EBITDA is DKK 280 million down from DKK 285 million, it's almost the same as we shown in 2021. And our EBITDA margin is 8.4%, we have seen compared to the first half this 2022 that we have increased our margin despit [audio distortion]. It's the next page, Martin. Oh, thank you. The next page please. Yes. Here we see the highlights for Q3. Also, revenue it is in level as 2021. The EBITDA margin, here we can see it is very strong actually, the market also when we're looking into a very stressed industry. It proves our very strong margin focus that we have promised you over the time, that we still can maintain that in this stressed industry. If we're going to the next page, Yes. Here you can see our deliveries. It is actually up with almost 18% year-over-year, driven by growth in especially Semi-detached and also in Sweden. If you are looking at the future in the middle here, you can see the numbers in our growth, that we have more deliveries in the Semi-detached and in Sweden as well. All in all, it has been, and it is at 2022, that we have a very strong focus on the deliveries in the right time. Most of all, also very important for me to again and again tell you how much we are focused to deliver strong margins as we have done. It is also we will have more focus on in the coming period, of course. If we are going to the next page, then we also can see the split up in our sales. Because Q3 have been very tough quarter because it is down 75% compared to same period last year. It is also in all our three segments. It is the Detached, it is the Semi-detached, and it is Sweden as well, who all three segments for now, there is an impact there. It is just to give you some highlights around the market and what we have seen and looked into. Maybe, Mads, you will go to the next page where you could talk about our flexible business model around the cost model and so. On this page, we have shown this before. We are trying to probably have two messages on this page. The first one is which we're also demonstrating with the redundancies that Martin was speaking around of these 150 people that has been redundant the last six months, right? We have a very flexible business model where we have very few liabilities that goes beyond six months, basically. Here within six months, we could go down to 20% of our cost. Of course, this is a sort of just a scenario reflecting what is our commitments on different elements. But I think equally important, the second message is probably in the text of these 100%. Our SG&A was in the end of 2021, it was DKK 475 million. With the redundancies we have done now, and remember, we still have a factory in Sweden that is quite busy. We also have a fairly busy work here in Odense, then keeping that, we're down to like for like DKK 360 million. We bought the HusCompagniet Production, which adds DKK 30 million, and that means that after this reduction we'll be at DKK 390 million. Like for like, it's DKK 360 million. Moving to the next page, we've gotten a lot of questions from different people, some on our bank agreements, clearly due to the markets. We have stipulated in this page what our terms and what we have are. Of course, we cannot disclose all elements of the agreement, for example, the interest rate, et cetera. We hope you appreciate that. We have DKK 675 million of a term loan, then we have DKK 400 million in addition of a revolving facility. That means that we have around DKK 1.1 billion of facilities available to us. The liquidity for us will not be an issue as we are harvesting in the next period, and our business will go down from where we are today. We have two covenants. We have some of this is also stipulated in our prospectus when we were listed. We have one, which is the leverage ratio, which is net debt over EBITDA, where we have a covenant of 3.5%. This is of course measured on a LTM basis. We have a second covenant, which is our land holdings that may never exceed a certain amount. To this, what we can say, we cannot disclose the exact amount, but this is not something that will be relevant at all in the current activity level, but also in what we're looking into. This is not a covenant that will in any event pay out at these sort of activity levels. We would need to be significantly larger land banks, et cetera. When it comes to our interest, we disclosed in the prospectus that when we had a leverage of 2%-2.5%, then we were at 155 basis points. When we are looking at our Q4 levels of 2.6%, we're at 165 basis points. The existing agreement, if you look at Bloomberg, et cetera, it says that it terminates in November 2023. We have exercised one of our options of extending the loan for one year, so therefore we have extended our agreement so it expires in November 2024. We have full repayment holidays, so we're not repaying anything. We are repaying interest on the loan until it expires in November 2024. Moving on to the next page. Clearly, given the markets, we are looking into two different things that we can do to protect our solidity and liquidity. There's different levers we can utilize in our balance sheet. For illustration purposes, we have shown a few here. Not saying that we will do all of these. We have a portfolio of show houses. This is our inventory on our balance sheet, show houses and land plots. These two elements are some of the assets we have. A reduction down to around 40 houses would trigger around DKK 75 million in cash. Then our land, our current land bank also includes DKK 80 million that is currently for sale. Those are also something that could be harvested in the next period. Lastly, when we acquired the factory in the production in Esbjerg, we did an assessment of what a sale and lease back agreement could contribute with. I think a cautious perspective is probably at least around DKK 40 million-DKK 50 million on a sale and lease back agreement. This is just to give you a reflection on some of the elements that we would potentially be able to tap into if we need to improve our liquidity. Moving on to the next page. Here, we are reflecting our segment performance. Generally, I think not a lot of things to add to what Martin also mentioned, but I think it's fair to say that in these very challenging markets, we believe that actually all segments are doing fairly well. We believe that even our production is starting to ramp up a bit as well. I think just potentially one thing to point out, two things, that is the show house land. We are still operating with a low level of show house land, and that would impact the profitability. The margin should be seen in that light versus historical performance. We are seeing that due to energy and due to the different elements of people when they buy a house, there's different of renewable energy source, et cetera. We are seeing that our average selling price is increasing and continues to be at a, at this level. We have not seen a decrease in that from that perspective, which is positive, given it's increased quite a lot since one year back or even two years back even more. Moving on to the next page. This is reflecting our order backlog and here we can definitely see. The gross order backlog is the cash flow coming in. Basically, you also need to of course consume some cash in getting that cash in. The most interesting is probably the order backlog net. This is the backlog that will be recognized on our P&L, and that is down from the end of 2021, DKK 2.85 billion-DKK 2 billion. Clearly we are looking at a lower activity, no big surprise when you look at our sales since the Q4 2021. It's of course mainly our Detached business that is dropping down on order backlog. Moving to the next page. We have two pages on outlook. We have not really changed anything on the assumptions or the outlook other than we have said that given the dialogue we have with many investors it doesn't really make sense for us to guess in a very uncertain market on sales. Therefore we have basically just removed and will not continue moving forward a guide on sales basically. Yeah, probably I should say, even though we are making 60 people redundant here in October, we are maintaining our special items guidance. That was of course because we were not when we did our guidance last time, we were of course expecting to do some given the drop of activity and have put in some cushion for what we have done. We're just maintaining our guidance, which we are happy to do this quarter. Moving on to the next page, which is the last one. There are three points that we would just like to highlight. First of all, we have canceled our sales expectations, our Semi-detached. This should not be seen as, or we removed it. It should not be seen as we don't believe in our Semi-detached business. It just seems as we are canceling our sales targets on a yearly basis, it seems we believe it's prudent also just removing this. We will still be very ambitious around it, but it's just a number that doesn't really make sense given the current markets. We have also, due to this lack of visibility, normally we come here in November and start guiding on, or at least we did that the last few times. On 2023, given the lack of visibility, we will cover that guidance alongside with the annual report in March. Lastly, our dividends are suspended in 2023, meaning that there will be no distribution to shareholders in 2023, given the drop in activity we will be looking into in 2023. With that, on to the next page, we are opening up for Q&A. Thank you. If you do wish to ask a question, please press five star on telephone keypad. To withdraw your question, please press five star again. There will be a brief pause while questions are being registered. The first question will be from the line of Frederikke Due Olsen from Carnegie. Please go ahead. Your line will be unmuted. Hi, Martin and Mads. This is Frederikke from Carnegie. Thank you for taking my questions. I have a couple, so I'm just gonna take them one by one. First, if you could maybe break down the development in your sales activity by month and give us an idea of how the latest data points are looking in terms of demand, in particular from the Detached segment? Yeah. I think of course, we're not disclosing monthly numbers, but I think looking into the Q3 quarter, I think it's fair to say that July is part of Q3, and July is of course a month where a lot of Danes have looked forward to summer vacation, and therefore, I think it's fair to say that the Q3 number is also affected a little bit by the July numbers. I think, outside those, I think it's hard to say that we're looking at a level of 40-50 per month, if you look sort of from that perspective, right? Right. Okay. That makes sense. 40-50 houses per month for the Detached segment or on those levels? I think it was on the Detached level I was referring to. Okay. Perfect. Thank you. Maybe a comment on how you're progressing with selling your show houses and how much of the reported revenue is from this activity of selling the show houses. I think you're not showing how much is from show houses, but I can come back with this. I think it's not like we are putting a lot of revenue right now. I think it's not from that. Okay. I think it might be that my line is breaking up, but I didn't catch the last. Yeah, there's a bit of noise on your end there, Frederikke, on your colleagues. No. I said, just to be clear on the revenue part, there's not a lot of revenue coming from show houses, just to be clear on that. Of course, we are slowly starting selling some show houses. On the sales part there are some show houses, but not on the revenue part as such. Okay. I guess you're asking revenue part, right? Yes. It's very limited, so it should not be seen as there's a lot coming in. There we will see the show houses. When we sell show houses, normally we like to use those houses for a period of time. You know, we have long time until we hand over the house, and therefore it's mainly something that will happen here in Q4 and then running into the next year where we will see the effects of the show houses we are selling, just to be clear. Okay. Perfect. Sorry for the background noise. Maybe if you could help me break down the development in FTEs. You have made total cuts to your organization of, I think, almost 150 FTEs, but you've added 60 employees from the factory in Esbjerg. Net, that should be a cut of almost 90 employees, but then how is it that your year-end FTEs has been higher than in Q2? Yeah. I think first of all, that we made people redundant, they are still on the payroll, so to say. Fortunately, it is in that sense that you're not kicked out of the door, the day after, right? Remember we also made some of these redundant in October and not in Q3. It actually is making a lot of sense from that perspective. 60 of these 150 goes to taking into Q4. Right. Okay. Around 430 FTEs would maybe be the number that you have today. That's more correct, yeah. Potentially even lower. Yeah. Okay. Perfect. Could you maybe comment on what you expect from savings of the closing of offices? Yeah. In the SG&A savings, that is both people and offices. To be fair, offices is not a big ticket for us. That's part of our business model. It's not like we live in super fancy offices in the middle of Copenhagen. The SG&A costs we have calculated in these DKK 105 million-DKK 115 million are including office savings, just to be clear. Okay. Perfect. I just wanted to make sure that I understood the slant on your flexible business model correctly. Could you maybe repeat the comment on how we should understand the DKK 290 million or the DKK 360 million without production? Yeah. The thing we're saying is that when we ended 2021, we had DKK 475 million in SG&A costs. When we are looking at the redundancies we had taken, that number would have been down to DKK 360 million. Also reflecting the SG&A savings of up to DKK 150 million. What we're saying is that the DKK 360 million, that was a comparable number to 2021, but we then took over a factory where there is, due to we have factory workers as well, then there is DKK 30 million in SG&A costs of that factory, and that then ends you up with the DKK 390 million. That's the way it's built up. The like for like is the DKK 475 million versus the DKK 360 million. We of course also bought a factory that has workers, but of course also revenue to cover for those workers, et cetera. it's DKK 390 million. Okay. Perfect. Thank you. On your covenant, what happens if you breach this 3.5 x? Can your creditor accelerate the debt, or will it just trigger some constraints to the payouts? Yeah. I think in reality, what will happen is basically we'll have a discussion with the bank. In essence, they of course can cancel the loan. But in reality, you will have a discussion with the bank and ask for a waiver, and they will then take it to the credit committee and debate what kind of elements would be put into that waiver, of different elements that they would then come with. Right? Okay. I haven't. Understood. I could just to elaborate on that. We are very focused on not coming there. Of course, we now look into. We're not gonna be there. Of course it could be, but it is what we are trying not to be. Yeah. We don't foresee any covenant breach in 2023. Of course all depends on the markets and so forth, right? It's just saying that we are not in any discussion with the bank around covenant breaches, and is not seeing a reason for doing that, just to be clear. Right. No, yeah, absolutely. We appreciate that you disclosed this number, just to get the full picture. Just the last question, for maintenance purposes. Any special items from these redundancy processes that you still have yet to book? Yeah. What you're seeing is, of course, Q4, and where we have DKK 13.5 million of special items, and we have guided these DKK 25 million-DKK 30 million. I could say that we believe we will use those DKK 25 million-DKK 30 million, just to be clear. Okay. Understood. Those, of course, with October and extra offices closing, et cetera. In October we also took more of the senior people in that sense. We expect to actually use those DKK 30 million, just to be clear. Sorry, DKK 25 million-DKK 30 million, we expect to use those, and that's why we guided it. Okay. Thank you. That's all from my end. Thank you, Frederikke. Thank you. The next question will be from the line of Sebastian Grave from Nordea. Please go ahead. Your line will be unmuted. Hello, Martin and Mads. Thank you for taking my question. I have a few. First, you have 138 units sold in the quarter, and I mean, activity level below that of the financial crisis. Just trying to really understand the dynamics. What makes the market today even more hesitant than it was back then? Is it general lack of interest for new build, people not being able to sort of sell their own houses before buying new ones? Is it lack of financing opportunities? Could you please help elaborate a bit on this, please? Yes, thank you. There's a lot of factors actually that is a part of why we see what we do now and also what actually we see that is a bit more tougher than the financial crisis. One of the things is also the customers' confidence. It is historically low. We also see when we talk about the lack of finance, it is also what our customers is struggling about. The interest rate is significantly increased over a very short time. There's a lot of indicators who actually it means that we see for now that a lot of private customers for a period is actually stopped up. A lot of banks just also saying, "Please stop." And some of the customers who actually is allowed to build the houses and can get the finance and so on, there is also some other things, is that a lot of customers actually are a bit afraid of, is it the right time, and friends and so on. Everybody say, "Oh, wait, wait." It is also what we're seeing generally in for now. I think just to be very clear, Sebastian, so when we are having webinars, when we are having these kind of things, we're seeing a lot of interest. It's a bit of an odd thing because when we're looking at our funnels on, you know, the leads and how many offers we have out, et cetera, it's actually looking quite good. Quite good should be seen not as in 2020 or 2021, but it looks actually quite decent, to be honest, and not at all these numbers we're looking at. People are hesitant and Mm-hmm. As Martin says, everybody wants to do a good deal, right? There is a lot of interest. Some is stopped by the bank, some is stopped by people's basically ability because they lose a job or whatever, and some of it is just people just waiting to see when does this thing stabilize, and then when is it sort of a safe time to buy a house, right? I think those are. The interest is there. Of course on a rainy day, from a sales perspective, that can make us look a little bit more happy that actually our product is very much in demand. It's just not something that is very bold, right? Also just need some extra words around that. A lot of our customers have over the last, I would say a half year, thought that the building prices will decrease over time. Maybe it will be better prices for the customers going into 2023, so we are waiting. More, most of them actually also we see we have inflation, so maybe it's not will be a better price going forward in 2023. What we actually are seeing now is that our offer to the customers is actually on a higher level now compared to 2 months ago. More people now are coming to our offices and we give them some prices and offers around the price for the new house. There is actually an increasing interest for the customers for now. The other things is that when it so comes to the right time that they have to sign a contract, there is a lot of banks who are telling them that they haven't afforded it now, or yeah. It is something that so therefore is, it is a very yeah modern feature now, and to look into what we look into the next three to six months. Oh, okay. Okay, thank you so much. A very, very helpful answer indeed. On a note of cost inflation, and I mean deflation, you cut prices 5% approximately on Detached houses at the start of October, which I think it appeared to be linked to beginning cost relief from areas such as craftsmen and specifically in Jutland. Now, Martin, you alluded to you're experiencing a more normalized situation around subcontractors on Zealand in the coming months. Does this mean cost deflation or what are your expectations on this going forward? To be honest, it's very difficult to break exactly the product cost prices. But I can tell you one thing. We have a very clear data-based model that we have our cost prices, and therefore we are a cost-plus model. That therefore when we are seeing our costs for periods are going up, and it has we have seen that significantly for the last 24 months, then we have increased the sales prices. But we now have seen in our data that we have a dip in the prices, and it is, for example, some of our subcontractors, and we also see some of the wood and other things are decreasing in prices. Therefore we all the time are so focused on the right margins as we also have provided in this latest number. Therefore it was possible actually to decrease the price a bit. Will we increase the price in one or two or three months? Yes, maybe. Because our very flexible model, which also is rather data-based, it has been our very big advantage in this very difficult industry. Okay. Thank you. Thank you. My next question is on Sweden. As you write in the report, you see cancellations from previous sales impacting the sales numbers in Q3. To what extent are you seeing or experiencing cancellations in general? Has this trend accelerated during the last couple months, or could you maybe put some more color to this, please? Yeah. I think it's fair to say that we have seen in the last two months that they have increased. They're still not at a high number, but they have increased. That is part of the reasons why we really have spent a lot of focus on activating our order backlog, so making sure that they are. Because if you come in the beginning of a process, it's very inexpensive to terminate in Sweden. When you come to actually ordering the house from the factory, so you need to get it delivered in five, six months, then there it becomes quite expensive, very expensive to cancel a house, right? Basically, to the extent you probably won't do it, right? Just like Denmark. Therefore, we have seen a slight increase here the last two months. Whether or not this is a trend is too early to say, but of course we are very focused on it given the general market we are seeing, right? You would expect that it would increase. It's only the last two months we've seen it, but it's still at a fairly low level. Of course, if you have low sales and then you get cancellations. The way we do it is if you have, let's say, 10 sales in a month and you have six cancellations, then you do four sales, right? Of course in Sweden, you could see Sweden not selling a lot because of cancellations, because then you net up the new sales with the cancellations, right? You could potentially see negative sales given- Right. Potentially. Okay. Thank you so much. My last question will be around your capital allocation. So I mean, you suspended next year's dividends, and I guess that makes a lot of sense. But generally speaking, how do you see this, I mean, capital allocation going forward? I mean, also your land bank remains fairly small. Do you see any whatsoever possibility for you to sort of leverage on opportunities within this field or is this too early? Yeah. I think that, so generally, we are a very solid company, still. We believe we are very well positioned versus the industry. We will see the debt, of course, going down. That will give a little bit more flexibility. We will also see EBITDA going down and that counters that of course. Mm. For example, on the Semi-detached market, I think definitely we see that there is, there's less players that are solid and there you could easily see us making agreements on buying pieces of plot where we do back-to-back with big real estate funds or pension funds, et cetera. So there is a big potential for us to increase our business. And there of course, we are able to still operate on, you know, on tying up some cash, et cetera, so that we will still have flexibility to do so. Of course, we are very much focused on not tying up too much in few projects, so we'll still be running payments, et cetera, all of these things, right? There the market has changed and in our favor because we have not been willing to of course be a speculator in that sense and everybody of course are now at the same point as where we are. It's more level playing field for us and we believe this is really good for us, relative to other competitors. There are also some words around our B2B. It is very important for me also to give some words around that because we only have around 3%-4% market share in the Semi-detached segments. Yes, the market is going down for a period there, the professional investors are stocked up. Some could believe that this kind of the market will start up earlier than the B2C market. Nobody can tell us for now. We actually have a huge potential going forward because we are in this industry also going forward. We also see now that a lot of customers want to talk with us around the prefab houses, the sustainable houses in our factory. In the long run, our strategic focus going forward with sustainable and prefab houses from factories and going to this market around the Semi-detached, we are so sure that it is the right strategy going forward. Okay, thank you so much, Martin and Mads. Thank you. Thank you. As a reminder, please press five star to ask a question. The next question will be from the line of Anders Preetzmann from Nordea. Please go ahead, your line will be unmuted. Yes, thank you. Hi, Martin and Mads. It's Anders from Danske Bank here. Just one question from me about redundancies. How big of a market decline would there have to be for you to make some extra adjustments to the organization and the FTEs? Thank you. Anders, I think for us it's probably a little bit different the way we approach it, to be honest. We basically use our data and look at how many houses are we selling, how many houses are we producing. Then we look at that, and then we take our decisions on behalf of that. For us it's not really if this you know if we see that the market is continuing to be as slow as it is today, there could be more coming. That's just the way it is. We will have to adjust our business accordingly. I don't think we are sort of looking at how big of a market, we're just looking at how many sales do we have. As Martin said, what is important of course for us is that we have two elements. We have one that we can see that we are not losing market share. That's at least according to all our intelligence. That definitely means that the whole industry is hurting quite a lot, and let's see if everybody is here in the next year or two. That's one thing to have in mind. The next one is of course that we will also come to a certain point where we have to protect the future of the business to also ramp up. That we haven't come to yet. It's important for you to see that our order backlog, it has different impact in our FTE because there is also some different times in the sales guys, yeah, then we also can have a decrease in the staff there before we can in the construction managers because it is actually the guys who have to give the customers the keys in the end. Therefore we also have to make the right timing on the different kind of jobs in FTEs. Okay. Thank you. That's very helpful. There are no further questions at this moment, so I'll hand it back to the speakers for any closing remarks. We just, from Mads and I and myself, say thank you, thank you everybody for dialing in on this conference call and have a nice weekend. Thank you. Thanks.