Financials: Stable earnings, but lower order intake
Helma reported an adjusted EBIT of €22.1m in FY17, which was broadly flat versus the prior year (FY16: €22.2m). Similarly, FY17 sales were up marginally by 1.4% y-o-y at €267.4m, translating into an adjusted EBIT margin of 8.3% (vs 8.4% in FY16). This is ahead of the company’s earlier guidance announced in the H117 release, as it had expected a margin in the lower third of the 7.0-10.0% range (ie 7.0-8.0%). The German housing market is experiencing strong demand, especially in conurbations, driven by immigration from European and other countries, high mortgage loan availability and investment demand due to record-lower interest rate levels, as well as a solid macroeconomic environment. However, the market is characterised by persistent bottlenecks due workforce shortages in construction and overall longer project processing periods in the planning phase. This is illustrated by the 7.3% y-o-y decline in construction permits for residential dwellings in Germany in 2017. As a result, Helma has turned its focus on maintaining a higher margin rather than strong revenue growth while continuing to put emphasis on project quality. Importantly, the company was able to offset cost inflation with price increases. Pre-tax profit was €19.1m in FY17, in line with the €18.5-19.5m range indicated in an ad-hoc release on 12 January. FY17 EPS was down 3.6% y-o-y to €3.25.
As already highlighted in the January release, the company’s order intake declined significantly to €129.1m in H217 (-22.3% y-o-y) following a 3.6% y-o-y decline to €120.6m in H117, despite management’s earlier expectations of a visible pick-up in the second half of the year. With order intake declining by 14.4% y-o-y in FY17, Helma missed its order inflow guidance, which implied ±10% change versus FY16 levels (€286.8m). This was due to new orders being below targets in Helma Eigenheimbau AG (-5% y-o-y) and Helma Wohnungsbau (-34% y-o-y), although Helma Ferienimmobilien was in line with expectations. It is worth noting however, that the 2015 and 2016 order intake included the sale of a large-scale residential project to an institutional investor, which allowed Helma to recognise order intake in full instantly. At the sales level, Helma Eigenheimbau posted a 5.2% y-o-y decline in sales to €47.3m in H217 after a 10.0% y-o-y drop in H117. Helma Wohnungsbau reported revenues lower by 13.0% y-o-y (H117: -10.5% y-o-y). Conversely, Helma Ferienimmobilien continues to post solid sales growth, with H217 seeing +48.5% y-o-y (H117: +52.0% y-o-y), This division’s performance is mainly driven by the Hafendorf Zerpenschleuse, OstseeResort Olpenitz and NordSeeResport Büsum projects.
Helma’s net debt increased by 20% y-o-y to €149.2m, but was down sequentially from €161.3m as at end-June 2017. This translated into an equity ratio of 28.0% (FY16:28.8%). Cash flow from operations stood at -€13.3m (vs -€16.1m in FY16) on the back of continued land inventory build-up (inventories at €199.9m as at end-2017 compared to €173.8m in the prior year).
Exhibit 1: H217 and FY17 results highlights
€m |
H217 |
H216 |
y-o-y change |
FY17 |
FY16 |
y-o-y change |
Revenue |
157.4 |
160.8 |
-2.2% |
267.4 |
263.8 |
1.4% |
Adj. EBITDA* |
16.9 |
16.7 |
1.1% |
24.4 |
23.9 |
2.0% |
adj. EBITDA margin* |
10.7% |
10.4% |
34 bps |
9.1% |
9.1% |
6 bps |
EBIT |
14.2 |
15.3 |
-7.7% |
20.2 |
21.7 |
-6.6% |
Adj. EBIT* |
15.5 |
15.8 |
-1.5% |
22.1 |
22.2 |
-0.1% |
adj. EBIT margin* |
9.9% |
9.8% |
6 bps |
8.3% |
8.4% |
-12 bps |
EBT |
13.4 |
14.3 |
-6.4% |
19.1 |
19.6 |
-2.2% |
Income tax |
4.4 |
4.5 |
-0.4% |
6.1 |
6.1 |
1.1% |
tax rate |
33.1% |
31.1% |
198 bps |
32.1% |
31.0% |
106 bps |
Net profit |
9.0 |
9.9 |
-9.1% |
13.0 |
13.5 |
-3.7% |
Net profit margin |
5.7% |
6.1% |
-43 bps |
4.9% |
5.1% |
-26 bps |
EPS (€) |
2.25 |
2.47 |
-8.9% |
3.25 |
3.37 |
-3.6% |
Source: Helma Eigenheimbau accounts. Note: *Adjusted for the disposal of capitalised interest.
Exhibit 2: Revenue by division
€m |
H217 |
H216 |
y-o-y change |
FY17 |
FY16 |
y-o-y change |
|
Helma Eigenheimbau AG |
47.3 |
49.9 |
-5.2% |
85.1 |
91.9 |
-7.4% |
Helma Wohnungsbau GmbH |
76.8 |
88.3 |
-13.0% |
133.4 |
139.4 |
-4.4% |
Helma Ferienimmobilien GmbH |
32.8 |
22.1 |
48.5% |
48.1 |
31.7 |
52.0% |
Hausbau Finanz GmbH |
0.4 |
0.5 |
-23.9% |
0.9 |
0.9 |
-1.6% |
Source: Helma Eigenheimbau accounts
Amid greater focus on margins rather than top-line growth, Helma has decided to convert its revenue guidance for FY18 and FY19 into pre-tax profit guidance, with an unchanged average growth rate expectation of 14%. As a result, management is now guiding to FY18 PBT in the range of €21.0-22.5m (implying 10-18% y-o-y growth) and FY19 PBT of €23.5-26.0m (12-16% y-o-y growth). At a 30% tax rate and 4.0m of shares outstanding, this would translate into an EPS of €3.62-3.88 and €4.05-4.49, respectively. Helma’s portfolio of attractive land plots (currently representing an aggregate sales potential of €1.2bn), which the company built up as it benefitted from the early mover’s advantage, should constitute the foundation for future growth, even if there is currently limited visibility regarding the timing of the execution of the respective projects. In the FY17 annual report (due to be published on 12 April), the company will present a detailed breakdown of its current land bank, providing additional insights into its future growth potential.
Helma’s guidance may be achieved through different combinations of sales growth and margin improvement. The recent decline in order intake may have a negative effect on Helma’s FY18 sales performance. However, revenues from projects where at least 30% of dwellings have already been pre-sold and where construction has commenced may be recognised without flowing into the order book first. Moreover, Helma Ferienimmobilien’s existing pipeline should secure FY18 sales at least at the FY17 level. Consequently, there are various possible scenarios for Helma’s sales development this year which will require different levels of adjusted EBIT margin in order to achieve the recently set targets. If Helma’s FY18 revenues remain broadly stable versus FY17 levels (€267.4m), the company would have to achieve an adjusted EBIT margin of c 9.0-9.5% (compared to a five-year average of 8.3%), assuming net finance expense and the disposal of capitalised interest in line with FY17 levels. In the event of a 10% y-o-y decline in sales, this increases to 10.0%-10.6% and with revenues growing by 10% y-o-y, a margin of 8.2-8.7% would be sufficient. Margin improvement could be achieved through rigorous selection of highly profitable projects based on Helma’s extensive land bank, allowing the company to maximise the opportunity arising from the current strong demand from customer.
