Cyrela Brazil Realty SA Empreendimentos e Participacoes
BOVESPA:CYRE3
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Good morning, ladies and gentlemen, and thank you for standing by, and welcome to Cyrela's conference call to discuss the second quarter of 2021 results. Today with us, we have Raphael Horn, Chief Executive Officer; and Iuri Campos, Investor Relations Senior Manager. [Operator Instructions] We would also like to inform that the conference call in Portuguese will be presented by the company's management, and the English conference, there will be simultaneous translation. This event is also being broadcast simultaneously on the Internet via webcast.
This conference call contains forward-looking statements that are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those in the forward-looking statements. Such statements speak only as of the date they are made, and the company is under no obligation to update them in the light of new information or future developments.
I will now turn the conference over to Mr. Raphael Horn. Please, Mr. Horn, you may proceed.
Good morning, everyone. Cyrela once again had a positive operational performance, reaching solid volumes in sales and launches. This was driven by the favorable interest rate scenario that remains below historical average rates in Brazil, in addition to the fact that we are better prepared to face issues related to COVID-19 which impacted the beginning of the year with restrictions in the main cities we operate.
Recent advances in vaccination and the gradual economic recovery in the country contributed positively to this quarter's figures and make us optimistic about the remaining of the year. But the reopening of sales stands, launches in the quarter grew 358% when compared to the first quarter of 2021. Combined with the resilient performance in sales of the company's inventory, which emphasizes the quality of our products and interest rates that are attractive to our clients, we reported presales performance of BRL 1.5 million in the quarter, 51% higher than the great first quarter we had. The company's net revenue increased by 96% in the 6 months period, and there was a growth in margin driven by operational results.
The reported net income amounted to BRL 267 million. In addition, we had positive cash generation for one more quarter, maintaining the debt ratio at a low and healthy level, keeping Cyrela ready for future challenges.
Looking forward, our challenges are the industry inflation measured by INCC, which is above the last 12 months average, and the upper trend in interest rates in Brazil. which is likely to have an impact on the final rates paid by our customers. Nevertheless, we are confident that these adjustments are temporary and necessary to reach an adequate economic balance, and that interest rates will remain attractive to our customers and our business environment.
The outlook for completing the vaccination of the entire adult population in Brazil in coming months is positive, and even if with the first dose. And we continue to have an optimistic view of their industry, seeking to achieve the best results for our stakeholders to create value for shareholders.
Let's now hear the operational results from Iuri.
Thanks, Rafa, and good morning, everyone. On Slide 5, let's comment on the launches of Cyrela. In the second quarter of this year, we launched 19 new products with a PSV of BRL 1,929 million, 659% higher than the same quarter of last year. Excluding swaps and the percentage Cyrela, the launched volume amounted to 612% higher than 2020. The stake of the company in the launched volume was 84%.
Slides 6 to 8 has the main launches of the company. N.A.U. Vila Mariana, Arpoador in Rio de Janeiro, and Cyrela by Pininfarina in Porto Alegre.
Slide 9. We have the sales performance. In the second quarter 2021 presales contracted reached BRL 1,560 million, 205% higher than 2Q '20, excluding swaps, BRL 1,248 million, 180% higher than the second quarter '20. In the state of São Paulo, that accounted for 56% of our sales.
Slide 10, let's talk about sales of our supply. The annual sales of our supply was 55.4%. Looking at the sales of supply by season of sales, the projects launched in this quarter are 40% sold.
Slide 11. Let's talk about the total inventory of Cyrela. At the end of the quarter, the inventory at market value amounted to BRL 5.5 billion, a growth of 12% when compared to the previous quarter, driven by launches in the period. Movements of inventory could be seen in the chart on the left.
On Slide 12, let's detail the finished inventory. In this quarter, we sold 19% of finished units inventory in the beginning of the period. Adding the inventory of delivered units, plus the pricing of units at market value, the finished inventory had a drop of 12% when compared to the same period of last year.
On Slide 15, let's talk about financial results. We had -- totaling [ 1,306 ] new projects, 1,300 units with a PSV of launches BRL 392 million, with a launch PSV of BRL 791 million.
Now Slide 15, financial results. The net revenue of the company reached BRL 1,182 million in the quarter, 18% higher than the first quarter '21, 102% higher than the same quarter of last year. In the semester, revenue of BRL 2,186 million, 96% higher than the first 6 months of '20.
Gross income, [ BRL 432 million ], or 144% higher than first Q, the previous quarter, and 25% than first Q '21. In the first 6 months, gross income was BRL 779 million, 123% higher than the semester.
In the quarter, net income was BRL 267 million compared to BRL 68 million in the previous quarter, and BRL 192 million in the first quarter '21. In the semester, the net income reached BRL 459 million.
Slide 16 talks about profitability. In the second quarter 2021, return on equity amount to 39.3% on the last 12 months.
Slide 17, let's talk about indebtedness. Gross debt at the end of the quarter was BRL 3,339 million with a cash position of BRL 2,781 million, our net debt amounted to BRL 558 million. The total gross debt, 82% is long term. Our net debt-to-equity ratio was 8.9%, 5.1 percentage points above the last quarter, mostly driven by dividends we paid. This low rate -- ratio of indebtedness places Cyrela at the right place to maximize returns for shareholders.
Finally, on Slide 18, let's talk about cash generation. In the quarter, we had a cash generation of BRL 87 million compared to BRL 70 million in the previous quarter.
Now Rafa and I will move on to the Q&A session. Thank you.
[Operator Instructions] First, from BTG Pactual, Elvis.
I have 2 questions. First, regarding the launches and sales. What are -- could you give us an update what are sales like in the first half of the third quarter? And also what your expectations for new launches in the 6-month period, more high-end since low-income customers have suffered because the construction costs are higher?
Also, the other point is the construction costs. What do you expect to be the price of construction materials for the second half of the year? In recent conversations with your suppliers, what is the sentiment? There will be the further transfers, especially steel prices that are expected to increase in the third quarter.
You asked about sales of launches in the third quarter, fourth quarter and product mix. We haven't launched a lot yet in the third quarter. We have a lot to be launched still. And we are reasonably excited, but let's see.
The fact that this was very high in the last 2 or 3 months will create a more prudent market, so to speak, because we have to be more careful or pay more attention. It's good that Cyrela had a very good period recently, but the level of attention and prudence must be high now because the INCC was certainly very high and there was that increase in the construction inflation rate has been transferred through prices.
So if you're close to INCC, that would be margin. If it's not margin, then it's INCC. So all in -- everyone in the industry should be more prudent and attentive to that. But again, Brazil is Brazil, as usual. When things are very good, all foreign investors come. Then, it's not so good.
Now I know we're used to that scenario. The idea is that it's not so good that everyone comes to the market, but not so bad either. So Brazil is unstable. It goes -- going through several things. We remain optimistic as long as we can do a good work and keep our feet on the ground deeply rooted, but we feel comfortable because we have improved.
The company is quite flexible. We have shown, thanks to our great team, that we are able to play around and do things well. It's not that we'll leave low-income segment. No. We'll work with all the segments and -- but connected -- paying attention to the profitability of every segment.
We're privileged -- good products that are well accepted by buyers and profitability. So the criteria is profitability, not the segment. Clearly, we need to have a good team in each segment to deliver good projects. And we have good teams. So profitable products will be given priority.
Profitability is the main driver. And Iuri will talk about the rest.
Hello, Elvis. Thank you for your question. It's hard to say what will happen in the second half of the year. It's hard to project INCC. Now no one can do that.
Apparently, the worst is over. The Central Bank is raising interest rate to curb inflation. The foreign exchange rates are going up. Apparently, the worst is over -- the worst phase is over.
Talking to engineering team, we don't foresee any expected increase in steel prices in the second half of the year. So it's hard to get it right. But apparently, the worst phase is over.
There are external factors that affect Brazil. It depends on iron ore prices and all, but it seems that it's going to be calmer.
The next question comes from Alex Ferraz from Itaú BBA.
I have 2 questions. First, about the margin. We continue to see a margin that's continuous strong and a scenario of cost retention. How has been the margin of this last season of launches? And how does it relate to margin of low-income products, which have suffered more like Vivaz? So how can you reconcile both margins to understand this 36%, 37% of gross margin that you present.
And the second question is about regional diversification. If we compare these last 6 months crude figures with last year, São Paulo has lost a bit of share, 56% of launches, but we see other areas such as Rio de Janeiro and Grande do Sul becoming more relevant. Do you see more interesting prospects outside of São Paulo state where the competition is higher?
Thank you, Alex, for your question. I will answer your question about margin, and Rafa will answer the second one.
The margin of our launches is similar to the margin that you can find in the release. The gross margin that is reported is a mix of several factors. Sale of older finished units products and margin of launches, maybe there was a greater share of launches in revenue as well as in gross margin. And with this rack margin that -- similar to [ rack ] that I mentioned, that helped that margin to stay to be a bit higher in this quarter.
In terms of segmentation, the low income margin -- I mean, there's no miracle here. As we said in the last quarter, we lost a bit of margin. Net debt will depend on how much time the INCC will remain high and then the market's capacity to absorb price; increases. Once again, we don't have much room in this segment. So it's normal for medium- and high-end products to have higher margins than low-income products. Rafa?
Well, we're only present in 3 cities: São Paulo, Rio, and the South. We operate bottom-up. It's a team. Each team is competent, each one in the region. It's bottom-up with -- for land. Good land with good profitability. We have a team that's very good, committed, and we see opportunities, and that's how we do our launches.
So we hope this to be successful, but we don't have a target for Rio, São Paulo, and the South. We're less worried about the regional aspect and more about good opportunities. I don't know if I answered your questions, but we don't -- we like to see things bottom-up and not top down.
Next question comes from Thais Alonso from Citibank.
Congratulations on your results. Excellent. I would like you to comment, please on future launches. When we look at prices -- sales prices of you, we see that high end has grown by 23% and low income is going down. Up to when can you use high-end products to offset margins? Do you intend to continue to launch products in that segment?
And with that, are you going to decelerate [ Vivaz ] and try to balance the number of landbank that you need? Is there any pending amount still outstanding?
Our plans for 2021 and 2022 is pretty much settled. I mean, it's a very good mix. And it's not so flexible, and INCC of 5 point -- or 10% above -- I mean, 10 percentage points above expectations will not change our planned mix of products. 90% or 95% of them will be able to absorb some one-off adjustments such as that, including Vivaz. Vivaz projects remain, and high-income projects remain.
We don't have so many cards to shuffle and throw some away. We have one set of cards that we play with. And as I told you before, we're able to operate in all segments with good profitability. Vivaz is operating, and we'll continue with its plans and the sum of land, bottom-up, that we bought. So for '21, '22, we are okay.
About [ Cody ], our commitment to pay land, we have an annual account. We met last year's figures. This year's figures, we haven't yet met. We have to pay the full amount of 2021, '22, '23, 5 years. So we have 4 years to deliver to [ Cody ].
But what's the volume of this pending amount?
It was BRL 1.5 billion. I'd say, BRL 400 million and BRL 500 million. I'd say we're lacking -- still pending BRL 1 billion, around that.
Our next question comes from Renan Manda from XP.
My question is about gross margin. We see a considerable improvement in this quarter. Backlog margins going -- and this improvement, it's a contribution. Were there specific projects that had a higher margin in this season, or launches planned for the second half of the year have a similar margin. And then we could expect the gross margin to stabilize at that level.
Thank you for your question. Once again, the margin of our launches -- a company like Cyrela that has launched 19 projects this semester. Of course, every launch has a different margin because land was purchased in a different way. But the margin of launches, in general, as I said in the first question, is very close to . So on average, it has been so in the last 3 quarters, and it will be likely to continue at the same average rate.
The gross margin in this quarter specifically, the contribution of launches, the gross margin of launches had a higher positive weight on it. But looking forward, it will depend on the volume launch in each quarter. Each quarter is a different story. So that varies.
Our next question comes from [ Aleni Caldera ] from Bank of America.
Congratulations on the results. My question is more about your view about the price transfers and how much that would reach in middle and high-end products.
So far, you had -- you were successful in transferring price increases. But considering that the interest rate of banks are still low, but they're starting to increase it already.
Well, I hope that it stops there. And if it does so -- like I said, it's hard to say what we expect for the future. It's all dynamic. If we have INCC of 20% per year, things will be very hard. I mean, we don't expect INCC to be so high all the time. We expect it to go back to regular levels soon.
We don't like to increase prices, and we hope that we won't need to do that often. That's it. We have to dance according to the music. So far, the music is playing all right. Like I said, it was wonderful, margin has decreased a bit, but it's still okay for those who know to -- how to navigate it through it and operate well.
I think it's important for everyone to understand that we need to operate at a reasonable profitability. Of course, the INCC that is so big may damage the margin of -- or some, let's say, 4 -- 3 or 4 plots of land, but you can't think that a company the size we operate, high INCC will -- and the margin. We have to operate with healthy margins, and we do that. Of course, the high INCC gets in the way a bit, but it doesn't ruin our projects.
If you operate with the margins that are very much at the limit, of course, the high INCC would throw you off your path, but that's not our case.
The next question comes from Jorel from Morgan Stanley.
I have 2 questions. One is a bit more general. How do you see the tax reform? How could it possibly affect your business in this scenario, depending on changes and what do you think about that?
And the second question has to do about your landbank. How do you see it today? Does it have room for launches in the next 1 or 2 years? What is missing? These are my 2 questions.
Thank you for your question, Jorel. The audio was not so good. Let me see if I understood it well. It's about tax reform and the impact it would have on us. Please correct me if I'm wrong.
Okay. About that, everything that's been designed and talked, discussed has -- does not impact our industry so much because we don't have a benefit of interest on equity. Intercompany transactions, it seems to be well taken care of. So we're okay with that.
There is that issue of taxing dividends. Today, we have a low leverage ratio, which is below the historical average. So if it is the case, we have room to pay dividends in the short term and medium terms. We have meetings with banks every week. We discuss this topic in the company often. If this is the case, we'll be prepared.
Rafa will answer the other question.
Landbank, I mentioned it quickly. For 2020, when we have a complete mix and as well as for 2022. For 2023, most of it is taken care of. Already is complete. And '23 -- '22 is almost complete and '23 is -- we're getting in the way, still a few land -- pieces of land to buy, but we're on the right track.
Of course, for 2024, we don't have anything, and it's better not to. The cost of capital is increasing. So we have to work with the short term.
Our next question comes from Pedro Fonseca from Banco Santander.
Congratulations on the results. You talking about price transfers and breakdown expected for the next quarter. What about the transfer on low-income projects that the average price is lower. Do you see any possibility of transferring cost increase?
And the PSO or rather sales over supply, do you consider price increases, maybe a customer that will take longer to make a decision due to several factors? Or do you expect sales over supply to remain at the same levels?
About the transfer of low-income projects -- price transfers, it's a bit more sensitive and less elastic, but good land, good properties in good locations in the cities we operate, we are able to sell the product at a higher price. So maybe you go to level 4 or 5 and not level 3. So these are pieces of land we can -- that can be maneuvered.
You can either build a product that's Minha Casa, Minha Vida or at level 4 or 5.
The pyramid is a bit shorter, but we operate everything from bottom-up. It starts with a good property with a good piece of land. And it's important not to operate -- it's important to operate with a safe margin, not very short, but the high INCC does not make our macro strategy bad.
I think it's expected to -- we should expect a bit slower sales over supply in time because it makes sense to expect lower sales over supply after an outstanding period like the one we had recently.
Our next question comes from Marcelo Motta from JPMorgan.
I have 2 questions. This sales over supply question, I would like to know whether these -- in credit facilities, this increases in interest rates from private banks, is there any decrease in conversion? People maybe are interested but end up not buying due to affordability.
And the second question is about partnerships. With this increase in interest rate and Selic interest rate, is that -- are those partnerships with Canada decrease? Or maybe you're interested with other partners or other projects?
About the interest rate increase affecting sales. In the launch phase, customer have a reference of what the interest rate will be when the keys are delivered. So still -- the customers will still have 1, 2 or 3 years to get the keys. So although interest rate has increased, it is still at considerably reasonable levels.
Of course, it impacts affordability. But clients are still comfortable. I mean, they are good for Brazil. For Brazil, it's historically low. So the decrease in interest rates, or the worsening of interest rates is still nonsignificant.
As for Canadian partnership, it's doing well. I think it will continue. I cannot speak for them, but I -- according to my understanding, things are going well and the partnership remains valid. We made some good projects together, and we plan to continue to do so in the coming months.
Our next question is from [ Pedro Hajnal ] from Credit Suisse.
I had a technical problem in the beginning. So if someone has asked my question, please do not answer it.
I would like to see how you see the pressure of inflation in -- on labor. Since we still have a strong amount of launches in the second half of this year, in 2022, in São Paulo, what do you expect along those lines? And also, do you feel any pressure about that in this last quarter?
Thank you for your question. No, no one asked that. That's all right. As about the inflation on labor, we monitor that because this was one of our main issues in the past cycle. But currently, up to now, it's under control.
INCC -- the component of labor in INCC is behaving well, but we do monitor it. This is a point of attention always. We don't see any problems in that area so far, but we have to monitor because we're starting construction works in town.
Ladies and gentlemen, this concludes the Q&A session. I would like now to hand the floor to Raphael Horn for his final remarks.
Thank you all very much for your attention for attending the call. This has been a good quarter, and I would like to thank God, first. And secondly, praise the team. They make a difference. The team -- congratulations on the team of Cyrela's associates, also, to the partners. Okay, let's work -- keep working for everything to be successful and see you next time. Okay. Thank you.
This concludes Cyrela's conference call. You may now disconnect, and have a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]