Cyrela Brazil Realty SA Empreendimentos e Participacoes

BOVESPA:CYRE3

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the results 2Q '22 of Cyrela Brazil Realty regarding the results of the second quarter of 2022. We have with us Mr. Raphael Horn, CEO; Miguel Mickelberg, as CFO; and IRO informing that translation is available by clicking on interpretation button. [Operator Instructions] Additionally, if you want to access the presentation in English, it can be found at the website ri.cyrela.com.br. [Operator Instructions]

Well, we have some statements regarding the future perspectives of business of Cyrela and also operational goals and financial goals. You may understand that political macroeconomic and other factors can affect the future of the company and lead to results that differ materially from those expressed in such future considerations.

And now let me call Dr. Raphael Horn, the CEO, who will start the presentation. Mr. Raphael, the floor is yours. Mr. Horn, you can start your presentation, please. I believe your mic is off.

[Miguel Mickelberg, executive]

Good morning, everyone. Can you hear me now?

[Operator]

Yes, please.

[Miguel Mickelberg, executive]

Well, the internal and external scenarios demand caution, even so Cyrela found good financial and business results due to its strategy to differentiate itself in each launch. We launched 3 -- 13 business in 2022. So we start -- we finish our semester with 43% up considering the first 6 months of '21. And presales of BRL 1.622 million, 13% higher. Net revenues were BRL 1.250 million in this quarter, 2% higher than the BRL 1.32 million in the first quarter of '22 and 6% higher than the BRL 1.182 million registered in the second quarter of '21. Gross margin also grew 31% and net profit also grew. We are still waiting for our operational results.

Well, on Slide 5, let me talk about the launches. In the second quarter of this year, we have BRL 2.326 million, 21% higher versus the second quarter of '21, 124% if compared to the first quarter of 2022 and 13 projects launched in the quarter. We highlight Casa Ibirapuera residences with 86% of CBR in the quarter. In the quarter, we reached BRL 1.6 billion, 24% higher than the first quarter of '22 and 4% if compared -- higher if compared to the first quarter last year, BRL 1.3 billion in the Cyrela percentage. São Paulo accounted for 69% of our sales.

On Slide 8, let us call about our sales bid. The SOS of the company was 43% and sales by launch vintage, we had 32% already sold. On Slide 9, let's talk about inventory of Cyrela. By the end of the quarter, we totaled BRL 8.141 million, 30% more if compared to the previous quarter, accounted by the previous launches -- the last launches. You can see our inventory breakdown by the right and the change in inventory to the left.

Regarding finished units, the finish unit increased 2.9% if compared to the first quarter of '22.

On Slide 11, let's talk about delivered units. We had 2,744 units delivered in this quarter in 12 projects in the totally -- totaling 3,646 units in the first 6 months of this year in 19 projects.

Let's talk about financial results. Net revenues was 6% higher if compared to the previous -- to the same quarter last year. And gross profit of the second quarter was 36% compared to 31% in the previous period and 35% compared to -- 31% compared to the first 6 months last year. Net income and net margin are found on the bars and also grew. Profitability had BRL 151 million compared to BRL 62 million in the first quarter of 2022.

In 2022, liquid net achieved BRL 330 million, growing 5.4%. Our return on -- the net income on the average net equity was 12.3%. On Slide 15, let's talk about liquidity and debt. We had BRL 3.9 billion in the debt with BRL 3.6 billion in our cash flow. Out of the total, 80% is long-term debt. Our net debt regarding PL was 5.4%, 0.6% above last quarter.

On Slide 16, let's talk about cash generation. In the second quarter of 2022, BRL 48 million of cash burn compared to BRL 100 million in the 6 first months of the year -- in the year -- in this year. Now Raphael and I will answer your questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Gustavo Cambauva from BTG.

[Gustavo Cambauva, analyst]

I would like to make 2 questions. The first question is could you talk about the sales of finished inventory? Because it fell during the -- I mean, the beginning of this year if compared to last year. And what about your dynamics? Are you concerned with that? Especially next year, are you concerned about deliveries? Or do you think that it will be good?

Now talking about launches, you have a more cautious scenario of the macro context, macro scenario for this period. But you are launching so many projects. So what about this dynamic? And thinking about the second half of the year, do you have products to be launched? Or are you going to reduce the number of launches? Or maybe are you launching more because the market is doing well or is reacting, what is your perspective?

[Miguel Mickelberg, executive]

Cambauva, this is Miguel. Let's talk about inventory. We've been reducing our inventory for the past few years. And I mean, what we have left is more decentralized and it's harder to sell. 30% of our inventory has to do -- is composed of commercial units. We have very few units in the residential business in São Paulo. Last year, we sold the Golf units in Rio de Janeiro, and we have recently more volume in Rio de Janeiro. And now they are remanaging the portfolio. So it will take them some month, but we're not concerned. I mean, we could understand this unit -- I mean, I understand this business beforehand and get ready about the units.

Now talking about launches, the scenario is pretty challenging. It has been a while since we had seen such a challenging period for the real estate market.

[Gustavo Cambauva, analyst]

Why do you keep on advancing?

[Miguel Mickelberg, executive]

Well, I would say that it's because we think we have a very good product, top-quality product and with good sales speed even considering the challenging scenario. We want to believe that when things get harder or when things get hard, we can still or will be still able to sell. Well, we launched Casa Ibirapuera, one of the largest projects along with SKR in Minas Gerais. Thank God it was very successful. But it's not because the market is good, but because the product is an incredible top-quality product with luxury brand and Vila Mariana welcomed us very well. But this is not the average. I mean, this is not a portrait of what is going on.

Low income is still demanding. We're still launching for the low-income households. But yes, this is a challenging scenario. I must be careful, but we want to believe that we will keep on launching what we intend. But it's a case-by-case basis. If the launching performed poorly, we will stop and think. But it hasn't happened yet. We are satisfied with what we managed to sell up until now. And let's see, I mean, month by month, what happens, and we will keep on evaluating the scenario.

[Operator]

Well, our next question comes from Pedro Hajnal from Crédit Suisse.

[Pedro Hajnal, analyst]

I have a continuation of the previous question, in fact. Well, other companies in this very short term, I mean, they are -- this scenario is a little less challenging if compared to the past few months. Do you agree with that? Are things getting a little better in the past few months? And what about sales speed and sales volume in general in July?

And the second question is regarding to inventory. I mean you have a very good mix of products in inventory. So you can make sure products are sold even in this more challenging scenario. And in general, your inventory, what would be a healthy pattern? If this pattern we see today is healthy, what is the commercial strategy to achieve that? And in fact, your performance is better than your competitors. And well, what about that? Is it about the location of the projects or facilities or architecture? I mean -- or is it your business, your commercial strategy? What is it that gives you a better performance in sales?

[Miguel Mickelberg, executive]

Well, Pedro. Well, July was not a very good month for inventory. July was -- I mean, people travel. It's not a very good month in general. We had some launches by the end of June and they went pretty well. But people usually focus more on launches because of that inventory was not so well. I mean regarding this comment that things are getting better in the past few months, we don't have this perception. It's not -- I mean, the scenario doesn't change. The scenario has improved 1 month -- I mean, 1 month and in 1 month in -- change in half a year. I mean the market doesn't change overnight and nothing could trigger this improvement.

I mean, in the past 5 days, we have seen an improvement. But in the past month, nothing got better. I don't understand this type of comment. It takes time, as I said. Yes, we want the Brazilian interest rate to decrease, and then there will be a change. There will be a significant change in the loan they will help us that, and we are expecting this.

Well, about our success, I mean, I'm not going to tell you about the magic recipe. I mean just joking, but it all depends on how challenging the macro scenario is. We are not magicians. We don't have a magic wand. And for now, in this scenario, we're going to our formula, product design and quality has been successful. And if the macro scenario keeps on getting worse, we will get worse as well. I mean we cannot perform magic tricks.

I mean we have been successful until now, but we depend on the interest rate income, economy. I mean, there's no magic. There's no silver bullet, and we are hoping that things don't get worse. Because if they do get worse, we will sell less. There's no doubt about it. Well, what we have ready in our inventory, I mean, our goal would be having 0 inventory. I mean, we wanted to deliver and to sell everything that we have. So if you launch and sell -- and don't sell, it's a source of concern.

I mean -- because when you launch and sell 40%, 50% in the first 6 months, it seems to be a proper sales speed to deliver this project. And this is what we see, but the right metric, the right goal is 0 ready inventory. We have some pockets, some trouble areas, but this means to be -- this means a mistake when we launched. We cannot launch in areas or in places where we have 10% or 20% on inventory after 6 months.

[Operator]

Mr. André Dibe from Itaú.

[André Dibe, analyst]

I have 2 questions. Now regarding costs. What about materials? Can you see some decrease in material sale? And now what about cost of labor? And I would like you to comment on your development and investments in the future, in the near future and how it can impact your launches. And now in the company, on that sense, I would like you to talk a little bit about Cyrela's strategy, and what is the size of this business strategy and the next steps?

[Miguel Mickelberg, executive]

André, now regarding cost pressure, in this quarter, we suffered a lot with cost pressure in Cyrela. We had income reversion of BRL 20 million because of the INCC inversion, there was an acceleration of this. As a consequence of this, we also have a JV, which was not listed and is consolidated in our results and which also had a budget overflow, and it would be 33% in the margin, if you were to include it.

Now we have seen a certain change in the scenario. We still see cost pressure on cement, byproducts is still volatile. But when you talk about copper, steel, yes, there is some -- there are some cost reductions that have helped us.

Regarding labor, we are in the peak of our size. We have 50 job sites right now. If you look ahead, this volume will be maintained this year and next year probably. And then we expect to have a reduction. So we do not have an additional demand for labor, which we used to have in the past quarters. The scenario is still challenging, even though we do not have so much labor pressure, but we still see risks ahead. Right now, the situation is a little better. But it's hard to talk about perspectives because of the global scenario, exchange and commodities. But what I see is that when it comes to products we need, we have seen some good points.

Regarding CashMe. Just for a disclosure regarding CashMe G&A, the income was BRL 43 million, but BRL 70 million inside this G&A, which are associated to efforts to generate new credits. And this business will be turned into sales from next semester on. So CashMe G&A will be reranked, reclassified. We'll have a change in the impact on the G&A.

And now Rafa will talk about the strategy.

[Raphael Horn, executive]

Hello. Well, I believe CashMe, as you know, we have made it grow. G&A has grown in this past semester for origination and commission but the G&A grew. And it has to do with our plan to restructure the company and originate more business in our portfolio. We have these products. And we need to look at the portfolio and fixed costs and try to understand how we want to achieve the ROI results for our company. But we still need to face a phase of restructuring. So G&A is a little ahead, but the portfolio is coming, but it's cumulative.

Today is -- we have almost BRL 1.5 billion in the portfolio. And the idea is to keep on growing. If we do well in the origination phases, we hope to have good business with G&A. I mean, but if the origination process is not successful, our G&A will be above the healthy level. We need to look at income and costs and we are concerned with both of them. And up until now, we are in line, I would say.

[Operator]

Our next question comes from Mr. Ygor Altero from XP.

[Ygor Altero, analyst]

I have 2 questions. The first has to do with the Vivaz segment. You were a little more careful because of the inflation and it's harder to recover in low income. And what about your idea now with this new update in the parameters? Are you planning to accelerate this? And second question has to do with your debt. Your debt is pretty comfortable now. And now would it make sense to become more aggressive or be more aggressive again to pay more dividends and focus more on profitability, improve ROE -- ROI, I mean? What about this perspective?

[Miguel Mickelberg, executive]

Ygor, this is Miguel. Let me answer your question about dividends. Well, for the past few years, we've been really vocal regarding our strategy to structure our capital structure to provide the maximum return to our shareholders. But now in the past year, we had a change in scenario, which was really relevant. We have a mandatory minimum dividend of BRL 217 million. This is approved. We're trading this, and this is about to be paid. And now we approved the repurchase program.

According to the quote of the day, you would have a size of BRL 160 million. So you're talking about BRL 400 million of return to shareholders, if we can execute -- if you can perform this program. We consider this return to have a proper size to our shareholders considering the scenario. And looking ahead, we will always reevaluate this. And if we can see an improvement in the scenario or in the cash flow, we can discuss something extra for the end of the year. But right now, this is the proper size of capital return for 2022, we believe.

Regarding accelerating Vivaz or not accelerating it, well, again, we are a company that we like to be diversified. We like to operate in the 3 brands. So it's pretty rare that we say, oh, let's accelerate this and not that. I mean, usually, we like the 3 of them. We like MAP. We like Cyrela. We like Vivaz. And we work on the 3 of them, usually, with the same intensity. So we rarely say, oh, let's accelerate this one, but not that one. Usually, the speed is standardized speed for the 3 of them. We are not accelerating Vivaz now, but we are not reducing its speed. I mean the game will be maintained, let's say. We are not -- we don't accelerate or reduce the speed in such a fast pace, okay?

[Operator]

Now let's listen to Fanny Oreng.

[Fanny Oreng Avino, analyst]

I have a question -- a brief question. I mean, can you share with us your JVs strategy? I mean the listed ones, companies? Are these companies still making sense for you as partners? Do you plan to disinvest on these companies in the future? This is my question.

[Raphael Horn, executive]

Well, regarding JVs in the States, we are very happy about being their partners. They are incredible partners, incredible operators and financially for the group, they meant good business. So we are happy about this partnership. This -- I mean, we don't plan to leave the control group of these companies. We don't want that. It's almost impossible, I'd say. I mean, considering today, I mean, we have a long-term business and the long term takes time. But this is our mindset right now, leaving the management is very unlikely. So this is the idea -- the general idea.

[Operator]

Our next question comes from [indiscernible] from Citibank.

[Unknown Analyst]

Congratulations on your results. Now I would like to go deeper in the low-income area, maybe average income, low income in the following sense. So in the past year, it seems that you made some moves regarding bringing this pipeline that could be group 3 in yellow and greenhouse, [ Casa Vieja Manela ] and brought a line of access from outside this program. And I'm curious about the pro-quota holder. We've talked about CVA reform changes. But I would like to understand that whether pro-quote holder justify your attention? Or if on the limit, this pipeline could be reinvested or returned to the yellow-green program?

[Miguel Mickelberg, executive]

Regarding our low-income strategy, Raphael has talked about our long-term strategy. Now regarding the impact brought by these programs and these measures, it's hard to assess that the review of ranges and interest rate will impact the capacity of clients to finance their units. Pro-quota holder is not as clear to us yet, but these measures can help us to letting some clients. We don't know the size of it yet. And you have other measures regarding deadlines and payroll loans and that can contribute even further.

These are some short-term measures, they will last until the end of this year. So we are not changing our lots acquisition strategy based on that. But we believe that, yes, these measures can help us in the lots to recompose margin for some of the projects. It was hard to pass on these changes in inflation rates in the past few months.

[Operator]

Our next question comes from Mr. Pedro Lobato from Bradesco BBI.

[Pedro Lobato Garcia Fernandes, analyst]

Well, I have a quick question on lots. What about the feasibility of projects during this quarter and also looking ahead? And what about competition for lots? Are you being able to find better prices or reduction in prices?

[Miguel Mickelberg, executive]

Well, a lot -- I mean not lots per se, but the feasibility of any project after 18 months of such inflation, I mean, made a suffer. We suffered a lot. The market suffered a lot. There is no magic. So '18, '19 and '20, these were better times, better years in terms of easing -- being able to overcome your minimal feasibility in several projects in this past cycle. But now, it's harder. There's no magic with such high rates. It's harder to operate, yes. Well, but let me tell you, we are being able to operate, yes. But with less space, I mean less comfort to exceed feasibility.

So if you achieve our standard, we are happy. In '18, in '19, we were able to go over. But now we are working with the target. It's not as easy to meet the target.

About a lot or demand for lots. It takes a while for demand and prices to go down. But yes, we have less competition for lots if we compare the situation with 12 months ago. Because most companies, they have their lots, volumes are not growing so much. No one is thinking about growing so much in this scenario. So it's a normal thing that the competition for lots is easier now.

[Operator]

Our next question comes from Mr. Marcelo Motta from JPMorgan.

[Marcelo Motta, analyst]

I have 2 questions. Could you talk a little bit about your margin. This quarter, the margin improved even sequentially. And Miguel said that if we didn't have these readjustments in job sites, we would get closer to 33%. So is the worst over? I mean, we know this is a pretty dynamic scenario as you talked about some products such as cement, byproducts going up or in metals going down. And what about -- and the second question is about sales. What about the sales of inventory? Or what about the pressure on prices not to make clients run with high prices?

[Miguel Mickelberg, executive]

Well, regarding our gross margin, we had some effects of the second quarter. And we recognize with low margin for new -- for new launches, 29% because 35% of what we acknowledge in terms of income were Vivaz projects. And this is a segment we operate with a lower margin. I mean, looking ahead, we need to consider the launched and not acknowledge projects, which have a 34%, 35% gross margin, and it's a challenge for the launches in the second semester. INCC was hard and maybe that margin will be lower. But if we can stabilize the job site scenario, we can improve our gross margin. But this is a contingent thing.

I mean it depends if we can sell the units with a satisfactory price. And if you don't face other or additional cost pressures, we believe our gross margin will grow a little bit, not substantially, but -- because we have a lot of volatility, INCC may cause any positive impact in one quarter. But in the medium term, yes, we could see a small improvement, but is still facing risks regarding inventory and the cost of job sites. And Raphael will now answer.

[Raphael Horn, executive]

Well, regarding prices -- sales prices, in the past 24 months, they grew a lot, but below the INCC. So yes, we transferred prices, but it was not as bad as INCC. We will continue transferring these costs to the price, but it's case-by-case -- sorry, it's a case-by-case idea that we follow our strategy. Project by project, we try to find the best price always, but it doesn't -- we don't see a lot of room for price changes or cost transference in the short term. I mean our main villain is INCC. If it stops growing, we will find a balance because it will be stabilized. But if INCC grows 1% a month, it's harder to find this balance. And it's hard to transfer these costs. It's really, really hard.

[Operator]

[Operator Instructions] We have no other questions, so we'll close the Q&A session. Now Mr. Horn, the floor is yours for final words.

[Raphael Horn, executive]

We'd like to thank you all for your participation in this call. Some people asked about our better performance in the semester when things are harder. I'd like to mention 2 things to highlight 2 points. First, our team has a very good -- very strong focus on clients. So let me congratulate our team. We do think about our clients, the usability, their feel, what they feel. We give a lot of value to that. We cherish that.

And the second thing I would like to highlight is that a company is made of people and our team is special. So focus on people here is really high. Our team is really competent, incredible people working within the company in all areas of the company. I mean our team is a very good one, and this helps a lot. When you have a long-term focus, a focus on your staff and a focus on your people, on your client this helps, but we depend a lot on the macro scenario. But our idea is to make our clients happy and in the long run, clients give value to that. And this is what we have tried to do. This is hard, but we'll keep on doing that. We'll keep on struggling to make our customers and our clients happy.

Thank you very much for your time for this call. And we hope the macro scenario gets better because it has been challenging. And also, we hope interest rates fall too, so we can have a more comfortable situation. But even if we have high interest rates, we'll do our best. Thank you very much and see you next call.

[Operator]

So Cyrela conference and results is hereby closed. If you have any questions, please send your questions to the ri.cyrela.com.br. Thank you very much, and enjoy your day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]