Cyrela Brazil Realty SA Empreendimentos e Participacoes
BOVESPA:CYRE3
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Good morning, ladies and gentlemen, and welcome to Cyrela Brazil Realty S.A.'s Third Quarter of 2024 Earnings Call. Today with us are Mr. Raphael Horn, CEO; and Mr. Miguel Mickelberg, CFO and IRO.
This call is being recorded and simultaneously translated. [Operator Instructions] Also, you can find the slide deck in English on the company's Investor Relations website at www.ri.cyrela.com.br. [Operator Instructions]
We would like to inform you that, any statements that may be made during the call related to Cyrela's business perspectives, operating and financial targets are projections made by the company's management that may or may not occur.
Investors should understand that political, macroeconomic and other operating factors may affect the future of the company and lead to results that differ materially from those expressed in such forward-looking statements.
To open Cyrela's 3Q '24 earnings call, I would like to turn it over to Mr. Rafael Horn, CEO. Mr. Horn, you may proceed.
Good morning, everyone. In the third quarter, we continue to observe a dichotomy in the local scenario. On the one hand, activity continues to surprise us positively, which we can see from the frequent upward updates of GDP growth expectations.
On the other hand, the Brazilian Central Bank started a new cycle of interest rate hikes in September. And the inflation and interest rate outlook deteriorated in the quarter. In this context, the sector continues on a positive trajectory.
According to this scenario, we presented a solid performance. We launched a PSV of BRL 2.5 billion in the period and launched BRL 4.7 billion in the year. Our sales came to BRL 2.5 billion in the quarter, and BRL 5.8 billion in 2024, 24% more year-on-year. And our launches in the quarter had been 62% sold at the end of September. Cyrela's consolidated speed of sales reached 55%.
It is important to note that even with an increased volume launch, the company's total inventory did not go up. The operating result translated into great financial performance with net revenue reaching BRL 2 billion. Our gross margin remained flat, reaching 33.3%.
Although, the operations and numbers grew, expenses remained under control and according to the plan, generating net income of BRL 473 million, with a net margin of 23.3% and adjusted ROE of 17.6%, which led us to surpass BRL 1 billion in profit in 3Q '24.
The company also generated cash in the period, reducing its net debt-to-equity ratio to 7%. We are paying close attention to changes in the local and global scenario and remain confident in our team's ability to launch unique projects for our clients and present good operating and financial results.
Now, I would like to turn it over to Miguel to talk about the operating results.
Thank you, Raphael. Good morning, everybody. On Slide 4, we'll address Cyrela's launches. In 3Q '24, we launched 15 new projects with a PSV of BRL 3.1 billion, 44% more year-on-year and 114% higher quarter-on-quarter. The company's stake in the volume launched in the quarter was 82%. Excluding swaps, it accounted for BRL 2.5 billion in the quarter.
Slide 5 shows the launch of Casa Gabriele by Cyrela in the city of Sao Paulo, with a PSV of BRL 323 million. It was launched in July, and it has only 2 unsold units at the end of July.
On Slide 6, we'll talk about our sales performance. In 3Q '24, presales rose to BRL 3.4 billion, 41% higher year-on-year and 35% higher quarter-on-quarter. Cyrela's stake in the volume launched was 79%. Excluding swaps, sales reached BRL 2.5 billion in Cyrela's stake.
On Slide 7, we'll address sales speed. The company's SOS in the last 12 months was 54.9%. Looking at sales speed by launch vintage projects launched in 3Q '24 have been 62% sold in 3Q '24.
On Slide 8, we'll talk about our inventory. At the end of the quarter, inventory at market value totaled BRL 8.7 billion. In the company's stake, it totaled BRL 6.6 billion. The change in our inventory can be seen in the chart on the left-hand side.
On Slide 9, we show our finished units. In 3Q '24, we sold 19% of the finished units at the beginning of the period. Adding the inventory of projects delivered along the quarter and pricing of units at market value. Finished units remained flat quarter-on-quarter, reaching BRL 1.3 billion and BRL 1.1 billion in Cyrela's stake.
On Slide 10, we'll talk about the delivered units. Cyrela delivered 9 projects in the quarter with a PSV of BRL 1.1 billion on their launch date. Year-to-date, 25 projects were delivered with a PSV of BRL 2.9 billion.
On Slide 12, we'll present our financial results. Net revenue was BRL 2 billion in the quarter, 25% higher year-on-year and 9% higher quarter-on-quarter. Year-to-date, Cyrela posted BRL 5.5 billion in revenue, 20% higher year-on-year. Gross margin in the quarter was 33.3% against 33.5% in 3Q '23 and 32.9% in 2Q '24. Year-to-date, the gross margin has been 32.6%.
Now on Slide 13, you can see our net income and profitability. In 3Q '24, our net income came to BRL 473 million against BRL 251 million in 3Q '23 and BRL 412 million in 2Q '24. Year-to-date; our net income came to BRL 1.2 billion, 66% higher year-on-year. In 3Q '24, our return on average equity, that is our last 12 months' net income over average shareholders' equity was 17.6%.
On Slide 14, you can see our debt. Gross debt at the end of the quarter was BRL 5.4 billion. The cash position was BRL 4.7 billion. Thus, our net debt was BRL 670 million. 86% of the total gross debt is long term. Our net debt over equity ratio came to 7.1% in 3Q '24.
On Slide 15, we can see the company's cash generation. In 3Q '24, our cash generation was BRL 129 million against a cash generation of BRL 7 million year-on-year and a cash burn of BRL 61 million quarter-on-quarter. Year-to-date, cash generation reached BRL 198 million against a cash burn of BRL 7 million in 2023.
Now, we can go to the Q&A session. Thank you.
[Operator Instructions] The first question comes from Mr. Ygor Altero with XP.
I have 2 questions. First, about the lack of funding of savings accounts affecting both Cyrela and the entire sector, what are the main impacts that you are feeling right now? And the second question is about whether or not you envision growth next year, although, there's a tightening in funding coming from savings accounts.
Indeed, funding is a structural challenge. And we know that, there is a trend for savings accounts in the long term does not look positive. But we have not felt any impact in the short term. This quarter, we saw some slight increases in the rates of about 30 bps. And we also have some restrictive measures coming from Caixa Economica.
Considering the Cyrela and Living clients, about 53% of the clients that had their financial solutions this year. They had real estate financing. And about 15% of those clients felt the need to having a financing model with an LTV above 70%. And that is about 8% of our clients being affected by the new measures of Caixa.
But other private banks continue to have LTVs above 70%. So we have not seen long-term impacts yet coming from those measures. And even though, there's an increase in interest rates, the clients have been able to get funding with good rates. And they are getting the financing quickly.
And I think, it's too early to talk about next year's pipeline and growth perspectives and launches. But what I can tell you, to try and address your question is that, we don't think that the funding changing scenario will change our strategy for next year.
The next question comes from Mr. Andre Mazini with Citi.
I have a question about landbank. You have 14 new plots with a potential of BRL 5.6 billion. So what is the environment right now for landbanks? Do you think there is less competition now since interest rates have gone up and there is a difficulty in terms of access? And considering that, you have a very strong landbank, what are you thinking in terms of launches for 2025?
Now about CashMe, the financial result of CashMe was BRL 50 million positive. It increased quarter-on-quarter. So I would like to know more about this operation since now things are more scarce in terms of SPE. And if that's going to benefit CashMe since it is geared towards traditional funding strategies.
And to follow-up on Igor's question and Andre yours, we don't work thinking about what the volume is going to be next year. We're working the way we've always done it. We assess each part of land individually. And when we were a BRL 4 billion company, that's how we worked and nothing has changed so far.
We don't want to go from BRL 4 billion to BRL 5 billion or BRL 5 billion to BRL 6 billion in launches. We like the plots of land. We buy them, if we have cash for it. So I think that we have a very good portfolio and a very good client base. We have some projects in line for next year. And we are happy about it. We are not thinking about the growth for next year. We work bottom up all the time every year.
So the projects that we have for next year, they are finished. And we are always concerned about 2 things: improving the company's ROE. We have been focusing a lot on that. And we have a good ROE right now, finally reaching the level that we had been pursuing for a long time. Maybe we can improve it a little bit, maybe not, but we surpassed a level that we thought was important.
And the second concern that we have is to make our clients happy. So we work bottom up. The ROE is moving in the right direction. And the clients are happy and positively surprised about our deliveries. That's how we have been working and I hope it will continue.
Now about CashMe, you asked about CashMe, Mazini. The SPE funding does not really interfere with it. We don't provide funding to the clients for acquisition. We do that a little bit, but CashMe's business is not that. We follow the traditional roadmap. They usually have their own financial solution. So the savings account funding is not really related to the growth of CashMe.
The next question comes from Mr. Tainan Costa with UBS.
I have 2 questions. The first one is about the health of the projects to be delivered in 2025. What's the LTV and the percentage to be delivered in these launches and also, if you have any perspectives about cash generation and dividend distribution next year?
The second part of my question is about the biggest risk for Cyrela in 2025. Is it a deterioration in the macro scenario? Is it the competition? Is it the ability to get transfers? So what's keeping you awake at night in terms of 2025?
Well, let me address your question about transfers and the percentages sold and paid. Our vintage at the end of the third quarter this year was 89% sold and 45% paid. That number includes Minha Casa, Minha Vida, which has a higher paid percentage. But still the average between Cyrela and Living is more or less at that level, 43%, 44%. So the vintage is very healthy in terms of sales and also LTV.
Now, for the macro scenario, I'll turn it over to Raphael.
Well, I think that the biggest risk for 2025 is Brazil. Its tax issues and interest rate levels or the economy is slowing down. I don't think the sector is going through an easy moment. And working in Brazil is never easy. Brazil is not easy to work in right now. There is competition. Interest rates are high. So it's never easy and risks are always there. But we've been able to weather the turmoil very well in the past 3 or 4 years. But we are always measuring the risks and our lives are not easy. We are always topping and turning at night because of those risks.
And if you could give us more color on cash generation and dividend distribution for next year?
Well, before that, you talked about the risks related to construction and transfers. I don't think those are risks. The risks are always macro risks. And I think that we can work with them. What's your question -- your second question again?
About cash generation in 2025 and dividend distribution?
Miguel can address that question. Please go ahead.
Well, about cash generation for next year, I think that we are still in the early stages. We don't have the sales plan in each project yet. And landbank acquisition can make a big difference in that number. But for 2025, we're envisioning about BRL 300 million to BRL 500 million in cash generation. And it's still too early to talk about dividends.
We are going to discuss towards the end of the year. We are going to have a Board meeting in early December to discuss the possibility of a special dividend distribution this year in a relatively low volume. But we want to discuss it, since the operation has been performing well in terms of cash generation. For next year, it's too early to tell. We still depend on a number of variables that are uncertain.
The next question comes from Pedro Lobato with Bradesco BBI.
I have 2 questions, too. The first one about Vivaz, what is the margin that you are pursuing and ROE as well? And what is your perspective for those 2 things, margins and ROE in 2025, considering the challenges that you will have to face in terms of costs?
And now about CashMe, I would like to know your perspective about the evolution of the business and the level of equity exposure that you have in the new originations for payment? If it's according to your expectations and also your perspectives going forward.
Let me start addressing your question about Vivaz. Our performance has been improving in the segment. This year, we had very successful launches. These launches have a gross margin that is closer to the average company gross margin around 32% to 33%. Of course, we still have a long backlog with lower margins. That's why the gross margin for the Vivaz segment is still below 30%, but there is an upward trend.
About ROE, we have been efficient in our operations. And we believe that Vivaz will have a significant ROE, especially because of the increase in our gross margin that's coming and also the growth that we experienced in this operation this year. We don't break down the ROE per segment. But we believe that Vivaz' ROE tends to be substantially higher than the company's ROE.
Now, about CashMe, we have about BRL 500 million in our shareholders' equity. It's about BRL 500 million. Sometimes it goes all the way up to BRL 600 million and then it comes back down. And our ROE is reaching what we are envisioning about 16%. I think it can go up a little bit. And this is a nice operation. It's a niche operation, however. It's not easy. There's a lot of competition. So it's not really a business in which we can grow by 30% per year.
But it's a business that delivers good results. We know what we're doing there. We have everything in place that we need. It's a good business. We've been in it for 7 years but its niche. It's not something that will give you BRL 10 billion in portfolio at some point. It's been growing and it's not easy to grow in this business. So we don't expect huge growth. But we expect to make good money with a nice, reasonable ROE.
The next question comes from Elvis Credendio with BTG.
I have a few questions on our side, Miguel. First, can you give us more color about the new launches? And what was the reception from brokers? What are you expecting in terms of pricing? And also, when it comes to demand, what is your perspective about demand right now?
And my second question is about your consolidated results. You said in the release that, the new launches are driving gross margin up. So what is your perspective about the gross margins in the new projects in comparison with the previous ones? And what is your expectation for gross margin increases in the short term?
First, about the Vista, our money project, we usually don't break down the results by project. And this project actually wasn't even launched commercially yet. So it is a very special project. We take a lot of pride in it. We really like it. But I cannot give you too much information specifically about it. It is not really our communication profile to do that.
Now, about gross margin, currently, our 2024 vintage has a gross margin at around 34%. And that is very similar to the 2023 launches gross margin. And those 2 vintages have larger gross margins than 2022, which was about 32.5%. So the gross margin has been flat across the projects.
Of course, there's a lot of volatility. There are projects with a gross margin below 30% and some exceeding 50%. But the average of the vintages had been at that level that I mentioned before. So the best range for you to use in your estimates from 2025 onwards should be from 32% to 34%. For a few years now, we have been within that range.
About the project, we cannot give you too much color on it, but we are very excited about this project. That's what we live for to launch projects like that. That's where we can see talent emerging with potential. It's pointless to have talent. But you also need the energy, the power to put the talent in place. And we are working hard to make it very successful. But you should know that we are very excited about it.
The next question comes from Ms. Fanny Oreng with Santander.
Congratulations on the great results. I would like to know, if you can update us on the market in Rio de Janeiro. I noticed that, you increased your landbank there. So I would like to know your thoughts about it. And if you could give us more color on your expectations about the landbank in Rio de Janeiro, the landbank that you bought in 2014, so those are my questions.
Well, I think that Rio de Janeiro is like the new Switzerland. No, I'm kidding. I'm just kidding. Rio de Janeiro is really tough, really, really tough. And we are going to buy landbank there, if there is a good opportunity. We are not excited about Brazil, or Rio de Janeiro, or the future. We are never getting too excited. Everything is very difficult. And Rio de Janeiro is a really tough place.
The last year was a little bit better, but it is a difficult place to work at. And you can't really measure things based on the landbank. And when we see good opportunities, we seize them and we buy landbank. So you can see that variation from time-to-time. But we are not really excited about Brazil, much less Rio de Janeiro.
It is an important region for us. We've been operating there for 25 years. But it doesn't mean that we are excited about the city. Of course, we trust our team. We have confidence in our projects, but -- that's micro, not macro.
Now, about the landbank that we bought in 2014; well, I don't know, if we are going to launch projects there. It depends on a number of variables. So I can't really tell you for sure. There are many issues related to the city zoning, the city master plan. So the answer is we don't know yet.
Next question comes from Aline Caldeira with Bank of America.
I'd like to know more about the competition for landbank and how you are dealing with that inside the company in terms of cash? If you can give us more information about competition for different types of plots of land and if there is little competition right now, how do you balance things out? You are outperforming the rest of the market. So maybe you are buying more land. Are you finding good opportunities? Anything you can tell us about that would be very helpful.
Well, again, we don't get too excited. I think that we are indeed getting some good opportunities because our bar is very high and we say no a lot. So the things that we do buy, it's because we really like those opportunities. And competition is always tough. I believe that in the low-income segment, the competition is even tougher, but it is difficult across the board.
And now, about buying more landbank because of the competition, the answer is no. Our budget is fixed. We never exceeded. We never surpassed it. We have covenants and that really keeps us under control. And we have a very high bar in terms of selecting landbank. And because of competition, we are not going to say, oh, there are so many opportunities right now. Let's multiply our budget by 1.3 or 1.4, 1.5. No. We keep a very strict budget.
The next question comes from Mr. Rafael Rehder with Safra.
I would like to know about your client mix, the clients that are buying your products, especially the high-income ones. Is there any change that you could highlight? Because many companies are talking about clients coming from other places other than Sao Paulo buying products that are more luxury and high income. What is your perspective about that?
I don't really believe that theory. I don't know what company said that. And well, if they said it. That's because it's happening in their client mix. But I'm not going to launch a product because 35% of the clients come from outside Sao Paulo. Our client mix has been really the same. We have low income, medium income; high-income clients. And we are offering products to all audiences.
We have units that are sold for BRL 200,000 and some that are sold for BRL 15 million. We have all types of clients. But the theory of selling units to people from other places other than Sao Paulo. We don't think that's really the case. We are not going to buy a plot of land because 35% of the buyers will come from outside Sao Paulo. I don't think that the return would be good in that situation, considering how risky it would be.
The next question comes from Mr. Daniel Gasparete with Itau BBA.
I have 2 questions, too. First, I would like to know more about your capital allocation. Raphael talked about working bottom up always and you're very correct about that. And how would that compare with buyback? I believe that you can have an interesting IRR in your own stock. So what do you think about capital allocation in terms of allocating capital in different projects, considering the risks? And also about the cost dynamic, is there any cost that is putting more pressure on you? We know that workforce is an issue. It's always been so, but what about materials? Is it a risk right now?
Well, I think that right now, if there's money left. We are going to distribute dividends than buying shares back, but it's really circumstantial. I think that in 2014 or '17, we bought some of our shares back. And I think that, if there is money left, we would prefer to distribute dividends, but it can change.
And again, we are not excited about the country. But we know that, we have a good cash generation. So if there is any money left, we are going to pay dividends. We like to do it. I hope we can.
But it's not that there's a lot of money right now. There's excess of money that we can discuss whether or not we are going to buy shares back or distribute dividends. We would love to pay high amounts of dividends like we did in 2018 or 2019-2020, I can't recall precisely. But I would love to have that problem. Having so much cash that we don't know we're going to do with so much money.
Unfortunately, that is not the case right now. We might pay dividends, but it's going to be a small volume. It's not going to be billions. It would be a great problem to have, but it's not the case right now.
Now about workforce, as you said, as you put it very well. It's always a problem in Brazil. The market is heated right now. It is a very serious issue. We don't have contractors. We don't have workers. There's a shortage across the board. Whenever the labor market is good in Brazil, we have that shortage of workforce. But we are addressing it and we always take that into account, but it is indeed a challenge.
And when it comes to materials; because of the inflation and FX rate, that causes problems when it comes to material costs. We don't think it's chaotic out of control, but the scenario right now is not a great scenario. Workforce shortage combined with high FX rates and inflation that puts pressure on materials for sure. So we are always keeping our eyes peeled for those things. And we are working restlessly to address those issues.
And you talked about having cash available, but you are also going to speed up your landbank acquisition. So if you can give us more color about that. And you talked about BRL 500 million cash generation for next year. Does that take into account the acceleration in landbank acquisition?
Now again, I don't think we are accelerating the acquisition of landbank. The volume that we have right now already consumes a lot of money. So we are not speeding things up. But considering the current level of expenses and cash burn in landbank is not really little. That's why we don't have BRL 1 billion in excess to distribute in dividends, but we are keeping the same level.
We are flying at cruise speed right now. But of course, we spend a lot of money. And therefore, we are not considering the disposal of our stake in subsidiaries in that number. And we know that's a lot of money. But it wouldn't be too significant for Cyrela's shareholders' equity. And BRL 100 million here and there, it wouldn't really be enough to move the needle in shareholders' equity of BRL 7 billion.
The next question comes from Mr. Marcelo Motta with JPMorgan.
I have 2 questions. First, if you could give us more color about the others line item in your impairment line. I would like to know, what that includes. Is it a mix of SPEs? Is it something more specific about the third quarter?
And the second question is about the subsequent events. For example, sometimes you sell Cury shares, and you didn't announce anything of the sort this quarter. So I'm imagining that, you didn't sell any Cury stake. So if you can give us any information about that that would be great because it is a sensible, a sensitive topic for us.
About impairment, in the others line item, we have SPEs with third parties. We also have other non-listed JVs. We have another JV that is a smaller operation. And we have our own projects in which we have partners. But due to our agreements with the partners, we don't have full control. Therefore, we cannot consolidate the results. That's why it is included in that line item.
And of course, it has some volatility because everything depends on the performance of those SPEs. But it is within a range that we consider to be normal. The biggest growth in that line item came from the 3 publicly listed JVs. And about the subsequent events, we didn't have any. We did not sell our shares in any subsidiary, since the end of the quarter, since the end of September. So nothing has changed since the financial statements date.
That concludes the Q&A session for today. I would like to turn it back to Mr. Raphael Horn for his closing remarks. Thank you.
Thank you so much for your attention. We will continue to work very hard to keep posting good results. As I said, Brazil is always a difficult country. We can't get too excited. We always try to keep ourselves in check with discipline. And I think that, we finally reached an ROE level that shows how hard our team has been working.
We've had a very good performance over the past few years. I think our team has been working extremely hard, putting a lot of effort to get to the level that we wanted. And for some reason, it took a long time to get there. But now we can finally disclose an ROE that bears witness to our team's hard work.
So I would like to congratulate all of our employees because a good ROE is always a sign that we're doing something right. We work for pleasure, of course, to make our clients happy to have meaning in our lives. But it's always good to see that translated into a good ROE.
So congratulations for the entire team for your hard work. We give our sweat and blood and more to make things happen. And you are the ones that made it happen. So congratulations, and I hope got blesses, so that we can continue to show our talent and may Brazil help us as well. Thank you. See you next time.
Thank you, Mr. Horn. This concludes Cyrela's conference call for today. Should you have any questions, please contact the Investor Relations team at ri@cyrela.com.br. Thank you very much for your participation. Have a good one. Bye-bye.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]