Cyrela Brazil Realty SA Empreendimentos e Participacoes
BOVESPA:CYRE3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
18.59
25.49
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. Welcome to Cyrela Brazil Realty conference call, where we'll discuss the fourth quarter of 2019 earnings results. [Operator Instructions] As a reminder, this conference call is being recorded and the audio will be available on the company's website, www.cyrela.com.br/ri.
This call is being simultaneously translated into English and is being broadcast over the Internet. Questions can also be asked by participants connected abroad.
The earnings release published yesterday, the 19th of March, after the close of the B3 trading session can also be accessed on the company's website.
Before proceeding, we would like to mention that the forward-looking statements that may be made during this conference call related to the company's business prospects, forecasts and operating targets related to its financial growth potential are predictions based on the management's expectations about the future of Cyrela. These expectations are highly dependent on domestic market conditions, the general economic performance of the country and international markets and are, therefore, subject to change.
With us today, Mr. Raphael Horn, Co-CEO; and Miguel Mickelberg, CFO. I'll now turn the conference over to Mr. Horn. Mr. Horn, you may begin.
Good morning, everyone. Cyrela had a fourth quarter, as far as operating performance is concerned, that was very positive. The substantial volume of launches and the high sales speed of these launches, that was 45% in the same quarter, that reaffirms the company's commitment to offer products assertively and to always focus on quality and profitability.
From a financial standpoint, at the end of 2019, we had a net income of BRL 416 million. And for the third year in a row, we've recorded positive cash generation with BRL 669 million, which allows the company to keep a low net debt and strong cash position. This performance makes us confident that we are headed in the right direction in our pursuit to maximize returns to our shareholders.
But recently the spread of COVID-19 has caused great turbulence in the global market. The government is closely monitoring the situation and taking measures to mitigate its impact and to ensure the security of our stakeholders.
Cyrela stresses its solid cash position and comfortable leverage, which allows us to run our business smoothly even amid greater uncertainty. We'd also like to stress that we fully trust our team and that we are positive we will overcome the current challenges.
Let's now take a look at our operating results.
Thank you, Raphael. Good morning. On Slide 5, we'll address Cyrela's launches. In the fourth quarter 2019, we launched 27 new products with a PSV of BRL 2.4 billion, that's 12% less year-on-year. Excluding swaps, the volume launched in Cyrela's share in 2019 was 54% higher year-on-year. The company's share in the volume launched in the fourth quarter was 70%, compared to 67% year-on-year.
On Slide 6 to 9, we highlight some of the major leases in the quarter. All of them were at least 40% sold in the quarter.
On Slide 10, we'll talk about our sales performance. In the fourth quarter, presales were BRL 2.1 billion, 16% lower year-on-year. Excluding swaps, presales in 2019 amounted to BRL 4.6 billion in Cyrela's share, a 43% increase year-on-year. The city of São Paulo accounted for 70% of sales.
On Slide 11, we'll talk about sales speed. The company's annual SoS was 52.8%. Looking at sales speed by period, projects launched in the fourth quarter have been 45% sold.
On Slide 12, we'll address Cyrela's total inventory. At the end of the quarter, inventory at market value totaled BRL 5.4 billion (sic) [BRL 5.8 billion ], 7.6% higher quarter-on-quarter. The change in our inventory can be seen in the chart to the left.
On Slide 13, we'll see a breakdown of our finished units. In the quarter, we sold 18% 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, this inventory decreased by 3% quarter-on-quarter.
On Slide 14, we'll talk about delivered units. In the fourth quarter of 2019, Cyrela delivered 14 projects totaling 4,100 units and a launch PSV of BRL 1.5 billion. In 2019, 13,200 units were delivered accounting for a PSV of BRL 3.9 billion.
On Slide 16, we'll present our financial results. Net revenue was BRL 1,233,000,000 in the quarter, 32% higher quarter-on-quarter and 7% lower year-on-year. In 2019, net revenue amounted to BRL 3,931,000,000, 25% higher than in 2018. The gross profit in the quarter was BRL 385 million, 33% higher quarter-on-quarter and 15% higher year-on-year. In 2019, the gross profit amounted to BRL 1,216,000,000, 46% higher than in 2018. Net profit in the quarter was BRL 149 million, with a net margin of 12.1%, compared to the profit of BRL 104 million in the previous quarter and BRL 116 million in 2018. In 2019, the net income was BRL 416 million.
On Slide 17, we can see our profitability. In the fourth quarter of 2019, our return on equity, which is net income of the past 12 months over the average shareholders' equity, that was 8.4% and our EPS was BRL 0.39.
On Slide 18, we can see our debt. Gross debt at the end of the quarter was BRL 2.5 billion. The cash position was BRL 1.7 billion, and thus, our net debt was BRL 851 million. 13% of the total gross debt are related to loans for construction and 78% of it is long term. Our net debt over equity ratio was 16.4%, which is 3.7% higher quarter-on-quarter due to the BRL 400 million in dividends paid in the period. The low debt level confirms Cyrela's financial solidity and puts us in the right direction to improve return on shareholders -- to shareholders, pardon me.
On Slide 19, we can see the company's cash generation. In the fourth quarter of 2019, our cash generation was BRL 245 million, versus BRL 78 million in the third quarter 2019 and BRL 137 million in the fourth quarter of 2018. In 2019, cash generation amounted to BRL 669 million, 17% less than in 2018.
We will now begin the question-and-answer session. Thank you.
[Operator Instructions] Our first question comes from Luis Stacchini from Crédit Suisse.
I have 2 questions, the first about cash management. The company has been distributing dividends well in the past years with strong cash generation. Maybe that will be reviewed in light of the current situation. But I'd like to hear from you what you expect in this policy from now on, if there is any line of credit that is open, any short-term loan. Or if you're comfortable with the company's cash balance at the point -- at this point. And the second question is -- I mean, I'd like to hear from you. You have a very relevant administrative structure, but a lot of the constructions done internally, the payroll, that is in Cyrela's control. Can you tell me a little bit more about that situation, please?
I'll answer the first question and Miguel will answer the second question. We have been generating a lot of cash, recently paying a lot of dividends. I thank God for that. I think it's difficult to say anything right now, considering what the current situation is. What we see happening in the world economy is not what we see every day or every year even. And this is just the beginning of everything, so we don't know -- nobody knows how big the problem actually is. So to speak about dividends at this point would be a bit too early.
Our idea 1 month ago was to continue to pay dividends as we have been doing. But now, we need to analyze the situation for a couple of months, 3, 4 months and understand what's happening to Brazil and the world.
I think our tax position is very strong. Leverage is very low. The banks are always very open to us. So I think that we'll have no liquidity problem. We're very strong and solid. And from a operating perspective, launches, sales, dividends, I think that the more I speak about it, the more likely I'll be to make mistakes about it. I think it's the time for us to keep quiet and analyze what's going on. And in a couple of months, we'll probably have a better understanding and overview of what's going on. So we need to weather these turbulences that are happening right now. So we won't say much about it so that we -- because we don't know what's going to be happening. Miguel, please?
Okay. The cost -- the fixed costs, the OpEx are low -- cost -- I mean, that is payroll and so on, that's about BRL 140 million, and constructions are higher, that's at about 5% to 8%. The rest of it is third-party contractors. So as Raphael said, it's very early to speak about impact and cost absorption, but that is the cost that is fixed that we currently have.
The next question comes from Victor Tapia from Bradesco BBI.
You already mentioned this topic, right, coronavirus. I don't know if we could have any idea of what's going to be happening with launches and sales, but if you could speak a little bit about to the past 2 weeks, if you have already noticed any impact i.e., the sales tents that we were going to close for now, so there will certainly be an impact at one point. And the other point, of course, launches and sales, we may have some bad payers for now. And do you foresee any other risks with contractors that may be struggling?
Victor, this is Rafa speaking. Let's be pragmatic about this. I don't think we should be launching anything looking at how things are. The market is really volatile and full of uncertainties. People whenever, can they buy a property, they analyze their territory, there's no reason for them to do it right now.
I think the question that can be asked on a macro level to Cyrela or any other company that is not at the pharmacy industry or food industry could be difficult. I mean, nobody knows if this is going to be 2 weeks, 4 weeks or 8 weeks and after 8 weeks, everything is going to be back to normal.
We don't know what the impact is going to be on -- I mean, what the impact is going to be on our economy, in Brazilian economy, American economy, global economy. I don't think we'll qualify to answer this sort of question. And multi-market managers know that nobody knows when this is going to end. People have ideas, but nobody knows that for sure.
When the market is back to normal, we think it will be back to normal. We don't expect it to change economy drastically once it has been -- once the crisis has been weathered. We need to wait for things to happen, and I don't think there's a lot we can do.
Of course, there can be impacts into the -- onto the rest of the service chain, right? The longer this lasts, the more impact people will have. Contractors may struggle. But I can say that Cyrela is in a very comfortable position to -- will it stay -- stand strong here through any crisis. And when the crisis is over, then we'll be back to -- up back to normal operations. We don't know how long this drama is going to be lasting.
Any crisis -- as any other crisis, this will come to an end as well. Well close the sales tents, but there will be online sales. The more we sell online, the better. This is a very uncertain scenario, like anything else in the economy nowadays. And we know that we have strong cash to not sell for many months. So we don't have all of the answers and we don't want to speak about things we don't know. So that in 2 weeks’ time, we'll have to go back on what we said.
Next question comes from Elvis Credendio from BTG Pactual.
I have 2 questions as well. First of all, talking about this moment full of uncertainties and search for liquidity. So the company has a very strong cash position. And do you think this could be an opportunity in any way to increase sales where there's a lot of competition? Or do you really think it's best to wait to see what the impact is going to be onto the segment and then act?
And cash generation in the coming months is my second question. What it's going to be like in the coming months and in the coming 12 months? With everything coming to expense, do you think there is any from -- with banks[ that are maybe ] -- What do you expect cash generation to be like in the short term?
I'm going to be answering the first question and Miguel will be answering the second question. I think that good opportunities may arise in the coming months. But then again, I think that situation is extremely volatile. It's very difficult to operate with such high volatility. But even if it established a low level, I think there will be a lot of opportunity. If it establishes or stabilizes on a higher level of volatility, then we have less time for opportunities. But I don't think that Cyrela can operate if the market is behaving in the coming 3 months as it did in the past week or so. There's a real low level of instability that we hit, then we can probably find a lot of opportunities. So we're working with our cash day to day. But again, we'll have to operate in this economy when it's good and when it's bad. If it's bad, we'll try and do the best we can. If it's good, we'll continue to operate it with -- operating well as well.
This is Miguel. Obviously, as to this point around cash, we have that in mind for 12 months. We have an FSH contract and the Minha Casa, Minha Vida contract, so we can protect our cash to pay these expenses in the future. We cannot speak to cash generation. We don't even normally do it in a regular context, we won't do it now different ways. We try to review cash, and we'll act in a way that makes us feel at ease.
The next question comes from Jorel Guilloty from Morgan Stanley.
I have 2 questions as well. I expect that in the past weeks, you've been speaking to banks. So could you maybe tell us a little bit about how banks are currently seeing mortgages, financing and loans for construction works? And my second question is about supply chain in general. Do you think that we have enough materials at hand so that there is no disruption in the projects when the situation gets back to normal?
As for the first question, we have been speaking to banks on a daily basis. I've been speaking to all of them all the time. And we don't expect to stop anything, not for individuals, nor for corporations. The banks don't want to have any sort of discontinuity. As for supply chain, I think it's as Raphael just said. It's way too early for us to make any sort of forecast.
The next question comes from Ygor Altero from Santander.
I'd like to understand a bit how construction was going to develop in this current scenario. As it's slowing down, what are your expectations?
Ygor, this is Miguel. Our construction works have about 80% of the staff. Anyone that is in the risk -- at risk group is no longer coming to work, but the rest of work is still operating. And of course, we are mindful of whatever the authorities state.
Next question comes from Alex Kolberg from Itau BBA.
Thinking about impacts and trying to keep short term in mind, do you think that could be any sort of a contract termination or cancellation once the -- maybe impact on sales? A lot of things have been sold recently, so do you think there could be an increase in the number of cancellations?
And the second question is, considering that you are very spread throughout the country, São Paulo and Rio de Janeiro are very much affected by the crisis. But do you think that other regions will be operating normally or more close to normal concerning construction works and sales? What is your opinion?
This is Miguel. As for other regions being affected at a later moment, I can say that most of our activities focused on São Paulo, Rio de Janeiro and Porto Alegre and the 3 regions have adopted similar measures. So we don't see any difference at this time. As for cancellations, we have been speaking about that efficiently and internally, and the cancellations law will apply in any case. We don't have a substantial amount of requests of cancellations at this point, but we don't expect to have a large problem on that front in the short term.
[Operator Instructions] Our next question comes from André Mazini from Citibank.
My first question is about digital sales. We have Cyrela involved with Minha and other startups. Is there any other startup that could leverage your digital sales? And what is the situation of digital sales before corona concerning the PSV? And if that could be leveraged at this point once the sales tents are going to be closed?
And my second question is about tax incentives. [ PIS ] has said that tax has some -- one that the government is not collecting or charging at this point. Do you think that other taxes or other measures could be taken by the government that would have an impact on Minha Casa, Minha Vida?
Okay. This is Raphael. About digital sales, we have nothing revolutionary about Minha and of other subject. But I think 40% or 30% of sales we have are related to digital sales. Our digital brokers are very good. It's very difficult for someone to purchase something alone, I mean, without going to the apartment and seeing it. They're just looking -- just look at it online because you would like to see it, if we would like to go to the location and see the property.
We can sell online. But considering how uncertain the situation is, what is customer demand going to be like? In fact, demand continues to be the same. Our sales would continue to be very similar. Sales tents maybe closed, but if someone wants to purchase, they can do it. They could purchase a unit.
So on our side, we can sell things digitally, but it depends on the demand. And what about the FGTS? Everything is very uncertain. We're monitoring things, but we're acting as spectators. We're watching at the discussions and watching over anything.
[Operator Instructions] If there are no further questions, I will turn the floor over to Mr. Raphael Horn for his final remarks.
Thank you, everyone, for this conference call. As we said, it's very difficult to say anything at this point. But we know this is certainly not going to be the last crisis of this magnitude that we're going to see. We saw that in 2008. We have a larger impact into the financial market. But we're excited about the future when things have improved and gotten a bit more stable, then we'll be operating full blast.
We're hoping for better days for the whole population and the whole civilization, really. So thank you, everyone.
That concludes Cyrela's conference call for today. Thank you very much for your participation. You may now disconnect.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]