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 Fourth Quarter 2022 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. You can hear the translation by clicking the Interpretation button. To those hearing the English translation, you can mute the original audio in Portuguese by clicking Mute Original Audio. 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 4Q '22 earnings call, I'd like to turn it over to Mr. Raphael Horn, CEO. You may proceed, Mr. Horn.
Hello. Good morning. 2022, as expected, was very challenging. Rising interest rates, soaring civil construction, inflation, global and local macroeconomic uncertainties made 2022 a challenging year. Despite such conditions and our caution, Cyrela delivered solid operating and financial results.
The company launched 48 projects with a potential PSV of BRL 9 billion, including BRL 6.5 billion in Cyrela's stake, in line with the 2021 figure. Net sales came to BRL 7.9 billion or BRL 6.1 billion in Cyrela's stake, 25% higher year-on-year. Our superior operating performance can be seen in Cyrela's financial indicators. In 2022, net operating revenue came to BRL 5.4 billion, 13% higher year-on-year, with a gross margin of 32%. Although lower than 2021, our margin bears witness to the company's resilience in a year that was not short of challenges. Our net income was BRL 809 million with a 12.5% ROE.
I'd like to highlight Cyrela's conservative financial approach, which is proved by our low relative debt level with a leverage rate of 7.8%. The company understands how big a challenge 2023 will bring, and we'll continue to work with diligence to keep its positive performance, always pursuing maximum returns to clients, shareholders and other stakeholders.
Now let's take a look at the operating results.
Thank you, Rapha, and good morning, everybody. On Slide 5, we'll address Cyrela's launches. In 4Q '22, we launched 15 new products with a PSV of BRL 2.8 billion, 10% higher year-on-year and 4% lower quarter-on-quarter. The company's stake in the volume launched in the quarter was 58%. In swaps, the volume launched in our stake was BRL 1.4 billion in the quarter and BRL 5.9 billion in the year.
On Slide 6, we highlight the launch of Eden Park by Dror in the city of São Paulo with a PSV of BRL 902 million.
Now Slide 7, we are going to talk about our sales performance. In 4Q '22, presales came to BRL 2.7 billion, 18% higher year-on-year and 71% quarter-on-quarter. Excluding swaps, sales reached BRL 1.5 billion in Cyrela's state, and in the year, they came to BRL 5.5 billion. The state of São Paulo accounted for 65% of our sales.
On Slide 8, we'll address sales speed. The company's SoS in the last 12 months was 47.7%. Looking at sales speed by launch vintage, projects launched in 4Q '22 have been 58% sold.
On Slide 9, we will talk about our total inventory. At the end of the quarter, inventory at market value totaled BRL 9.1 billion, 1.8% higher quarter-on-quarter, which is explained by our latest launches. And you can see the change in our inventory on the left.
Slide 10 shows our finished units. In 4Q '22, we sold 10% of the finished units at the beginning of the period, adding the inventory of projects delivered along the quarter and pricing of units and market value, finished units decreased by 6.6% quarter-on-quarter.
On Slide 11, you can see our delivered units. Cyrela delivered 14 projects in the quarter with a PSV of BRL 1 billion. In 2022, we delivered 54 projects with a PSV of BRL 4.3 billion.
On Slide 13, we will present our financial results. Net revenue was BRL 1.4 billion in the quarter, 12% lower year-on-year and 4% quarter-on-quarter -- or actually 12% lower quarter-on-quarter and 4% higher year-on-year. In 2022, our revenue came to BRL 5.4 billion, up 13% year-on-year. Gross margin in the quarter was 31.4% against 33.9% quarter-on-quarter and 33.4% year-on-year. In 2022, gross margin stood at 32% lower than 2021's 34.8%.
Gross income in the quarter was BRL 208 million against BRL 289 million quarter-on-quarter and BRL 218 million year-on-year. In 2022, net income came to BRL 809 million.
Now let's go to Slide 14 to see our profitability. In 4Q '22, our return on equity, net income of the last 12 months over the average shareholders' equity, was 12.5%.
On Slide 15, you can see our debt. Gross debt at the end of the quarter was BRL 4.8 billion. The cash position was BRL 4.6 billion. Thus, our net debt was BRL 572 million. 71% of the total gross debt is long term.
Our net debt over equity ratio was 7.8%, 4.3 percentage points higher quarter-on-quarter.
The low debt level confirms Cyrela's financial solidity and puts us in the right path to maximize return to shareholders.
Slide 16 shows the company's cash generation. In 4Q 2022, our cash consumption was BRL 54 million against a cash generation of BRL 188 million quarter-on-quarter and a cash generation of BRL 100 million year-on-year. In 2022, we posted BRL 33 million in cash generation.
Now we can go to the Q&A session. Thank you very much.
[Operator Instructions] The first question comes from Mr. Gustavo Cambauva with BTG Pactual.
I have 2 questions. The first one is related to sales. If you could give us more color on the sales performance in the first quarter 2023. Last year was very good from a sales standpoint. So I would like to know if you are starting 2023 on the same level as last year. Many companies are conducting campaigns and some events -- some promotional events. I would like to know if you are doing the same or if you are moving on with organic growth in the beginning of 2023.
And my second question is related to the expected launches for this year. You said that your pipeline for '23 is similar to 2022. I'd like to know more about the profile of those projects that you expect to launch in 2023. Are those large projects? Are they focused on the high income segment? Do you have middle income projects or lower income project? If you could break down the launches for 2023, that would be great.
Cambauva, this is Raphael. Well, Brazil is not an easy country to operate in. It is a challenging market, but there is a market for us. So we are used to this kind of market. 2022 was good. '21 was even better, but '22 was good. And 2023 looks like it's going to be similar to '22. Brazil is still in a mood that is similar to 2022. We hope that things will improve with lower interest rates. But the market, the way it is, provides us with good opportunities, but it is challenging indeed. So this is when we see the advantage of having a solid company with a good team and a good cash and good sales. And of course, we're going to serve those opportunities as they come.
And if things don't worsen, that would be great. It's going to be similar to 2022. There's no silver bullet to solve macroeconomic issues, but we have good products, differentiated products. And our team is great, so that helps us a lot.
We have a good mix of products. We believe that they are going to sell well, but we are going to continue to do what we have been doing. I hope that the macroeconomic scenario improves. If it continues the way it is, it's okay. And that's what we can tell you about 2023 so far. If things deteriorate, we are going to cut some launches. But if things go the way 2022 was, it's going to be a good year. And we have not seen any deterioration in the market in 2023 so far. And of course, our products are good, and they have to be priced at a fair value.
The next question comes from Fanny Oreng with Santander.
Can you comment on the cost scenario? We have heard that some suppliers want to pass on costs to consumers. If you could give us more color about that.
And my second question is about credit concession for CashMe and also defaults. Are you raising the borrowing terms of the clients that you provide financing to through CashMe? If you could give us more detail about that, that would be great.
Fanny, this is Miguel. Well, about costs, we have seen a flat scenario. Some inputs decrease in prices. We have not seen any increases in the inputs that you mentioned, and we don't see any indication that, that is going to happen. So the scenario -- the cost scenario has been good for us. We have not been struggling with costs in the latest quarters. The civil construction index is very low right now. So we have been operating in line with that index.
When it comes to CashMe, defaults are still under control. CashMe has a very good collateral. We finance the real estate properties with an LTV that is lower than 60%, and we are not changing any of the criteria that we use to provide credit to consumers.
Another question, do you see an increase in demand for credit for individuals? Because banks are decreasing offer. So is that causing your demand to go up?
Well, in late 2022, in the fourth quarter 2022 was very strong for CashMe. For the first Q 2023 is a little weaker, but we saw some increases last week.
The next question comes from Daniel Gasparete with Itau BBA. .
Piggybacking on what Fanny asked about CashMe's portfolio, I would like to know more about the BRL 400 million in CashMe portfolios and if that number is volatile and if that is going to impact the company's book value.
And I would like to go back to the previous question and your answer, Raphael, when you said that the products -- good products need to be priced at a fair value. So I would like to know more about potential discounts to keep sales at a good level and if the competition is given into pressure. I know that my question is a little bit repetitive, but I would like to talk more about discounts and -- because we are seeing discounts being offered by other companies for finished units.
Well, about CashMe and the fair value valuation, CashMe was audited last year individually for the first time. And the auditors understood that since this portfolio is available for sales, we securitize the portfolio. We create the credits, and then we securitize the portfolio, and therefore, it should be valued according to IFRS 9 at fair value. So we need to recognize the fair value of the portfolio considering a future sale, and we need to recognize the fair value exceeding costs and allocate that in our equity in other results.
But yes, it increases our assets and our shareholders' equity. And the theoretical base for this calculation works like this. You calculate your spread between your origination rate and the cost of funding, and you project that number at the present value. So we recognized those BRL 400 million that you mentioned, BRL 411 million, and it was done for the entire CashMe portfolio. And that number is going to vary over the coming quarters as the portfolio grows and as that amount drops because that amount is theoretically the gain that is going to come to our results as time goes by and as the portfolio matures. We don't think we're going to see other movements as sizable as that in the coming quarters. Now Rafa, over to you.
Gasparete, thank you for your question. Well, honestly, again, we don't really like the model of providing big discounts and having promotional campaigns. That's not what we usually do. I don't know if the competitors are giving big discounts. I don't have any information about that. We try to price our products at the best price possible, according to the market situation. And the client puts a lot of value on our brand and our quality. So we have not been providing big discounts, and I think we don't have any problems about that. And again, I'm rooting for macroeconomic conditions to keep at the same level, to be capped at the same level as they are right now.
The market is challenging, of course. And we are very cautious when it comes to buying land back -- land bank because the interest rate is high right now. So we take all of that into consideration, but we always are careful when it comes to buying land bank. But of course, things are not easy. But I don't think we are going to have any problems in the coming quarters. And we have not engaged in any price war or discounts.
I have a follow-up question on what Miguel said. You said that the calculation is based on the NPV spread, right? So it is not necessarily related to your sales. So I would like to know if there is any potential volatility based on that.
Well, actually, the cost of funding is exactly the sale of the portfolio. So yes, the cost of funding is a variable that may affect this number or this calculation, the fair value calculation.
Okay. So the origination rate is the one that you use for the calculation. Okay. I understood.
The next question comes from Mr. Lobato with Bradesco BBI.
The company's pipeline is very robust in terms of launches for 2023. I would like to know more about land bank in terms of buying new plots of land to make up for the new launches that we should expect in 2023.
Well, we are going to consider things as they move on. We stopped buying land bank a while ago because we knew that macroeconomic situation would worsen. So in 2021, we knew that the interest rate would go up. So we were very careful. And we are still very selective. When good opportunities come up, we are going to seize them. But we are going to pay attention to the opportunities as they emerge. This is not an easy market, as I said. We have to take things as they come.
The next question comes from Juan with XP.
This is Ygor. I have 2 questions. The first one is about the growth in your inventory in the city of São Paulo and how that impacts your sales strategy.
And the second question is about gross margin. It seems that the gross margin was affected in 4Q '22 because you had lower launches. So I would like to know your expectations about the margins for the next launches. Can we expect an increase in your gross margin? Or should we expect the margin to be at the same level that it is right now, which is 32%?
Can you repeat the first question, please?
Yes, of course. The first question is about the growth in your inventory in the city of São Paulo and how that is impacting your strategy for selling inventory?
Well, the inventory in São Paulo indeed increased, and this is something that we need to pay attention to. Of course, it is not a good situation. I believe that we are going to have inventory in São Paulo for a while, and we should be careful, of course. This is not an easy segment to operate in.
The macroeconomic scenario is tough right now, and I hope that it is not going to deteriorate even further. But it doesn't seem to me that, that is the path that we are taking right now. The market has been taken in the good projects with very satisfactory SoS rates. And we hope that, that is going to continue. But yes, we are paying attention to that factor.
And of course, when you launch differentiated products, the market will accept those products very well, of course, and that applies to the income -- the high income segment. For the lower-income segment, it's not exactly how that works.
And now Miguel is going to talk about the gross margin.
Well, the gross margin in 3Q '22 was positively impacted by 2 launches, especially Casa Ibirapuera. Those 2 projects had a gross margin of 37%, and those 2 projects helped the gross margin in 3Q '22. And then in 4Q '22, margins went down to 31% to 32%. And in 2023, if the market conditions remain as they are, we are going to see margins at the same level as 4Q '22. So we believe that our gross margin will be close to what we reported in 4Q '22. But of course, market conditions may affect that. Lower inflation helps us keep our margins, but we know that the market is tough right now. So our expectation is to keep the level that we are in right now, 31% to 32%. There are some projects that have higher gross margins, but things are uncertain. They really depend on market conditions.
Next question comes from Pedro Hajnal with Credit Suisse.
I have 2 questions, actually. The first one is a follow-up question on a previous one about land bank. A few months ago, I talked to Miguel, and he told me that 40% or 60% of the land bank for the 2023 pipeline had already been purchased. So I would like to know more about the land bank that you have acquired and if you are purchasing the plots of land with such a good viability study as last year.
And I have a question about delays in construction works. There are some construction companies out there delaying works for over 6 months. Do you think you have any chance to incurring the same risks as the other companies? Do you think that, that might happen to you as well?
Well, when it comes to our land bank coverage for this year, if we wanted to cover the same level that we are going to have this year, I believe that we have already 60% of our pipeline covered by our current land bank. We are going to have to buy new plots of land in the future, of course, but we are used to that.
When it comes to delays, we don't have any construction works that is exceeding the contractual term of 6 months. And there was a difficult situation in São Paulo with scarcity of workforce during the pandemic, but we were able to navigate and weather that situation relatively well. And things are back to normal right now, so we don't have any problems. We don't foresee any problems ahead of us.
Next question comes from Mr. Raphaël Leyder with Safran.
I have a question about your monetization strategy in 2023 in which we are going to have a high volume of works and probably a high cash consumption. Although you have a very healthy cash, I would like to know more about your expectations when it comes to disposing of your stake in some joint ventures. For example, Cury, you have already sold 7%. You could sell another 10%. I would like to know more about that.
This is Miguel. Indeed, our cash consumption will be high this year according to our expectations. We have grown so much over the past year. So it is natural to consume cash for construction and for the acquisition of land bank. So that is absolutely normal and natural.
When it comes to the joint ventures, we don't have anything in our radar right now. We are always going to consider the possibilities and opportunities, but we don't have any plans for that right now.
The next question comes from Mr. Guilloty with Goldman Sachs.
The next question comes from Renata Cabral with Citi.
I have 2 questions, actually. If you could give us more color about your geographic distribution strategy for 2023, that will be great. I think that you have already mentioned some details about your inventory in São Paulo. So I would like to know more about your expectations for that.
And the second question is about the need for liquidity in 2023. Considering your debts, and I know that you are going to have 8 construction sites to manage. So if you could give us more details about that, that would be great.
Again, you can operate in the commodity market or you can launch differentiated products. It doesn't mean anything to say that there's a lot of finished units in the neighborhood of Pinheiros, in São Paulo. Well, those products might be low quality. If you launch a high-quality product, consumers will place a lot of value on that. We want to operate product by product.
Of course, it works like that in many other sectors. For example, fashion, there is high fashion, and there is fast fashion. And things sell at a different speed in those 2 segments. And the same thing happens with us. We try to understand things as we buy a land bank, for example. Our inventory level is very low in São Paulo across all segments right now. And we hope that things will continue like that, of course. Things depend a lot on the macroeconomic scenario, and I'm not promising anything for now. Things are okay. And if things remain the same, things are continuing to be okay. If the scenario deteriorates, then we'll see what happens.
What's important to remember is that we already expected the market to be tough. And that's why we have not bought any land bank over the past 1.5 years. We are going to continue to be selective. Of course, prices are not going up anymore. And that's normal. That's the cycle that we have to go through in Brazil. We are used to that. There is nothing in our geographic distribution that scares us. If we operate correctly, I believe that there is no region in São Paulo that could scare us.
Okay. This is Miguel. About liquidity, we have a corporate maturity debt of BRL 500 million maturing this year and BRL 400 million in CashMe. And most of that volume is related to the CREs and -- the CRIs rather. They are the ones that will pay for those debts. And we also have some debts in joint ventures. Our expectation is to pay up those debts, but we have enough cushion to navigate this scenario for a long time. So we should wait and see what the market conditions will be. And we have a good -- a very conservative cash plan. And I believe with that, we will be able to navigate a tough credit market.
The next question comes from Jonathan Koutras with JPMorgan.
I have 2 questions, too. The first one is about your finished units SoS across all regions in São Paulo, Rio. And considering this scenario with a consumption of cash, as you mentioned, Miguel, I would like to know if there's any possibility for you to pay dividends this year or if you're going to pay the minimum amount. I would like to know more about that.
This is Miguel. About the first question related to finished units, we have had a good sales performance in our finished units. We were able to decrease our volume, a great deal. We have been able to progress well throughout the year. In Rio de Janeiro, we decreased our finished units a lot. In the Southern region, things are a bit tougher. Our SoS is a little bit slower there, but our number of finished units is okay. It is lower than 15% of our total inventory. And about 20% of our inventory will be delivered throughout 2023. So we are going to sell the finished units over the course of the year, and we're going to sell the finished units that we are going to deliver in 2023 also.
Our leverage rate is very low. So we are going to pay the minimum mandatory dividend of BRL 192 million. We always consider the possibility of paying extraordinary dividends. Last year, we didn't do it because we wanted to be more conservative and hold that cash inside the company, but we are going to monitor things throughout the year. If things are good, if the market is good, we might pay extraordinary dividends, but we are going to pay the minimum mandatory amount over the course of 2023.
Next question comes from Mr. Guilloty with Goldman Sachs.
Can you hear me?
Yes, yes. Please go ahead.
I apologize for the technical difficulties. I have 2 questions. I was looking at the receivable schedule that you published. And you have BRL 3.2 billion in dividends, and your costs are at about BRL 2.7 billion. So I would like to understand what level of cash you can generate over the coming months or should we expect to see some cash consumption?
And the second question is related to the launches. You said earlier that you expect to launch the same number of products as last year. So I would like to know what metrics you're using or the things that you are considering in terms of reducing the number of launches. And that's it on my side.
Thank you, Jorel, for submitting your questions. I'm going to answer the first one about receivables and a potential cash generation. Well, the -- if you subtract the works costs from the receivables, that's the number that you mentioned, but we are also going to acquire land bank. So our expectation is to see cash consumption this year, and it should be at the same level as the fourth quarter 2022. We believe that the full year should have similar level as the fourth quarter 2022. But of course, that's going to depend on many factors. But yes, the receivables are exceeding the costs, but there are many other expense lines until we get to the free cash flow.
And Raphael is going to answer your second question.
Well, about launches, I think that there are 2 factors here. The first one is sales over inventory. That is one of the points that we pay attention to. And the second factor is that when you launch a product and it sells well, then you go to the second one and the third one. If you launch 2 or 3 products and the market is receiving those products well, of course, we're going to tap into those opportunities. If we think that a project will sell well and give us cash and money, of course, we are going to continue launching. If the opposite happens, we can stop launches. But so far, the situation has been positive.
Of course, we launch one product at a time. And right now, our products are selling well. 2014, '15 and '16 here in Brazil, our growth sales didn't suffer at that time. The problem is that we had many cancellations at that time. And that's why our net sales were low at that time. So gross sales right now are very healthy. And of course, we're going to work on a case-by-case basis. As we launch products, we can test the water and see how things are going, and then we can decide if we're going to launch another product. But so far, we have been able to navigate the situation pretty well. If the market worsens, then we will need to stop and reassess things. But I hope the market will continue the way it is right now, at least.
If the new products sell well, we're going to continue to launch products. If not, we're going to stop new launches. When we said that we are going to launch the same level as last year, that's our expectation. It's not really a commitment on our side.
That concludes the Q&A session for today. I would like to turn it back to Mr. Raphael Horn for his closing remarks. Please go ahead, sir.
Thank you all very much for your attention. Let's hope that the country will improve and interest rates will go down in a sustainable way. And we hope that Brazil will materialize its potential with good economic and macroeconomic conditions. We are going to do our bit, and thank you very much. See you in our next call.
This concludes Cyrela's earnings call. 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 day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]