Direcional Engenharia SA

BOVESPA:DIRR3

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon. Thank you for holding. Welcome to Direcional's conference for the results regarding the first quarter of 2020. We have here with us Mr. Ricardo Ribeiro Valadares Gontijo, who's the CEO of the company; and Mr. Henrique Paim, who's the CFO of the company. This is an event exclusive for analysts and investors. It's being recorded. [Operator Instructions]

This event is being transmitted live. We're webcast online, and it can be accessed at www.direcional.com.br/ri. And in this website, you will also find the presentation. You can watch this event again right after we finish it. It will be available.

Before we move on, we would like to clarify that any statement that will be made during this conference regarding the business perspective of Direcional, projections and operational and financial targets are premises of the administration of the company as well as based on information currently available. So this is not an assurance of performance. Investors should understand that the conditions of the economy, of the industry and other operational factors can have an impact on Direcional's future performance and can lead to results that are different from those that are considered here.

We would now give the floor to Mr. Ricardo Ribeiro to start the presentation. Mr. Ricardo, you may begin.

[Ricardo Valadares Gontijo, executive]

Good afternoon, everyone. I'd like to once again thank you for joining our call for now the first quarter of 2020. This afternoon, we will give you information about the first 3 months of 2020. Before I start with the presentation itself, I would like to stress some points I believe are quite important for you to better understand how Direcional has entered this very complex pandemic period we're going through right now here in Brazil. This information, I believe it's really relevant and will make us feel more comfortable to go through this challenging period.

We finished March 2020 with about BRL 800 million in cash and an indebtedness of 8% from our net assets when we consider our net debt divided by our equity. Our time line for this debt for maturation -- maturity of the debt is quite comfortable even in the face of a challenge when it comes to transfer for individuals in the Minha Casa Minha Vida housing project, mainly in January and February, although this was already solved. The use of cash from Direcional in the first quarter was quite low, BRL 11 million. So this shows that our model is sound. We have exchanges for payment of land, and we are very efficient in our work sites. So although we did consume some cash, we have BRL 30 million with nonrecurring events. So if we don't consider the nonrecurring events, we would have generated cash in the first quarter of this year.

We also delivered the greatest adjusted gross margin in the last 10 years. So since 2010, we haven't had such a good result. Over 36% of gross margin, and for Minha Casa Minha Vida Levels 1 to 3, it reached 38%. And then the middle-income segment, it reached 39%. So this shows the assertiveness of the launches that we've had recently in the middle-income segment. And it makes us really comfortable to know that with this macroeconomic scenario with low interest rates, we will probably have a positive perspective, a positive outlook in the future for a growth of this type of project that is targeted at this income bracket.

We have been presenting, throughout recent years, a growth in revenue coming from Levels 2 and 3 from the Minha Casa Minha Vida housing project in our total revenue. 87% in the first quarter of our revenues came from Minha Casa Minha Vida, MCMV.

We see gross margins at Direcional being at very healthy standards and very resilient standards, and we can see that for the future as well. We have our work sites under control. Our costs are quite comfortable as well, and we currently don't see a pressure of increasing costs in our developments. So that makes us feel comfortable. Although we do have these healthy margins, we also see resilience of these margins in coming months.

I would also like to highlight our model, our association model or cooperative model, which is a winning model in crisis scenarios. We have no delays or defaults in the payment of installments. We don't see any perspective in increasing canceled sales. And in SPEs where we already have sales volumes that are over the cost of the work themselves, cash generation is positive every month. And if we accelerate the rhythm, the pace of those works, this will mean even greater cash generation for that specific SPE. That allows us to have the company at very healthy leveraging standards. In coming months, we don't see a perspective of using cash here at Direcional due to the crisis we're going through right now.

Sales have been quite resilient also in the first months of this year and in the first months of the -- of 2Q. This is very easy to see at MCMV, Minha Casa Minha Vida. I would like to highlight that the first quarter was very normal in January and February. We started to feel the impacts of COVID-19 from mid-March on. So the last 2 weeks of the month were quite complex. That had an impact in our sales in the last 2 weeks of the quarter. We didn't have enough time to adjust our expenses, most of all, office expenses and also commercial expenses, in the same proportion that our sales dropped. So that did have an impact in our results. Sales were below forecast in March. Of course, that leads to an impact in revenue. And we could not offset this impact by reducing our expenses in the same proportion within that 2-week period.

However, in Q2, we are taking several measures to decrease our expenses and to balance or offset and adjust us to the reality of revenue that we forecast for the next month. And we believe that this -- these efforts to reduce our expenses will become more visible when we have our next call for Q2. Well, I believe with that, I already covered Slide 4 and 5 of the presentation, where you see the highlights.

And I'd like to go now to Page 6, about our launches and sales. In Q1, our launches were concentrated in March, 100% of them, which is quite common due to seasonal aspects of our industry. When the COVID-19 impacts were felt in a more strong way, we decided to hold back some launches, and we put in the market only the units where -- those units where we were sure there will be demand and speed of sales. Our priority for the company right now is to sell developments that are already under construction and to preserve our low leveraging levels. So we don't want to launch new products right now. We are focusing on selling what's already there, most of all, those that are already under construction.

So we've launched about BRL 140 million in Q1. Our net sales grew by 4% when compared to Q1 2019, and they reached BRL 298 million. It's important to highlight that in Q1, there was higher volume of sales and projects where we partnered with other companies. Although this is not a trend, considering that we've reduced those projects in partnership, this was a coincidence that happened in Q1 this year. This had an impact in the minority line, which had quite a relevance in this quarter and reduced our net margin. So those minority projects, this is something that is probably not going to be recurring from now on. There might be some coincidences in 1 quarter or another, but the perspective for Direcional is that the representativeness of our share in projects will grow.

Slide 7 now, speed of sales -- on the speed of sales of our products. In Q1 2020, our speed of sales was stable when compared to the last 5 quarters. And for Minha Casa Minha Vida, VSO was 15%. And the middle-income segment, it was 6%. We see in recent weeks greater resilience in the sales of projects that are within MCMV's scope, Minha Casa Minha Vida. And the middle-income segment, or MUC, has felt greatly the impact of the pandemic.

On Slide 8, we would like to tell you that we finished the quarter with BRL 2.3 billion in available product for sales, potential sales value, which is quite a satisfactory level during a pandemic. And it justifies the small volumes of launches that we had during Q1. I would like to highlight the inventory. It's just 1% in concluded units for the Minha Casa Minha Vida. It shows the assertiveness of our product in the face of the demand that we find in different areas of our country. We have 79% of our inventory focused on MCMV, Minha Casa Minha Vida. 21% is focused on the middle-income segment, or MUC. 74% of our inventory is located in the Southeast region of Brazil.

When we compare Q1 2020 with Q1 2019, we see growth of our landbank, now we are on Slide 9, of about 7%. And the potential of sales to be built over our landbank has reached about BRL 23 billion, BRL 4.5 billion of those in the MUC, the middle-income segment, and BRL 18 billion in the Minha Casa Minha Vida segment.

Slide 10 talks about our transfers. In Q1, we had a volume of transfers for Minha Casa Minha Vida, which was a bit lower than the same period of 2019, 4% below 2019. And we had BRL 229 million of cash coming in, in Q1 2020. When we compare that to Q4 2019, this reduction was by 20%. This can be explained by the interruption of transfers that took place in January, February this year, a situation that has been completely regularized as I mentioned. So there is no perspective of facing any further problems in that regard.

I'm now going to give the floor to my colleague, Henrique Paim, and he's going to talk to you about the financial highlights of Q1 2020.

[Henrique Paim, executive]

Good afternoon, everyone. Thank you for joining our call -- our results call for Q1 2020. We are going to give you the financial highlights for Direcional in Q1 2020.

On Slide 12, and -- we see, similarly to last quarter, that the company is quite resilient in terms of cash generation. We have almost BRL 800 million in cash generated throughout the last 7 years. In the Q1, we generated BRL 20 million in cash if we exclude nonrecurring impacts of paying for land. This is land that we acquired in the past.

As for our capital structure, we have a sound cash position, close to BRL 800 million, and that's something that we reinforced in Q1 with operations, with commercial banks and also withdrawals with Caixa Econômica Federal. We have an expressive volume of legal entities. So that's a housing credit with Caixa Econômica Federal. If needed, we may use those resources to fund the work. We also decreased our leveraging when compared to the same period of 2019. So we are at very comfortable levels, below 10% of our net equity.

Our net debt fell by almost half when compared to the same period of last year. That's Slide 13. And here, you see the time line of our indebtedness. We have BRL 100 million that will mature in October and then the rest to the first quarter of 2021. We are working with our finance partners. We want to adjust the duration and the maturity. Currently, it's for 3 years, the duration. And this seems quite appropriate to our cash cycle.

As for our debt, we have a higher percentage in operations with the capital markets. So we have CRIs as you see on Slide 13, right-hand side, most of all due to the low cost of this type of funding.

On Slide 14, we see our net revenue BRL 291 million in Q1, 16% below the first quarter of 2019 and 21% lower than Q4 2019. This impact was caused to decrease in revenue with services. So that's what we call level 1.

As for gross profit, BRL 106 million in the quarter, so that's 9% below Q1 2019 and 21% below Q4 2019. I'd like to highlight that the gross margin reached 36%, so these are very high levels, most of all as a result of our operational efficiency.

In the last slide, 15, you see our ROE, about 3%. This has an -- was caused by a BRL 10 million bottom line. And this is the impact of our lower revenue and a smaller dilution of our D&A. Net profit fell by 34% regarding Q1 2019 and 37% compared to Q4 2019. 76% of that is connected to the minority shareholders in our projects because there's more concentration per shareholder.

So that's it. Thank you very much.

[Operator]

Thank you. We will now start our Q&A session, which is exclusive for analysts and investors.

[Operator Instructions] The first question comes from Enrico Trotta from Itaú BBA.

[Enrico Trotta, analyst]

This is Enrico. When it comes to land, you mentioned the nonrecurring impact in cash generation, right? In your strategy of purchasing land with exchanges, can you give us a bit more detail about the land, where they're located? Acquiring this land, was it favorable for Direcional? And using this exchange scheme, was it positive?

My second question, I know that Direcional is different from other players in the market. If we consider the recession that is expected for the future, are you provisioning any change? Have felt any changes in the payment of your receivables?

[Ricardo Valadares Gontijo, executive]

Thank you for your question. Regarding the payments that we've made for the acquisition of land, land that was actually acquired last year but payments happened in 2020. I'd like to mention 2 relevant examples. The 2 of them together, it's BRL 20 million. One, we acquired at an auction. It's in the city of Brasilia in the Federal District. We bought this land for a very competitive price. And instead of working with a recurring gross margin, which we believe it's about 33% or 34%, this will allow us to operate with a 40% gross margin. So this is quite a good purchase in a place -- in an area where we had low inventory. And since this is a plot of land, we can approve projects very fast there.

The other plot of land is to the 1.5 level, which is a segment that's quite resilient as we see. This land was acquired at a discount of 40% compared to what would have been paid otherwise. So we believe it makes perfect sense to acquire this land. And we believe that the gross margin is going to be higher than the recurring gross margin for this type of business, both for Minha Casa Minha Vida and for MUC. We had some specific acquisitions of land. We thought that there was a lot of value because landowners gave us great discounts.

As regarding your question about pró-soluto, this is quite an important question. Pró-soluto is one of the few items in our cash flows where we can have a relevant impact of [indiscernible] labor, maybe higher delinquency rates or delayed payments. So just yesterday, we were discussing here internally. We have been following up our pró-soluto to forecast what can happen. Thus far, we cannot say that we clearly have an increase in delinquency rates for pró-soluto. Our portfolio in the last 2 months, March and April, have had quite a similar behavior than the last -- when compared to the last 12 months. So for the time being, although we have a very low pró-soluto level, the cash entry coming from pró-soluto is not really relevant. This is not going to cause any radical changes to our perspective of cash generation for this year. So we have not seen a significant change in that portfolio specifically.

So we are, for the time being, preserving the same procedures that we have. Henrique Paim, my colleague, might comment on that as well, but yes, we are following that closely. And if we see any signs of changes or an increase in delinquency, yes, we will act as necessary.

[Henrique Paim, executive]

This is Henrique Paim. Yes, adding to what Ricardo just said, I'd like to highlight that we have an in-house collection structure. It's quite well structured. And in our digital transformation process, we increasingly use digital channel for collection purposes.

I'm going to give a couple of numbers. In this last quarter, we grew by 48% the amount of WhatsApp messages that we sent for our clients that had any sort of delayed payments. And the effectiveness of those messages was quite high. We received 50% more than we did before we had this measure. So this is a proactive way of collecting the delayed payment, and it makes a huge difference in keeping our delinquency levels steady.

We are also working on Saturdays now. We have a couple of analysts and operators now working on Saturdays to contact these clients and negotiate those payments so that we have a healthy pró-soluto portfolio.

[Operator]

Next question comes from Victor Tapia from Bradesco BBI.

[Victor Tapia, analyst]

First thing I would like to ask you, it's clear that it's still too early to know what's going to happen regarding operational volumes. In any case, could you give us some more detail on the behavior of sales in Q2? We've seen several players preserving healthy levels. Most of all, when we compare that to middle and high-income brackets, I think that the Minha Casa Minha Vida bracket is more resilient.

And we know that the social distancing measures will probably stay with us for longer. What is Direcional's appetite to launch new products throughout this period? Ricardo, you mentioned that you feel no pressure to launch new products. But do you believe it will make sense at some point to start to go back to launches?

I would like to ask another question regarding gross margin. It's quite healthy. Your levels are quite healthy. Looking forward, we had several conversations recently. And back then, you were not seeing any cost pressures. I see a lot of efficiency in your construction sites in your awards. But now with this current scenario, do you have the same vision for your margins, your gross margins? Will we keep on seeing healthy gross margins? Or do you feel the possibility of any pressures due to costs or discounts because of the current scenario?

[Ricardo Valadares Gontijo, executive]

Regarding sales, as I mentioned, we're seeing the preservation of sales in very healthy standards when we consider this context we're going through. Of course, we do see an impact in sales when we think about the scenario that we had earlier this year. When we think about the challenges the world is facing right now, it's not just Brazil, I would say that our sales are still in quite healthy standards as we understand it. When we look at April, and we've already run through the first -- 2 first weeks of May, our sales tenders are quite close to Q1. So Q1 is usually a tougher quarter because January, we have summer holidays in Brazil and then in February, we have carnival. So Q1 usually feels the seasonable impact.

But up until now, I see Q2 at a very similar pace when compared to Q1. Of course, things are changing daily. The perspectives change daily. So maybe something that happened in the first 45 days of a quarter will be completely different from the second half of the quarter. The scenario is changing, measures taken by the government, news in the media. So when we look back in the rearview mirror, so to speak, we cannot predict anything about what's to come.

Regarding launches, yes, we will have launches in Q2. Currently, our focus is not on launching as I mentioned. We are focusing on selling all the units that are already available, and this is more than BRL 2 million. In some regions where we see the speed of sales higher, so in those regions, we are making launches, but not at the same levels we had thought earlier this year. Of course, we had to adjust ourselves, the new reality.

But I'm not saying that we will have 0 launches. In those regions where the VSO is above middle level, so to speak, yes, we will make products available for sale in those regions. So we are making very specific launches in specific regions of our country where we see quite a strong demand in spite of the current scenario.

Finally, regarding gross margins. Well, Victor, we are adopting measures at Direcional regarding pricing, regarding sales, daily initiatives that we take. We are making decisions very quickly. We schedule a video meeting within an hour, and we make decisions that will be effective as of the next day. So what is our vision so far? And we can change it. Of course, we might change it in the future if we need to do so. But up until now, we see our gross margins quite healthy.

Our construction sites and our works are still operating at good cost levels that are within our budget, some construction sites have shown savings regarding forecasted costs. Of course, we are seeing some deflation in our economy due to the crisis. So we have seen no cost increase pressures for the next few months. We don't see that happening. And I believe that we've been saying that at least for the last year, we've seen an expectation that in the future, our gross margins might be lower. But up until now, we see our gross margin at higher levels for a long period of time. That's what we see right now. So everything is under control. We see no pressure. Our construction sites are under control.

And in terms of pricing, we might, of course, see some regions that suffer greater. We might provide some discounts there. But in general, we offset those discounts with price increases in other regions. So until May 15, when we -- which is up until when we have information, our gross margins are quite sound at levels that are higher than our recurring standard for the industry, which is about 33% or 34%. So that's the recurring standard, okay? We -- looking at the circumstances, we will have margins that are a bit higher than that level.

[Operator]

Next question is from Elvis Credendio from BTG Pactual.

[Elvis Credendio, analyst]

I have a question on canceled sales. You mentioned that canceled sales are under control. Other companies in the industry are complaining about the speed of transfers from Caixa Econômica Federal. And this has been one of the reasons for an increase in canceled sales. Have you been able to transfer regularly for Caixa Econômica Federal? Do you see any slowing down in the speed of transfers for Caixa? And could that have an impact in the levels of canceled sales from now on?

My second question is about sales. In some areas or regions of our country, I don't -- you have you know those sales booths, you mentioned Brasilia. Is there still a movement of visitors in those sales booths for the launches? What is the speed of sales in those areas? If we think about pre- and after the start of the pandemic -- I know things change very fast, but I want to understand a little bit better the behavior of demand.

[Ricardo Valadares Gontijo, executive]

In 2020, in January and February, we did have some interruptions in housing credit projects for individuals, mainly due to an installment of the subsidy that was in the hands of the treasury, the national treasury back then. When the treasury does not transfer the 10% with the subsidy that it should do, the transfer did not happen. This problem was solved. There was a decision that was published in the official gazette. And from mid-February on, those transfers regarding the subsidies of Minha Casa Minha Vida started to be made fully by FGTS, the severance fund. And from that point on, those transfers became regular and normal with no problems whatsoever. So we did feel this impact. You saw in our numbers that the volume of receivables were a bit lower than Q1 2019 and much lower than Q4 2019. But from mid-February on, these transfers have been regular. Same thing for April and May. But yes, this problem did have an impact on the operation of all companies that are involved in the Minha Casa Minha Vida program all around our country.

Henrique, would like to add something about transfer, and then I'll answer the second part of your question.

[Henrique Paim, executive]

This is Henrique. Well, when it comes to the budget of the FGTS, the severance fund system, this is allocated by states in Brazil. When we have a concentration of transfers in a state, this funding ends faster than in other states. So when you have a sales concentration, for instance, in São Paulo and Rio, for instance, and this might happen with some of our competitors, you might feel greater impact because that budget was not enough to pay for all the transfers that should have been made. Since we have -- we are present in more states, and we are not highly concentrated in any state. So yes, we did feel the impact in those states, but in the other states, we didn't feel the impact even when funding was not enough. So we kept our transfers regularly. So the geographic diversity of our portfolio really contributes to a better transfer performance than the average of the industry.

[Ricardo Valadares Gontijo, executive]

Elvis, regarding sales booths, almost all of those sales booths are not operating right now. They're closed. In the Federal District in Brasilia, that's one of the few places where we still have some sales booths operating. They're allowed to operate, however, very carefully with social distancing, very few people within the booth at once, masks, hand sanitizer. So due to all these restrictions, of course, we have less customers coming into our booths. That's just natural. So yes, there was a reduction in the number of customer visitors, even in states where those sales booths are allowed to open.

That does not mean, however, a decrease in the speed of sales. In the last 18 months, we've made high investments in training our team. And we've invested in systems so that we could do online sale. So there is no need for a person-to-person contact right now. And clients quickly migrated to the digital sales channel.

So the sales booths are not as important right now as they were in the past. And I believe that in the future, we might need very few sales booths. So when things go back to normal, I don't think we're going to have to invest that much in sales booths or in offering those decorated apartments. And this is going to represent important savings for us because there will not be such great need for those sites in the future. This is possible because we are still selling right now, although all our booths -- almost all our booths are closed. So we are not reducing sales because of that.

[Henrique Paim, executive]

This is Henrique. Just adding to what Ricardo said, our investment in the digital channel since 2017 prepared us to perform sales that are 100% made online. We don't need any more -- any personal contact with clients, not even to sign the contracts. Everything is done digitally and online. This allows us to go on selling throughout the last months in spite of the pandemic business. This is the difference that we see in our model.

[Operator]

Next question is from André Mazini from Citibank.

[André Mazini, analyst]

My first question is about sales. Can you compare Minha Casa Minha Vida that -- which is selling quite well with Level 4. Why is Minha Casa Minha Vida  selling so much better than Level 4? Is it because the program makes it easier to purchase? Or maybe those consumers have such precarious housing conditions that they want to purchase, whereas with Level 4, they don't need that anymore? Some of them already have their own real estate so it's almost like an upgrade from a situation that's already good at Level 4? Why is Minha Casa Minha Vida more resilient than other segments?

Second question is on provisioning. We see some companies provisioning for canceled sales. Do you have provisioning for canceled sales or just for receivables? Those are my questions.

[Ricardo Valadares Gontijo, executive]

Regarding the resilience of Minha Casa Minha Vida, this is a fact that no one could have foreseen before the crisis. This is a reality that we've seen throughout the last 60 days. We believe that one of the main reasons for that is that if you're buying -- when you are buying a Minha Casa Minha Vida real estate, that has to be the first real estate purchase of that family's life. It's a person that lived in a rental apartment or that used to live with his or her parents and now got married. So it's the first real estate purchase. And the installments are quite equal to the rent that they pay. So it's quite an easy decision to make, most of all in such a challenging situation, such as the one we're going through right now. Several clients live in illegal land or land with high concentration of people where you cannot even have social distancing that even might have an impact in purchasing real estate now. People are looking for areas with sanitation, access to health services. And if you have the opportunity of buying real estate in an area that's completely legalized, with services, with quality, I think that can indeed make the mind of that family, most of all when the construction work is about to be finished. And if the family is already paying rent, then this is a no-brainer decision.

We also have a volume of families in the low-income segment. The number of families in the low-income segment is much greater, of course, in Brazil, because the funding source for those developments is limited. If there was no limitation from the FGTS, of course, we would be building more units in the country. But in that area, in that segment, the demand is greater than the offering -- than the supply. And we see greater levels of unemployment. Families are careful about indebtedness. But still, there is enough demand for the supply that we have in the market.

Whereas when we think about high-income bracket, this is people that are upgrading from a situation that is already good. They usually already have their own real estate. Maybe they had a baby or their purchasing power increased. And they can postpone a decision like that due to the current scenario. So a high demand, paying brands and first real estate, these are the main reasons for this greater resilience of the Minha Casa Minha Vida segment when we compare it to high-income bracket areas.

In terms of canceled sales and this provision, we have a provision for receivables. We know our delinquency level risk. So we do have a provision. But a provision for canceled sales at Direcional, I don't think it makes sense for our model. We don't have a provision for canceled sales. It does not make sense in our operating model.

[Henrique Paim, executive]

Yes. This is Henrique. It does not make sense indeed to have this provision. Now with this association method that we have in the majority of our developments, we will reduce probably canceled sales to levels that are much lower than current ones. We want to reach 13%, 14% of canceled sales when compared to what we have currently, which is a bit below 20%. So as far as we can see, it makes no sense to have a provision for canceled sales.

[Ricardo Valadares Gontijo, executive]

André, this is Ricardo again. I'm saying that this makes no sense to us because when there is a canceled sale, we don't give any discounts in a new sale. The product is sold by the same price. Maybe provision would only make sense if you consider that the cancellation will happen and that you will have to sell that same unit at a lower price. But that's not the case with us. So I believe that's why other players have this provision for canceled sales, but that does not happen with us. So we see no need, we see no sense in having a provision for canceled sale.

[Henrique Paim, executive]

And this is Henrique again. For the middle- and higher-income brackets, if we have a disruptive scenario where we have -- if we have an excess of canceled sales -- and since the housing credit take place when you receive the keys for the real estate, if we do have an excess of canceled sales, maybe in those cases, it would make sense to have a provision for that. But in the method that we currently have, the association method that we work on at Direcional right now, I don't see a need for that.

[Operator]

Next question comes from Ygor Altero from Santander.

[Ygor Altero, analyst]

I have a question about the 1.5 level. We were talking about this lower-income bracket segment. Do you still see the same scenario going on? And how much could that represent from the whole of your launches, this segment?

Second question is about costs and expenses. You mentioned you have some initiatives to reduce costs. Can you give us a bit more detail about those initiatives?

[Unknown Executive]

Well, generally, we see that the lower the income of the family, the greater the resilience of that segment regarding demand. We cannot say that this resilience is focused specifically on the 1.5 level -- income level. We have products that are sold at BRL 150,000 that still have stable demand. However, as income grows, we see that the speed of sales becomes slower. So yes, we might say that level 1.5 is more resilient. But we see a lot of resilience in income brackets that are a bit higher than that. I don't think it depends on the program, the Minha Casa Minha Vida program specifically.

Regarding costs, we cut several expenses at the company. So all investments that could be postponed were postponed. And we have the Provisional Measure 396 (sic) [ Provisional Measure 936 ] from the government in several areas where demand is slower due to the pandemic. We reduced working hours, and we reduced salaries for some employees because now with this provisional measure, the government allows us to do so.

[Operator]

Next question comes from [ Jonathan Corpuz ] from JPMorgan.

[Unknown Analyst]

You mentioned that you will go on launching in Q2. Do you believe the cities will allow you to go on selling -- the municipalities?

[Unknown Executive]

Yes. You are right, indeed. We cannot give you a general answer because Brazil is a huge country, and we operate in several states and cities. But in general terms, the approval of developments is becoming slower in some cities. We see that in several cities. The approval of projects has decreased in terms of pace. And in some regions, when we look at the speed of sales and the demand. If we don't have the approval for the project, well, that might happen indeed. But we have over BRL 2 billion in products that are already developed. So let's say that we have a buffer. We have a good buffer to stand these delays quite well.

Of course, we would always like to have products available where we see any demand. But we understand that several cities and municipalities have people working at a work-from-home scheme, and we know that creates several difficulties for the approval of the development projects as we had before COVID-19. So these delays are indeed happening. We are not feeling the impact yet of that. But maybe in coming months, we might feel this slow.

[Operator]

[Operator Instructions] Thank you. Our Q&A session is finished. I would like to give the floor to Mr. Ricardo Ribeiro for his final remarks.

[Ricardo Valadares Gontijo, executive]

Well, everyone, thank you once again for joining us for this call. This Q&A session has been quite interesting. And I would like to let you all know that we are working hard and close to the market to make the appropriate decisions regarding this ever-changing reality we are facing. We have -- we've been successful in this very difficult first 60 days of social distancing in Brazil and in the world as well. We are optimistic. We will face this period in a very healthy way. We have a good capital structure, good levels of leveraging and all those rates that measure the health of our company.

And we are available to all of you if you have any questions throughout the next day, if you want to clarify any aspects of our industry. Of course, we are talking about housing, Minha Casa Minha Vida, the middle-income segment, the MUC. So these are very different segments, and our Investor Relations team, we are available to clarify any questions you might have. Thank you once again, and good afternoon, everyone.

[Operator]

Thank you. This results webcast for first quarter of Direcional is finished. If you please disconnect from the line right now. We wish you all a good afternoon.

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