Direcional Engenharia SA

BOVESPA:DIRR3

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[André Damião, executive]

Good morning, everybody. Welcome to our earnings release of second Q '24. I'm André Damião from the IR team. Here, we have Ricardo Ribeiro, CEO; Paulo Sousa, CFO in IR. And our presentation will be the same as it has always been in the last quarters. We will show you the results, the main highlights, and then we will open for questions and answer. So those of you that want to ask questions, please use your raise hand tools because we will moderate here according to the order of questions. This presentation is destined to investors and analysts. This presentation is destined to investors and analysts. So those of you that want to watch the replay, you can pick it up in the Investor Relations site today. This transmission is being done by the Direcional YouTube, is in the YouTube and the link of the presentation here, too.

So now I give the floor to Ricardo to begin with his presentation.

[Ricardo Valadares Gontijo, executive]

Good morning, everybody. I would like to say that it is a huge pleasure to be disclosing the financial results of the second quarter ‘24. One of the best quarters in our assessment of the history of the company, where we were able to deliver sales growth, sales in VSO, gross margins, net margins, strong cash generation and continuity of return of capital to shareholders, which was done by the payment of dividends. So, this was an emblematic semester for us, very special, and we believe we are continuing with this journey in terms of value generation for our shareholders. It is important to emphasize, when we see the land acquisitions, we had an expressive acquisition of land, BRL 3 billion in sales potential via swaps and with lower costs than before, always in this varied between 10% of our revenue. And before, it was slightly over 11%.

Having said this, I would like to begin with Page 3 with our main highlights. In this quarter, we reached net sales of BRL 1.6 billion, 68% growth related to last year's. Sales has been a priority here in Direcional. At this moment, where the capital is extremely expensive, we see sales as the main lever for generating value to our shareholders. More sales mean less working capital in our operations, which has allowed us to deliver growth with margin gains and returns still returning capital to the shareholders. So, when we consider the SPEs that are not consolidated in our financial statements, the revenue growth in the second quarter when compared to the second quarter last year, was 40%, and we reached BRL 100 billion revenue. Recurring net profit was a record BRL 135 million, 82% growth when compared to the recurring net profit last year, the second quarter.

So, when we compare 40% of revenue growth and 82% of net income, you can see the efforts we've done to hold back on our revenues so that we can have more revenue than expenses and we can still benefit from increment of operational lever in the company. And this has been clear quarter-after-quarter. To the upper right part chart in the last 12 months our launches reached BRL 5 billion. Net sales, including SPEs that goes through our results and where we do not consolidate the revenue. So, when we sum up the revenues of the SPEs to the revenue that goes through our financial statement, the total revenue reached BRL 3.8 billion. Still, we have a difference here between revenue and launches up 34%, showing that we should continue having growth of revenue recognition in the following semesters. And most probably, we are going to continue benefiting from this operating leverage increase, which reflects an increase of margin.

First, semester ‘23 compared to the second one to show you the benefit, we had 1.4% gross margin increment. And we also 4.5% net margin growth. So, now to talk about the gross margin, we can see our works with costs under control we have the benefits of the geographic diversification. We don't have exposure to one unique area. And availability of labor and cost is diluted because we have operations in areas where the behavior of labor availability is different. So, we see resilient results here because we have an important diversification in our operations. This quarter, we still have a gross margin increment when compared to previous quarters. The gross margin adjusted here reached 38.1%. It was one of the highest levels in our history. And the base of growth of gross margin in the second semester had an increment related to the previous one. It went from 37.4% to 38.1%, 0.7 percentage points of gross margin growth.

Another important data, which is important to highlight here is our future exercise margins. Our REV continued having growth in the second quarter, 43.4% and the revenue of future excesses reached BRL 2.3 billion, with REV margin of 43.4%. So, when we compare our REV margin of BRL 2.3 billion with the REV margin 1 year ago, the growth was 115%, which gives us huge safety here. We feel very good when we look at the perspective of future results of maintenance of margins and levels that are very solid.

To conclude, I think it's very important to stress that this quarter, when we analyze the quarterly results, we get to an ROE with the highest levels in history, 25%, and also, we have been able to deliver this high level of ROE coming from a growth of revenue with margin gains and still returning capital to the shareholders. In the beginning of the third quarter, we paid dividends of $1.60 per share. So, this is our greatest priority in this company, deliver growth with the least demand possible per working capital so that we can continue returning capital to our shareholders.

Now going to the main operating highlights on Page 5, where we deal with our launches. This quarter, we launched BRL 1.360 billion. And in the first quarter, it was BRL 2.257 billion. Comparing the first semester this year, the growth was 9% with last year, in line with our strategy of having launches next to inflation. Our effort is concentrated in gains of net speed of sales again. And also, from the operating point of view, the execution of our works with the same level of efficiency that we've always had and now benefiting from the synergies coming from having the greatest volume of works being done simultaneously in the same state.

So, the benefits of operating with greater value in the same states, this has been very relevant for us to continue growing our gross margin in the company launches. Still, it's important to highlight that in the last 7 years, we delivered a growth of more than 5x more in terms of volumes launched. We went from BRL 1 billion to almost BRL 5 billion. So, this is a very relevant growth.

Page 6, when we talk about sales here. This has been a huge focus here in the company. And in the second quarter, we had net sales that were over BRL 1.6 billion. The first semester net sales reached almost BRL 3 billion. This semester, the growth was 66% in sales when compared to the first half of last year. Here, it's important to stress the sales of EVA. They grew 96% in the same period, representing 40% of the total sales in the group. Once again, in the last 7 years, our sales grew 7x more. So really, this is a highlight here, because of the efforts of our teams, the receptivity of our products in the market for being assertive and also for sales team, a product team, project team that has made huge efforts to deliver expressive sales.

Lastly, before going to financial highlights, I would like to address the net sales speed. This was a quarter where we had record net sales speed, 26% net sales speed in the quarter. Hiva [indiscernible] now presented almost the same level of net sales speed, which is very healthy showing our operations and how they have been very uniform. This increase in PS in net sales speed has allowed us to deliver growth of operations and still maintaining capital return to our shareholders. This has been the same lever, where we have been able to increment the turnover of our assets and give value to our shareholders and continue maintaining our focus. Important to stress, net sales speeds have grown, gross margin has grown and commercial expenses dropped. This is healthy. No loss of margins and also a reduction of commercial sales. So, this has been done in some semesters, in some quarters, and we have been able to reap the results here.

Also, it's important to stress that in the closing of the first quarter, we were net in terms of cash of BRL 153 million, 6% of the equity in terms of net cash. This leverage is below what we believe is ideal in terms of capital structure for companies such as ours. And because of the low level of leverage, we believe we will continue returning capital to our quarters in the next return capital.

Now I give the floor to Paulo for financial results.

[Paulo Henrique De Sousa, executive]

Good morning, everybody. It is a huge pleasure to be part of this result in the second quarter, one of the best in our history. And it's important to be repetitive here in some points mentioned by Ricardo. To show you the main points of this result. As Ricardo said, we grew 40% in the quarter when compared to the same period last quarter. We grew 1.6 percentage points. We diluted expenses allowing net margin growing almost 4 percentage points. We increased our turnover, our working capital and parting from the second quarter and the beginning of works an acceleration of revenue recognition, we grew almost 5 percentage points. So, this is a quarter where we grow, gain margin and working capital when compared to the previous quarters.

To the future, also, we gained in REV margin. So, when we look before us in the pipeline, this is a sign of health in our margins and our sales. And also stress one more thing that Ricardo said. We are buying land and we have bought in the best conditions ever. So, we paid almost 10% swap. Our land bank consolidated is 11%, and we paid 88% via swap. This is going to be done by a swap record, historical record was 85. So, these bullet points summarize well what happened, and we have to be very proud of being able to deliver this result.

The first slide I’ll try to be as brief as possible, this is the net revenue. Quarterly, we grew 40% compared to last year, 20% with the previous quarter. And partly from the second quarter is when we begin several of the works, we can't begin works with the rains. But in the beginning, with the beginning of works here, we see a growth in revenue. When we compare the first half a 40% growth here, it's summed up to the SPEs that we control together with partners. And the red, we reached 2.081billion in revenue this quarter.

And to the right, we have the deferred revenue from real estate as sales have grown a lot and now, we have the sequence here, we have deferred revenue inventory. It grew more than 2x in the last 12 months. And now we have begun work and deferred revenue will grow. And it's important to stress the margin in a quarter where we increased our deferred revenue by BRL 400 million, and we grew the margin by 0.3 basis points. So, this is much greater than the previous inventory because -- so this shows that we are being very assertive with the pricing of products and also the construction of our projects. And once works that have the models of the previous part, once they leave, you have new sales with greater margins.

Next slide. Here, we have the gross profit growth and gross margin gain. Important, again, an important margin growth. This is the deferred revenue. We reached 38.1% gross margin. Gross profit went over BRL 3 billion. And when we look to the right, it's important to see that our deferred revenue grew every semester going from 35% in 3Q '22 to 38.1% in the second Q '24. And when we look into the pipeline, the pipeline, we see a very healthy margin considering the deferred revenue and also acquisitions of plans here that we've done in very low costs.

Next slide. Dilution of expenses second Q, we closed at 52 G&A of a total gross revenue, considering the consolidated SPEs and nonconsolidated. We developed all the projects, and we do the constructions, and we sell. G&A reached 4.4%. We know the importance of having this in low margins, low levels. The name here is gain in scale, be more efficient, do more with less, and our efforts are directed towards this. And the semester, was BRL 6 million and when compared to the closing of the semester, with the quarter compared to the different quarter, we don't have the growth of expenses so much.

And here, we're selling expenses. Dilution is not so present. But still, we see when compared to second Q last year to second Q this year, we've reduced 0 percentage points in selling expenses. When we look at -- this is over revenue and over selling is even more. You have sales and expenses were being more effective here. And I believe that commercial expenses over the revenue, there is still room for more reductions.

Next slide. This is the net profit. And this is where we translate everything growth of revenue with great better gross margin and dilution of expenses, we get to a net profit growing 37% in the quarter, 82% in the semester. Net margin, 16.9% in the semester, 16 in the quarter. And to the right, the last 2 years, we see an important net margin growth and also growth of return. So again, everything happening in a relevant way. Our net profit is like stairs. We see every quarter, one step large higher than the previous one. So, we will continue with this growth level.

And lastly, to speak about capital structure, we like to work with comfort in terms of capital structure. We closed the quarter with BRL 1.4 billion in cash, BRL 150 million above our debt. So, with net cash, the leverage considering net debt over equity. The last bar in the chart here is EUR 6.3 million which is not at all -- so, when we consider all these bullet points, we are prepared in capital structure to use this moment and capture this gain in scale that we have. Capital structure, it is always a concern, but it's not a point of attention now. So, we're focused on the growth of operations. And in the chart in the middle, we are very debt schedule. We're very dilated here.

Now in the quarter we did a structured debt operations of BRL 300 million and also aiming for this first start here in the next 12 months to reinforce cash for amortization of this first bar of being due. We extended this for more than 6 years and in order for us to have more tranquility and have a long-elongated depth, very stretched. And once again, reinforcing in the quarter, we had a AAA rating reinforced by S&P considered to be stable. So, it still stresses the health of our capital structure. So, these are the main financial highlights.

And now I'll give the floor back to André for questions and answers.

[André Damião, executive]

So, let's ask our first question. It comes from Pedro Lobato, Bradesco.

[Pedro Lobato Garcia Fernandes, analyst]

Well, my first question has to do -- well, it's one more quarter now and I think that it would be good for us to know more with regards to what you attribute this improvement you've had. If it is a mix, it's more concentrated in the different areas. Could you tell us a little bit about the strategic part of this increase in net sales speed. Second has to do with the sales. Do you believe that this is a more recurrent strategy or more opportunistic?

[Ricardo Valadares Gontijo, executive]

Pedro, with regards to net sales speed, I would say that this increase in net sales speed that you have noticed in last quarter is the result of an internal work. It is not one area, one place or another that had a specific impact to cause this increment. This is the results of the team, the commercial team, improvement of systems and the online part. So, we are seeing the results of all this effort and it's only in the beginning. So, when we sit with our internal team, all the different areas, the priority focus in this increment of net sales speed, there's a whole series of improvements that we still have to implement, and we are in the very beginning, seeing the results, and it has nothing to do with product mix or a specific place. Our net sales speed is very balanced in all the different areas we are in.

So, this is the effort, I would say, it's a consistent and recurrent effort. There is nothing one-off year or one specific impact that has come beginning, middle and end. This is a journey we're working on. And so, with controlled costs, which gives us comfort and also allows us to have an important geographical diversification for the cost. There are areas where you might have higher costs and other where costs are dropping. So, when we have control of this, this naturally translates into increase of returns coming from working capital, net sales speed. It's difficult to see where it is.

There are quarters we launched more, other quarters we launched less, most possibly in the second quarter, also because of seasonal reasons. A number of launches is greater than the second half. But what we have had this result in terms of all the effort is recurrent. And as long as we have this capital and with the cost at the moment in Brazil with no changes in the short term, I think we will continue with net sales, and they will continue. A lot of value is being generated.

With regards to the assets we have sold, I will give you the floor to Paulo.

[Paulo Henrique De Sousa, executive]

Our strategy is not to fund customers. Our idea is development and construction. These portfolios are a fraction of sales. Our focus is of plant sales transfers. And the customer always has an alternative to find funding with us, and if there is market and there are competitive costs, we transferred these portfolios. We have an increase of capital. This is an important asset, and we find investors in the capital market of the costs lower than our capital cost. So, this is a simple equation in terms of capital spread. If there is a demand in the market, certainly, we will operate. For us, this is a way of increasing our working capital. And also, I wouldn't say it's only strategic, but if it makes sense, certainly, we will do this. Ricardo, would you like to add to this?

[Pedro Lobato Garcia Fernandes, analyst]

I think this is it.

[André Damião, executive]

Next question, Fanny, Santander.

[Fanny Oreng Avino, analyst]

Two questions. First, there is the expectation that the current Board approved this increase of income levels, Level 1 and Level 2. And I want to understand from you, what do you believe this can generate a positive impact for Level 1? We know that Level 1 is 20% of sales. I want to understand top Level 1 income here, if this would add more people to the level 1 of your total sales composition. Second, I would like to understand how you see the cash burn dynamics here, cash generation here in July because of the acceleration of the growth of the net sales speed in the company.

[Ricardo Valadares Gontijo, executive]

With regards to the change of the limits of Level 1 from 2,640 to 2,650 level. And also, the other one from 4,400 to 4,600. There is a perspective for the Board to approve this in the next meeting because to do something that the ministry has done with the products financed by far. And now we will wait for the approval of the Board. This will most probably happen. We believe that this will happen. What is clear is that there is a priority of the government with lower-income families, which is wonderful because of the FGTS, so limited. It is only fair to prioritize these levels. Higher levels haven't had increment.

Also, Minha Casa, Minha Vida Cidades in cities where state governments have made partnerships with the Minha Casa, Minha Vida program, FGTS, adding extra subsidies for these lower income families. This increments the purchasing capacity of lower income families. So, when we see, interest rates being reduced depending on people that go from 800 to more than BRL 20,000, plus the subsidies of Minha Casa, Minha Vida Cidades. The share of sales of Direcional from Level 1 will have an important growth.

In most areas we work in, we have significant land bank destined to this level. And it's natural once we have a growth here, we will replenish this product when we want to destine to this level, and sales tend to be great. We have noticed this increase in sales speed in Tanabucho, Ceara and Brasilia, Amazon's too, but these are states where we have huge land banks for this kind of product. And with the increase of demand here, in growth of demand here where this market has grown because of these adjustments, we will offer a product and most probably level 1 will be more representative in our mix. These are benefits that should be seen in the next quarters.

[Paulo Henrique De Sousa, executive]

Just to add to what Ricardo said with regards to Level 1 change. I did some statistics here with our numbers. The old level was 2,640. If I consider 2,540 customers that bought our real estate and compare it to BRL 100 over 2,640 with an increase interest rate, customer capacity for buying drops. Sales now of BRL 100 over is 45% less. If I sell 100 units between 2,640, we sell only 66%. Pro-soluto was 3 percentage points in the upper part as interest has dropped and purchasing capacity drops, the customer buys more pro-soluto here. So, there is an important gain of purchasing capacity here. We see a reduction of pro-soluto, an increase of income for these people because of the customers couldn't buy that property before

Fanny, I didn't get your second question. Could you repeat it, please?

[Fanny Oreng Avino, analyst]

Can I do a follow-up here. Do you have a narrow idea just how many families tried within this upper level, BRL 100 plus level, try to buy and couldn't buy because of affordability. So, I'd like to see this impact here in your sales mix.

[Paulo Henrique De Sousa, executive]

I would say that demand could double here in this level because when I look at my statistics, it's 45% lower. We're talking about income difference of 5%. Then the Brazilian period, when it grows 5% in the income level doesn't change so much. So, I believe that there is huge growth percentage for that level. Obviously, Level 1 is not restricted to BRL 100 more or less. There is huge room here, although it's a relatively small level of customers.

[Fanny Oreng Avino, analyst]

Paulo, my question had to do with the cash burn or cash generation trend in July, how you see this with regards to the growth of net sales speed.

[Paulo Henrique De Sousa, executive]

Well, we included in our operating preview, this was amount of operating cash generation. When we look at the trend here, I think this shows a turnaround. Increase of sales when this becomes a transfer, we didn't highlight this in the presentation. We had a record of transfers. Our transfer grew expressively in second Q related to the previous Qs. And this will become cash in the next month. Also, there was a change of payment, a relevant part of our business doesn't pay during the signature anymore, but during registration. So, in the next months, we will see important in terms of cash and growth of sales is translated into cash generation. And now we're operating with average POC that is lower. And so, I end up building or putting less working capital in our inventory. And this is an indicator that we will see cash generation before projected a year ago when we did the follow-on.

[André Damião, executive]

Next question, Gustavo Cambauva, BTG Pactual.

[Gustavo Cambauva, analyst]

Two questions here, too. The first one, could you tell us a little bit about the gross margin because it has been growing. The backlog, also backlog margin, too. So, I'd like to understand more. First, room to increase price. Do you still see the possibility of having more price because of the strong demand and the strong net sales speed you delivered and also costs. Ricardo is under control. There is a diversification among the different states. I would like to understand more specifically if there was some kind of savings in works because you had mentioned that several of the works that will be delivered this year had some savings. So, I would like to know if there's anything relevant here from here on?

And my second question has to do with the size that you see in terms of the company. When we consider this first semester over 100%, you're delivering annualized sales of BRL 6 billion. So do you think you can change this level of launches this year, turn this around or next year, something you are considering in terms of growth.

[Paulo Henrique De Sousa, executive]

So, with regards to gross margin this quarter, we had a growth of 0.7 percentage points in terms of gross margin, adjusting the financing rates of production, which is an easy way of analyzing the performing of works. We went from 37.4% to 38.1%, expressive growth when we consider only 3 months of interval. So, the main reason for this is an exchange of product mix. So, we are deviling project harvest launched in '22 with lower margins than the new harvest. We had an increase of costs during the beginning of the roughly Ukraine war. And when we look at our deferred revenue, we had an important growth of deferred revenue. So, works are being delivered with the ones with lower deferred revenue, lower margins. And I believe that we should have a gross margin growing here because of the exchange of product mix.

So, we had an expressive growth of gross margins. We believe we will continue with growth. And I have said this every quarter. It is difficult to know exactly where the gross margin will stabilize, but it is difficult to remain in the levels as today, although I do see a continuity of gross because of the pace of its growth from the third quarter last year to the first one this year. Margins are healthy. There is no expensive change in price. We're trying to meet the needs of a greater number of customers with Minha Casa, Minha Vida Cidades, this is also a priority. We have cost under control. And because of the change of the price of the dollar, the Real being depreciated, we're looking at other commodities, copper, nickel and steel, some product inputs that are based on international prices. We have monitored very closely.

We've seen costs under control performance slightly different from one area to the other specifically in terms of labor availability. But because we don't have a very relevant exposure in any of the states we are in, we feel very comfortable with our costs that are under control. And I say when we look at the deferred revenue, the gross margin should continue growing as we have seen in the last quarters. With regards to a revision of budget that could justify this growth in gross margin. This didn't exist. We didn't do any budget adjustment. When we have a budget in the work because of our revenue is fixed after the unit is financed by cash. We always consider a perspective of future inflation, which goes to works costs from labor and materials. There was no budget reversion this quarter. This increment in gross margin is recurring. There is no one-off effect here. We have a construction process that is less intensive in terms of labor than average.

So, I would say that marginal increase of costs, we have mitigated for this effect. Labor has a lower representativeness in our work. Our men produce more because of our construction process we adopt. So, this gives us comfort with regards to margins. The size of the company. Yes, we are in a sales pace that is over BRL 6 billion. It is natural that with the growth of net sales deal, the inventory volume should drop, but this doesn't mean that the net sales will change. But with higher net sales, we sell more than we launch, but it converges to the same level with lower inventory levels. So, you maintain higher net sales.

Last week, we had a meeting, an internal forum here with the engineering team to discuss this point. There has already been a difference in this first chart of highlights. The chart to the right addresses total amount of launches, sales and revenue. So, our revenue is slightly -- there is an expected growth of revenue of 30% to reach the volume of launches. So, we have monitored the performance of our works very closely. What defines our size here as to be the performance of works, our capacity to create people in the company with our culture, our way of working so that we can maintain with the same level of efficiency. It doesn't make sense to grow with any kind of efficiency last year. We should capture synergies from growth. Also, we are closing this gap. And this gap has been closed with a huge comfort level in terms of works execution.

It is important to stress this year, we're growing launches by 9%. This is the same number of square meters launched and specifically because Riva gained share here, the square meter of price of Riva is greater than now. So, the comfort is good here. I'm not seeing anything with regards to the size we can get to, but I can say that we are very comfortable with the size we have now, specifically when we talk about engineering, our team, we execute all our works. So, comfort here is good. Although today, the priority is still net sales speed, increment of volumes sold, greater cash generation, its anticipation and return capital return to shareholders. So, we have to close the gap between revenue and launches. I think that we have to see the availability of resources in FGTS. Also in the savings account segment, these are variables that doesn't depend on us. But certainly, we are comfortable with the execution in this moment. That is the main message for you.

[André Damião, executive]

Next question, André Mazini Citi.

[André Mazini, analyst]

My question has to do with the gross margin too, a follow-up. To understand history a little better. If we go back to 1, 2 years ago in our earnings release call, the company would say that gross margins were going to drop from the level it was in 1, 2 years ago, and they weren't sustainable, and they didn't drop. This was great news. However, I think that when we look from here on, it shouldn't drop because the deferred revenue is good over the current 33% nonadjustable. So, what changed from 2 years to now? If 2 years ago, you said the margin would drop, was it the program that improved? Obviously, there were a lot of improvements here. Or was it something with regards to the engineering in the company that allowed margins to remain, and they will continue remaining? Well, is it internal initiatives or both things, program change or initiatives?

[Paulo Henrique De Sousa, executive]

This is a very interesting point, and I was always very verbal saying that it was prudent to consider a convergence of gross margins to a level which was 34% before and then 35%. I think we have been able to highlight ourselves with regards to gross margin. But it is difficult to say the recurring gross margin of business with a higher amount of supplies here. It is positive to be delivering more than we imagined would be recurring with this kind of business. Gross margin is done by 3 factors: sale of price, works costs and price of land. Also, the price of land we're buying at lower cost than before.

Works costs, our strategy for having an operation that is divided. Still there were 8 regions. And so, you don't have a huge concentration in none of them and nor do you have diversification. So, in all these areas, we are in operating with levels going from 300 million launches to EUR 1 billion. We're in this range. So, in all the areas we are in, we have an important case in terms of works execution, we have good negotiations with suppliers. We offer values here. And this translates in reduction of cost once we gain scale in that area. So, there are areas where we are more mature, and there are areas where we gain in scale and benefits from this greater value that we have in terms of negotiation for the different inputs of product spot locally.

And sales, when we gain share, our name comes to the top of the mind. We have more reliability of people believe more in us because of delivering products. So, our capacity here is very positive. And we are up having commercial sales reduction because we have a great array of products offered to our customers. So, the gain in gross margin and expense dilution has been a result of gains in scale without going to new areas, which would be loss of scale. This is gaining scale in each region we are in. And also, we have a program that increased the demand of products, and this has translated into the possibility of maintenance of our margins with a gain in net sales speed that have come not only from the changing programs, but all our internal efforts, but the change that took place in June last year, adjustments have been done touching on the income levels.

The beginning of Minha Casa, Minha Vida Cidades gives us a perspective of healthy operations, allowing us to deliver positive returns. But I think it's a sum of all the factors to explain our gross margin. And we work tirelessly every day for our gross margin to remain in levels over the ones we had. And we work for this, and we will try to do our very best. It is difficult to know exactly where it's going to be, but what we can promise is to do the very best possible here always.

[André Damião, executive]

Our next channel comes from Jorel Guilloty, Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I have 2 questions. First, I want to know about extraordinary dividends. The framework when you think of paying these extraordinary dividends. And also, now you have a net cash here. So, I'd like to understand how you took the decision here. Because we are going -- is it the growth of the purchase of land investments, or are you going towards net debt? Is there a goal here? Could you tell us anything you could say here would help. And my second small macro. We see Minha Casa Minha Vida request is growing, and the government is making changes, things that can be financed and things that can't, I would like to understand all of this. Do you have a concern with availability of capital in the future because of the government goals?

[Paulo Henrique De Sousa, executive]

Firstly, with regards to dividends and the strategy. I think when we look at our history or the background, we have always tried to be good payers of dividends. We try to make our business as asset light as possible. And since this generates cash, when we have cash and comfort with the cash generation of the experience or the following periods, we distribute dividends. Going back in history, we have always carried a leverage between 15 and 20, positive, between 15% and 20%, when it generated cash. When it was below this, we distributed dividends. Last year, when we saw a growth opportunity because of the new rules of Minha Casa, Minha Vida, we went to the market. We did a follow-on that we communicated to the market here. The idea was to have capital structure for growth, and we did this. But from there on, we were able to perform our business in a better way than we did.

So, we went over BRL 5 billion in sales and the company did not leverage it itself. So, we use very little of the resource here. And at the end of the last quarter, we sold the portfolio that helped us deleverage even more. So briefly here, when we consider our history, we had more in cash than we believed that it was not necessary for the future growth, and we did this distribution. And this is an assumption. Everybody models suggest an excess of cash and considering the level of leverage that will give us comfort, we certainly distribute. But if it's extraordinary dividend or recurrent, that's not relevant. What is relevant is this capital structure at the moment. We always try to pay every year with the exception of last year, where we did the follow-on. If you consider all the previous years, we tried to pay twice a year, one in the middle of the year and the other the turn of the year. And I believe we will continue doing this from here on.

Ricardo, if you want to add to this?

[Ricardo Valadares Gontijo, executive]

With regards to dividends, yes, there is no use of resources for the purchase of land. This doesn't make sense for the way we work. I think this is the point. And parting from the moment our operations become a recurrent cash generator, we would try to remain with leverage between 15 and 20 of the PL. We closed the semester with net cash of 6%. So, we go from minus 6 to plus 15, 20, we paid dividend out. But still, we have a capital structure that's optimal because of leverage because we're still in the growth process. Revenues are growing. We have this all the way to the next year. We want to anticipate cash generation with increase of sales. But this surplus capital, we had this to deal with this growth of operations. And if it's not used, we return it to the shareholder.

FGTS, we have seen increments of budget. We had one approved now in the last board meet-up, which is very positive. FGTS is very solid at the moment from a liquidity point of view, the country is still generating jobs. And so, the FGTS is in keeping with this, but we know that continuity of budget increment is not sustainable over a certain level. So, I think in terms of the reduction of affordability for used real property, specifically coming from the reduction of the LTV of the used product, which increases the need for you have to anticipate cash here. So certainly, there will be a demand for newer property, and this is good for the country because it generates more labor, there is greater tax collection, generally, the use is concentrated in Level 3 families that need property is in level 1.

So I think from the point of view, when we analyze the affordability, this gives us comfort in terms of the discipline of the team responsible for the Minha Casa Minha Vida program, in ministries and banks that operate the program, specifically [indiscernible] we feel very comfortable with this team's capacity and all the measures taken, and we have seen things very well conducted here, which gives us comfort to continue operating and going for the continuity of the growth of operations with comfort level with regards to availability of funding for our customers.

[André Damião, executive]

Next question. Ygor Altero from XP.

[Ygor Altero, analyst]

So here, just a continuity with regards to the FGTS and the funding, if you in believe FGTS funding, how much does this cause a burden to the program? And if this initiative restricts things here, income levels, when do you believe we can have an adjustment of the income levels to higher levels. Do you think this can happen? Do you see a need for adjustments in Level 3?

[Paulo Henrique De Sousa, executive]

Ygor, obviously, when a person goes from a birthday withdrawal and he uses this withdrawal for credit and give this balance, he loses his capacity for paying a deposit for the purchase of his house. So, we've seen that the volume of deposit and his withdrawals from FGTS, we've noticed this has dropped because part of the proceeds is already compromised to another debt. So, the analysis here ends up jeopardizing the purchasing capacity of cost. But birthday withdrawal gives forecast ability with regards to the amount of deposits in FGTS. When a person wants to withdraw money because he lost his job, he will always withdraw the same percentage of the amount deposited during the following years. So, it gives us forecast ability in a scenario of increase of unemployment in the country. So, there is one effect, which is positive because of caps capacity. But purchasing capacity is jeopardized here.

But when we consider as a Brazilian family to constitute an asset using the FGTS buying this, I mean, it's much better for the family, much healthier for the family. But there is a change in direction of proceeds and some families will lose their purchasing capacity for having used the FGTS for other means. But I think the result is positive here. Now, since how the government is going to address this is difficult to comment. I can't really say because this is an agenda that is in the hands of the ministries to see what is best in terms of public policy and what the next steps will be with regards to day. Although I do believe that the birthday withdrawal, there are positive things, and there are positive issues here and negatives. You have to look at both sides of the spot side.

With regards to higher income levels, it is difficult to give you an opinion at this moment because definitely, it is not in the hands of the company. This is defined by the ministry and then approved by the Board, curating Board. So once again, I have my own personal view where our business means very long cycles, products being bought today are delivered in about 5 years between approval and construction all the rest. So, in terms of company management, it's important to have sustainability of the budget from the fund, and we have this budget every year without ups and downs. So here and knowing that the program has performed down to the point of demanding increments of annual budgets of FGTS. I believe that certainly won't be a change in the higher income levels because still, we have very high interest rates in the country. And we don't see savings having expressive actions here to absorb part of demand of the real estate market.

Issues of -- you don't have market resources irrigating in a very relevant way. The real estate credit market. So, I think it's more proven than not to have an increase in income level, which would have as a constant increase of demand of limited FGTS resorts. And although this might benefit Riva operations, when we look at the operations in the long term, the idea is for them not to be a change in level incomes. And it's important for the FGTS budget to be capable of absorbing the demand here.

[André Damião, executive]

Rafael Rehder from Safra.

[Rafael Rehder, analyst]

I want to understand the company's appetite for growth of launches with this new net sales speed level. I know you have grown a lot of launches last year, and now you are in a scenario of stabilization. But still considering net sales speed, the amount of -- we will see you reducing inventory, right? So couldn't this lead to a loss of scale that has helped you in these last quarters. So, I want to know how you think about this.

[Paulo Henrique De Sousa, executive]

Rafael, well, definitely, at this moment, what is defining our size in each area is engineering the performance of our works, our capacity of delivering this greater volume of products with the same level of performance we've always had. So, this is not a priority to grow launches at this moment, although I have said that we are closing the gap between revenue and launches with a huge consistency an important level of comfort in our team in terms of construction work, execution and engineering. And we will define whether we'll do more than we did, parting from the continuity of the performance of our works. So, this is not a priority. The priority is sales, continuity of revenue growth. There is a lot of value to be expected here.

But still, in case the execution of works remains with the same level of performance and remain with capacity and comfort. And there is demand and credit, we can discuss something about this in the future. But at this moment, launches, the growth of 9% between the first half this year compared to first half last year is what we established as a target. And we believe that once we close the gap between revenue and launches, parting from the import engineering, macro scenario availability of FGTS in demand, we will see what we can do. We can say that new states or new regions is not in our loop, in our radar and growth will probably come from areas we work in, but without being the main priority at the moment.

[André Damião, executive]

Next question, Luma Paias from UBS.

[Luma Paias, analyst]

My question is a follow-up with regards to the net sales speed question. As mentioned, we see in the first quarter net sales going to very high levels. Your strategy is clear. But could you tell us about how the net sales behaved in July and the first half of August.

[Paulo Henrique De Sousa, executive]

Luma, July is usually not a very strong month because of holidays. It was a month that performed really well in spite of seasonally not being the strongest month in the year, but it was good where we noticed the continuity of demand for our products. And what I can say, it was stronger than the first month of the previous quarter. But now we are in August, September, these months where we go back and have an important volume of launches, and we have seen nothing that will give us any kind of concern with regards to demand of our sales speed. July is not the best reference, but when we compare July this year to July last year, the first month, we're still very optimistic with the demand for our products.

[André Damião, executive]

Next question, Jonathan, JPMorgan.

[Unknown Analyst]

I have 2 questions. If you can remind us very quickly, BRL 7 million in the financial results, what is this due to? Should this be the same level next quarter? And the second question, to increase the profit every quarter. Is it because of mix or recognition of revenue? Will it remain in the 14% of the net profit.

[Paulo Henrique De Sousa, executive]

Well, first, the monetary adjustment update of the portfolio of freight, I think we've already highlighted these 2 or 3 quarters ago when we put this revenue in this line, so if this is recurrent, it is a portfolio where we finance the customer. In our business, when the customer does the off-plant transfer, we need to pay all the rates in the moment of the sale. And in some cases, we do the financing of this credit of these rates to the customer. We pay and he pays us via reimbursement in installment. So, it is BRL 180 million portfolio and incurs these rates. It is close to stability now. And I would say that we can say that this is recurrent.

With regards to your second question, minority interest. If we consider our business considering my land bank is 9% approximately of minority interest. My launch is close to 10%, sales close to 20% with the minority share. So, the trend here is a dilution of this line. Company is growing. So, if there is no dilution, everything would grow together, but minority interest should grow less than the revenue as a whole because my launches and my land bank has a lower minority interest in the recurrent now, the results I'm creating now. So perhaps this is an assumption that is possible to adopt. I don't know if it was clear for you.

[André Damião, executive]

Thank you very much all of you for your presence here in our earnings release. We have no more questions. The IR team are at your -- we have one last question from Andre [indiscernible], Itaú.

[Unknown Analyst]

The main points here for discussion have already been mentioned during the call, the only thing that I'd like to explore better and get your perception is the tax reform proposal. How you have seen this and how this should impact your load here? Do you see a benefit here of this new draft? And I would like to know a little bit more about this.

[Paulo Henrique De Sousa, executive]

Andre, well, first with regards to the sector as a whole. I'm not segmenting between anything here. The first analysis we have from the reform, there is an increase in the tax burden when we look at the real estate sector as a whole, a very significant increase. When we segment between lower-income projects and very high-income projects. The fact that there is a social fact that eliminates BRL 100, 000 million from the calculation base, it is natural. The lower the price of sale when you remove BRL 100,000, the greater relevance this social factor has. I would say that but the products that benefit the lower-income companies, the tax reform months prices decrease goes to a neutrality then for products sold below BRL 200,000, there might even be a slight reduction in the tax burden. When we consider Direcional's operations as a whole, when we see Riva’s price that is slightly higher than Minha Casa Minha Vida in Direcional, when we talk about CBS, PIS COFINS taxes when compared one with the other, comparing with the hatch, it is close to neutrality.

So, for Direcional, I would say that what came from the Congress doesn't really have an impact, which is positive.

[André Damião, executive]

Thank you once again to all of you that were part of our video conference this second quarter. The IR team is at your disposal to answer any more questions not addressed yet.

And I give the last word to Ricardo here.

[Ricardo Valadares Gontijo, executive]

Once again, thank you very much for your participation. This was a very wealthy conference where we were able to address the most relevant themes for our business. I would like to say that our team is entirely at your disposal in these intervals between these earnings release. And I would like to thank you for your contribution, the work of our team. The performance has been just absolutely marvelous and deserves the hand of applause. We are very encouraged and satisfied by the results delivered by each one of our employees and suppliers. It is critical for us to thank the trust of our clients and customers. Also thank you very much, all of you. Have a very good day, and hope to see you in the next conference.