Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Transcript 2021-Q1

[Operator]

Good morning. Welcome to Even's Teleconference concerning the results for the first quarter of 2021. Present with us today, Mr. Leandro Melnick, CEO; and Carlos Wollenweber, CFO and Investor Relations Director.

We would like to inform you that this event is being recorded. [Operator Instructions] This event is also being broadcast simultaneously over the internet via webcast that may be accessed via the website at www.even.com.br/ri. The replay of event will be available as soon as it ends. Before we proceed, we would like to clarify that any statements that might be made during this teleconference regarding business perspective of the company as well as its operating financial projections and goals are based on the beliefs and assumptions held by Even's top management and all the information currently available to the company. Such forward-looking considerations are not guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events that depend on circumstances that may or may not happen.

Investor should understand that general economic conditions, industry conditions and other operating factors may affect future outcomes for the company and may lead to results that materially differ from those expressed in these considerations.

The presentation slides are available for download on the Internet at www.even.com.br/ri.

I would like now to give the floor to Mr. Carlos Wollenweber, Even's CFO. Mr. Wollenweber, you may proceed.

[José Carlos Filho, executive]

Good morning, everyone. It's a pleasure to present Even's financial and operating results, which were excellent in the first quarter of 2021.

First, I would like to show you the highlights of the quarter on Slide 2. As you can see in the graph on the upper left side of this slide, we began the year with a high volume of launches, totaled BRL 716 million of PSV Even's share, which is a 650% growth in relation to the same period of last year. Net sales totaled BRL 586 million Even's share, a growth of 129% in relation to the same period of 2020. The graph on the right side will show you our net income, which was reflected in the last 5 years and totaled BRL 84 million, a 130% growth in relation to the first quarter of 2020 and represented an annualized ROE of 18%.

Our cash position is extremely solid at BRL 1.5 billion, which allowed us to approve an extraordinary payment of dividends of BRL 116 million. We generated, in the last 12 months, BRL 975 million in operating cash, BRL 220 million of which in this first quarter. It is also reflecting the 60% reduction in the volume of finished units in inventory in the last 12 months. Our finished in inventory totaled BRL 350 million, representing 18% of total inventory, as you see in the graph on the bottom right side. The consequence is [ incrementing ] a net cash to equity of approximately 40%.

Moving to Slide 3, we break down the launches in the quarter. Even launched 7 projects in this first quarter to our Even [ regional ] project, Arcos Itaim in the high-end segments. Modo Ipiranga in the low-income and also Hotel Fasano, totaling a PSV of BRL 560 million. Now we've launched 4 products, totaling BRL 148 million, Even's share. Therefore, total PSV launched in the quarter was BRL 716 million Even's share, which is a grow that correspond to the expanded the volume of launches in the first quarter of 2020.

It is worth noting that all of the levers projected for this year, 39% of our revenues volume and of the deliveries for 2022, 48% have already been sold. At this slide, we show you our net sales in the quarter amounting to BRL 586 million and represented an average sales of over supply of 24%. SOS launches was at 58% in the quarter. It is important to highlight the percentage of cancellation represented only 9% of gross sales, as you can see in the graph on the bottom right side of the slide.

On Slide 5, we break down our inventory available for sale which amounts to BRL 1.9 billion. [ Equity ] of the inventory is adjusted to the size of our operation and represents less than 1 year's worth of sales and the average in the last 12 months. Also, as I've already noted, we ended the quarter with BRL 350 million in finished inventory, representing almost [ 20% ] of total.

On the next slide, we highlight our land bank position, Even's share, which amounts to BRL 6.1 billion and is comprised of 56 plots of land located mostly in primarily location of São Paulo, in the South and West side on Brazil, any primary [ draw ] of Porto Alegre. We highlight the purchase of the part located on the other [indiscernible] stream between [indiscernible] and San Dimas [indiscernible] with a total area of 70,000 square meters in [indiscernible] for the development of high-end projects with a potential cash interest to billing [indiscernible].

On Slide 7, we see our capital structure. We have a very robust cash position worth BRL 1.5 billion. And net cash of $1 billion, of which 40% of our equity is a result of an operating cash generation of BRL 971 million in the last 12 months. I want to point out that even the operating cash generation gained as a result of tremendous reduction in the volume of finished inventory, the sales of Rio de Janeiro's inventory for a real estate fund and also is the sale of Hotel Fasano, for which we're paid in cash.

Subsequent to our last year Annual General Meeting, we approved an extraordinary payment of dividends of BRL 160 million. Next slide, economic results on this slide. We delivered a net revenue of BRL 683 million, shown in the graph on the left. Our gross profit totaled BRL 119 million, a 62% increase in relation to the same period of 2020. As a result, our net income was $0.84, representing a net margin of 14% and 130% increase in relation to the first quarter of 2020. I now give the floor to Leandro, Even's CEO.

[Leandro Melnick, executive]

Good morning. This was a very important quarter for the company. At the end of the cycle that ended 2015, in this period, we changed the way the company-operated and this year we will launch 23 projects, $3.9 billion and obtaining these impressive results. We had 5.2% gain on prices in relation to the forecast price and 16% of the higher [ state ] of sales in relation to the plan when we acquired the land.

By our metric, our planning method of purchase income, our margin of 8% is a [ cross ] of about 7%. However, this great result. The launches happened [indiscernible] within accounts, so the other operation that -- to have a lower margin in the [ lower-generating ] operation, the building of these projects that have been launched in the previous period and the sale of more inventory that comes from cancellation, which also showed superior margin. In this quarter, account expresses better our operation [indiscernible]

So the accounting impact are less relevant after the [indiscernible] of the last 12 months even further, as Carlo commenced, and the sale of last [ parts ] of Rio de Janeiro inventory. In the [indiscernible] we hope, and we expect that we'll have bigger slash at more and more effective with the POC of the project [indiscernible] that showed great results. Now also our new launches that are based on the deal en banc, the company has that was purchased in the last few years.

Having a strategy that has been working. We have been delivering good results in the last 23 projects, which already represents us in the [ consolidated ]. I would like to take advantage to invite you all to our Investor Day on the 20th of this month at 9:00, so can see the first [ point ] [indiscernible] sale or [indiscernible] displaying that we are coming to the end now. And also the new planning the company has for the next 5 years. Thank you, everyone. We now will take your questions.

[Operator]

[Operator Instructions]

Our first question, Ygor from Santander.

[Ygor Altero, analyst]

2 questions, both in relation to the company's strategy in relation to the capital allocation. You have a very robust cash. How are you thinking forward in terms of dividends in terms of equity? How do you see this the way to maximize your ROE?

And the second question about launches. How you see the launches in the coming quarters? If you have already something, already in the pipeline to be launched, like could you to explain -- I'd like you to explain these launches.

[José Carlos Filho, executive]

Ygor, thank you for your question, Carlos here. Regarding capital allocation, we have a very robust structure, as you've said. Especially after the structured operations we had in the second half last year, and the sale was done in the first quarter. This motivated us to pay dividend extraordinarily. We went through this on the [indiscernible] but we see much more [indiscernible] instead of paying on/off dividend, be a company that's like [indiscernible] with a high ROE.

In the recurring phase, we are now at a cycle of increasing the volume of work. We are being conservative in working cuts. We had a very important batch of the levers last year. You can see the operating cash generation. Very high, BRL 1.6 billion counting with [indiscernible] And then we look forward going on a cycle of investment, then also the [ 3rd ] of the month we are still in an environment that we have to navigate carefully because of the pandemic and everything else.

We are being conservative in terms of distributing dividends. And I stay confident at a company that is a recurring payer of dividends. We believe this generally so. We are now beginning -- when you see -- when you separate the 2 companies. The cash allocation that we said optimum, we have a net cash, but we're bullish to the fact that we -- the structure of our -- 0 net debt, which is the structure that we are looking forward and complementing our operation, thank you for your question.

Regarding launch, we are highly motivated in the market. We have been able to have a good performance, a good selling performance using the policy we have to aggregate the value to our target and consequently, a price that expresses this well, the market is recognizing this. Buying our products at an adequate speed. We are able to charge prices, we can tell them average price of the week.

So reinforcing our [ issue ] that Even has been implementing in the last years of differentiated targets. We are optimistic that we will able to fulfill our launch planning for the year. And this quarter, in the second quarter, we have the impact of everything related to COVID. We are still under some restrictions. It impacted our whole society in different way. The launches will have some impact and it's probably more than moment, they would launch in the quarter. But it does not change our strategy, our planning, our vision for the consolidated figures for the year.

[Operator]

Our second question, [ Faish Alonzo ] from Citibank.

[Unknown Analyst]

Why don't you comment regarding the project your announced with [ J Asia Ads ]. And also the contingents line that you talked about.

[Leandro Melnick, executive]

Well, as we talked first about the project, the project that is within our strategy, as I commented, to offer the market with a differentiated product. We are highly excited with our land bank, which is a plot that is able to produce a very unique product with attributes that will improve our margin and our selling price.

We are working today in a project, in the approvals and one of the projects, maybe one of the highlights of our land bank, yet we found a relative impact on the margin. In our event that I talked to you about yesterday, we're going to be able to bring some more information about this development. And I'll give the floor to Carlos to complement the answer.

[José Carlos Filho, executive]

We are highly excited, like Leandro said. The company was highly recognized because of the São Paulo project, so it would be very interesting. If you participated on the Investor Day, where we showed iconic projects the company has in their land bank, it is the ones we call GPA, which is entertaining and essential training for Even Construtora, but we are putting together project with [ J Asia Ads ] [indiscernible] in the residential towers and introduce them to shopping mall, both recently.

A plot, a very large plot having 8,000 square meters at the beginning of [Foreign Language] engaged with circle without landmarks, obviously, regarding project [indiscernible]. Our land bank is very unique, differentiated, so I'm going to talk about it in details on the tranches.

Talking about contingency, a lot of this concern a bit, but we provision for BRL 17 million. Our goals, in your case, but judicial settlements and high -- an increase of contingency provision for the contingencies to see the condominiums or the technical systems. We offer high-deal warrants in our projects.

So some condominiums hire the company to analyze all the points for the project that might have some problem and then they'll sue our company. So in the last few months, we settled a series of deal settlements, legal. About BRL 5.5 million and it reinforced the provisions for warranty in BRL 4.5 million to take advantage of the moment to reduce volatility in our results when you look at that -- the coming quarters. So basically, our all contingency line is this.

[Operator]

Our next question, Elvis Credendio from BTG Pactual.

[Elvis Credendio, analyst]

Carlos, regarding land bank. Can you talk a little bit more about Even's the strategy in São Paulo? As you said, there are many things [ paying me ] at the high end. I'd like to compute for how long to have more larger projects with a high PSV, focusing on high end, as you said, no with [indiscernible] your goal, your bar. And how the company will allocate capital regarding these high PSV project if you're going to buy large land, which requires cash. How do you think it will be the percentage of cash allocated on the land, the percentage of swaps you were planning? And how do you compare what you're giving the best what you're doing now?

The second question about price. You said that you're increasing the price of some of these products. I would like to understand if you are already considering the prices of future projects. If you are -- if they are going to benefit the price of the projects that are already underway and what do you intend in terms of price? If you can, but how does the speed of sales would fall to this price? Do you think the demand is still up if you wouldn't be able to transfer part on this price -- increase the pricing you keep there?

[José Carlos Filho, executive]

So, Elvis, thank you for your question -- questions. A lot of information for me to give a solid answer. In relation to land bank, I'm going to take a step back. I [indiscernible] in pointing that Even began the restructuring, as I mentioned, on Melnick strategic planning that is to interact and define that we're going to operate in our zone of competence. I think these past few years, it's expected.

And we'll make mistakes, and a small mistake. This is extended that it's instead of labor in São Paulo, where we know the market business, our sales force is very competent. I'm going to talk more about this on the event. So our land bank is concentrated in São Paulo [indiscernible] And this guarantees, we will be more assertive. This land bank, we have this goal for this company, its remaining projects we develop -- to develop differentiated products. We can show you several projects.

We've been talking about it upfront now because was important, but all of our projects in the last half, they have had some differentiating factors in relation to the competition in the region. For example, the first launch. It was -- that the company had -- we had a price that was much, much higher than the average price of the region. With a covered tennis court, which is a differentiating factor in the region.

We have not seen projects with this kind of [ power ]. But our land bank has a few large projects that allow a higher [ debt-to-equity ]. But our land does not consist only of large, but we also have small. Yes. So we see in these plots the possibility of doing this to differentiating price. But this is a strategy that covers all of our -- all the price our [indiscernible]. Regarding cash generation for this initiative, this is also [indiscernible] in this, regarding the [ plots ], we do not having in the top line guidance of launch per [indiscernible]. We have a certainty that they're going to pursue a company that's more profitable in this segment.

And it will probably -- will launch [indiscernible] a guarantee for each project, a great big one. The strategy of acquisition of plot, regardless of being large or small, is the same. The same we have been practicing, focusing swaps. With this, we think it's a very positive way in the Brazilian market. It ensures for the company. So stability and tranquility of managing its back launches given enormous prices that happened as we -- the one we are having now, the COVID. So the strategy does not change.

The pricing does not change. It's a problem that gives us some comfort to guarantee rate on in dispute. Regarding the question that connects with responded price, we have a positive surprise because we have been able to [ translate ] part of the INCC. It's got a gaining price on the average, that's the last one. The last 23 launches at [ 5.2% ] in gaining price. It's gaining price. And part of the price correcting by the end of this period, so what's been happening is the market has been absorbing the INCC we're seeing, we expected to stabilize. But in a macroeconomic region, it tends to stabilize or totally, we will have to see a decrease in SOS in the first quarter.

The impact of COVID in the last -- we had a consistent SOS. We do not have a policy that we have had for like that of not in the launches in, the chart about our segment. Our -- the projects followed our curve of [ some ] first, very important news was the launches are taken into consideration, the INCC plus our gain in price that we have been able to achieve. And it means that the buyer recognized the unique points of our product, which allows the buyer or make the buyer understand that this price is fair for our product.

Another comment that's part of all these explanation, is the default. It could be another fear that the increase -- the INCC increasing would affect that mix, but it's at the lowest level of the bottom, so we do not have another problem, which is an increase in the LIFO. The present number of defaults regarding the increase in inflation. So an [ experienced ] moment, the impact of inflation, INCC inflation, they are being absorbed. All the projects are corrected by the agenda, by inflation. Even expected to refresh its price, reprice. We are at a positive model. With our -- we detached that inflation in the [ 10 ], We remain attentive, concerned, to make sure we make the best impact.

[Operator]

Our next question, [ Aldour ] from Bank of America.

[Unknown Analyst]

So like you'll see -- the challenges you'll see and the impact on operating on the COVID, so good [ fight ]. First, which you had or are having some difficulty approving this [ story ]. It could have an impact on the second [ part ]. If you can talk a little more about this. And also, all the pipeline. And secondly, the question on the material. Of the relationships you had with the suppliers, have we been able to anticipate some purchases? If you had, had some impact because of the delay in the delivery deadline regarding the COVID.

[Leandro Melnick, executive]

Yes, so without the impact, but it's also local because of COVID. I collect [indiscernible] second part. But we have -- the land back we have been buying in the past 5 years is, in part, [indiscernible] It allows us to face our [indiscernible] to carry over this project. And these projects are highly evolved in terms of spot that they had planned for the year.

What we understand now that in the second quarter, specifically, not only because as the impacts of the COVID in our society, that could we use the increase in the launches and so the same stance did not happen. So we understand the second quarter impact will be lesser, but we are not going to take back in our -- in the year. This is how we understand it today.

Regarding materials from suppliers. We have been working a lot with our logistics, with our supply chain. It's -- they want us to have with [indiscernible] relations to the 2017 when we had cost overhead. If we land a lot from the assessed costs, we have now a number of construction sites that much is obscured to one of these that's secured. In our company, if I [indiscernible] that has been now in -- we've got for many, many years.

So these people -- so all the learnings that we had with costs in 2017 and also the supply chain. So we have been working closely with our partners. So sometimes, we anticipate some purchases. We give a couple of partners the possibility of mitigating this problem. And because we are, it's a plot that is concerned that it's worth about this kind of topic, particularly our launches, and the possible increase in costs and others that may have.

We are calm in relation to managing this cost. Especially because of this, the work we have been doing internally, we are a company that has several tools to control this problem and being a little repetitive. Our level of relationship with our partners and suppliers is very close. We have a tradition of keeping a [ comfortable ] relationship with our suppliers, which helps in this moment, and we are able to address these issues.

[Operator]

[Operator Instructions] We now close our questions and answers. We now give the floor to Mr. Carlo Wollenweber for his final remarks.

[José Carlos Filho, executive]

I would like to thank you all for your participation in this earnings call. I'd like to stress that we are going to show our -- the strategic planning and details of our land bank on our Investors Day now on May 20, beginning at 9:00 a.m. So as I recommend, we will extend our hesitation to you. We would love if you could participate on the event. It's very important for you to understanding details the company's planning. Thank you all.

[Operator]

Even's teleconference is now closed. Thank you for your participation. Have a good day.

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