Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. Welcome to Even's webinar concerning the results of the first quarter. Present here with us today are Leandro Melnick, Daniel Matone, Tiago Krall and Marcelo Morais. We would like to inform you that this event is being recorded and will have simultaneous translation into English. [Operator Instructions]

Before we proceed, we would like to clarify that any statements that might be made during this presentation regarding business prospects of the company as well as its operating financial projections and goals are based on the beliefs and assumptions held by Even's management and on the information currently available to the company. Forward-looking considerations are not a 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. Investors 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.

I would like now to give the floor to Mr. Daniel Matone, CFO and Investor Relations Director. Mr. Matone, you have the floor.

[Unknown]

Good morning, everyone. I am Daniel Matone. And as it was announced in the beginning of April, Carlos Wollenweber as of May 2nd this year, took over the position of CFO at Melnick and I took over Even's CFO position. I have been working for Even for almost 10 years, and I'm very proud to take on this new role.

And now moving on to today's agenda, I will present Even's earnings results for the first quarter of 2022. Beginning with the launches in Slide 3. We launched 5 projects in the quarter, 2 in Sao Paulo and 3 in Rio Grande do Sul, totaling BRL 778 million, of which BRL 405 million is Even's share. In this quarter, 52% of the projects are in the upper income segment, 33% are in affordable homes, 8% are compact units and 7% refer to lots development, as you can see in the pie chart.

Next slide, we show our projects launched in Sao Paulo, Modo Butanta in the affordable segment, which is already 30% sold and Go Portugal in Brooklin neighborhood, which is 100% sold. This data are up to date as of April.

In Slide 5, we present our sales performance. The SoS of launches in the first quarter was a healthy 28%. As you can see in the graph on the left-hand side of this slide, the SoS ratio of remaining inventory, however, was slightly lower at 5%, given the negative impact of the third wave of COVID in the month of January and February. It is important to notice the consistent reduction in the volume of cancellations, which decreased by 27% nominally in relation to the first quarter '21. We are at one of the lowest levels of default in our customer portfolio, shown in the graph on the right-hand side of the slide.

In the next slide, we have our deliveries. We delivered in the quarter 3 projects, Facto Paulista in Sao Paulo with a PSV of BRL 215 million. The other 2 in Rio Grande do Sul with a PSV of BRL 98 million, and here are some photos of these projects.

In Slide 7, we have the breakdown of our inventory. Our total inventory is BRL 2.8 billion, only 12% refer to finished units. Out of the inventory under construction, 80% will be delivered in 2023 and afterwards. So we'll have ample time to pursue the best possible prices per square meter for our projects. Out of the deliveries to be made in 2022, 79% is already sold, as can be seen in the bar graph from the bottom right-hand side.

Moving on to the land bank on Slide 8. We have, at the moment, BRL 5.8 billion in land bank, Even's share, comprising 55 plots located essentially in prime neighborhoods in the cities of Sao Paulo and Porto Alegre.

In Slide 9, we present our capital structure. We closed the quarter with a gross debt of only BRL 390 million and a cash position of BRL 890 million, which means BRL 501 million in net cash or 19% of our consolidated equity, as shown in the chart on the left-hand side. In the quarter, we burned BRL 127 million in operating cash based as a consequence of paying cash for the purchase of new plots of land.

In Slide 10, we present our results. Net revenues in the quarter totaled BRL 460 million, a decrease of 19% relative to the average of last 4 quarters, mainly as a result of worse sales performance. We delivered a gross profit of BRL 115 million, negatively impacted by the decrease in gross margin this quarter due to the need to reinforce the foundation structure of the project Modo Pompeia launched in the second quarter of '21, it became necessary to enable its coexistence with the construction work for the subway system next to our project. Because of this, our net income in the quarter was BRL 15 million, translating to a net margin of 10%.

In this quarter, we will resume presenting Even's ESG initiatives. It is important to say we are proud of having been pioneers in our industry concerning the ESG practices. This practice is aimed at the perpetuity of the business and aligned to people's visions and their social impact, environmental awareness of the activities that concern the projects we build and their surroundings, as well establishing governance rules that demonstrate transparency of our decision-making process.

For the environmental pillar, Slide 12, we highlight our construction sites, where we have implemented sustainable routines by adopting the use of recyclable materials, standardized systems, where we prioritize the conscious consumption of water, energy, renewable resources, proper management of waste. 98% of the waste generated by the construction work is reduced. Using reverse logistics, we returned to its origins a volume equivalent to an Olympic swimming pool of scrap materials, packaging.

In Slide 13, all the construction work for the projects delivered in 2021 was carbon neutral. We will maintain this guideline in the future. Our inventory is certified, which guarantees transparency and credibility. We were the first company in the industry to carry out a carbon inventory, a process began in 2008.

In the next slide, the social pillar, we have developed a tool called Problem Zero, which aims to identify and solve any need for adjustments in the post-delivery and incorporate these changes into our new projects, constantly improving our constructive practices delivering an always innovative project.

In Slide 15, corporate governance pillar, we reassert our commitment to a solid and transparent system aligned with the best practices made by the Novo Mercado standards by implementing people related parties, auditing financial committees.

Finally, I invite you all to use the QR code to access our annual report, where you find sustainability indicators and further details regarding our ESG journey. Feel free to explore this topic in the Q&A session.

I now give the floor to Leandro, Even's CEO.

[Leandro Melnick, executive]

Thank you very much. Good morning. First quarter of 2022 showed us a macroeconomic situation that was very challenging, the months of January and February -- together with the natural season, we were impacted by Omicron and reduced our commercial activity. In March, we had a good recovery enabling the company to launch 5 projects with a BRL 637 million of PSV. The launches had a good performance with a Go Portugal as a highlight, which sold 100% of its units at the launch.

Another important point was that despite the inflationary pressure our costs in the constructions are completely under control, and our portfolio of receivables have very low default. In this scenario, Even's -- the quality of our land bank and the financial health of our portfolio puts us in a comfortable position to face this difficult moment.

I'm glad to highlight that this year, we reported our 10th report of ESG. We began this report in 2008. So for the last 16 years, we have been renovating our sustainability routines in the construction work in our products, and we make our collaborators aware of this. We have a commitment in our company to practice the ESG throughout the company.

And finally, I would like to stress that we are ready for a moment of good launches and due to the quality of our land bank and the products we are developing.

I would now like to move on to questions and answers.

[Operator]

[Operator Instructions] Our next question comes [ XP ].

[Unknown Analyst]

2 questions. The first question concerns Modo Pompeia and understand what was the effect that you have to incur because of the restructure or reinforcement? And the second point, what's your head at regarding the evolution of launches, what's your strategy, if you're going to speed up the launches in the second quarter of this year to take advantage of this pre-election environment, what you're thinking right now? How do you translate this into the launches?

[Leandro Melnick, executive]

Leandro here. Let me answer your questions. Regarding Modo Pompeia project -- we had -- our budget is always conservative in terms of cost, the construction cost and in this quarter, we realized this cost because when we faced the situation that there is a subway line, it's the Line 6 orange that's going under our construction site. And this happened after our project was already approved. We had all the permissions already issued. So our construction was together with the concessionaire, the subway concessionaire, and we found a technical solution that allowed for the coexistence of 2 projects, the Modo Pompeia project and the subway line, and we came to an agreement.

So this agreement is already structured. The technical solution is already implemented. So we put it in a conservative way because looking at the project, the responsibility for this increase in cost is not to the company -- because it regards an indemnification, with the -- because the plot was the target of a subway line. So part of the land had to incur eminent domain. So it's not a direct responsibility of Even. So this is the concessionaire. So any other parts, the owner, the land, not the owner of the land the -- we are going to incur these costs, but this impacted BRL 25 million in the cost of construction. In this quarter, it represented 10% of the result.

The other topic in the launches, we are reaping the results of having seen with some -- in advance that this macroeconomic scenario was probable. So we positioned ourselves way back that in terms of launches in the upper income segment. It has a great weight in our mix, and we put our efforts in some differentiated products, products that are demanded by the market. So the performance of these products are still very good because they are resilient, and our launches have been performing healthily. And this is happening. We continue our plan in index quarters. We are analyzing week after week, quarter after quarter, how the market performs. And this understanding will inform our schedule of launches. I know I'm being [ remiss ], but the quality and the kind of products we have allow us. So even if the economy is -- depending on how the economy progresses, this understanding can change in coming months.

[Operator]

Next question, Gustavo Cambauva from BTG Pactual.

[Gustavo Cambauva, analyst]

I would like to ask the same question, but more specific about the land, the plots. You mentioned in the release that you purchased land in cash, I would like to understand if you have changed, maybe if the market has changed, the land market, if you can see some kind of new opportunity and when we see this movement if you have to consider if it's better to buy through swaps or in cash, how you see it, let's say, what's better, what's more attractive. And I'd like to understand for this year, if you have the pipeline, if you plan on purchase more land or if it is in this challenging scenario, if you think that the land bank is already at a good size for a lower volume of launches.

[Leandro Melnick, executive]

Hello Cambauva, Leandro here. Let me start answering by the end, by your last question. We have a good land bank in terms of volume and size, and PSV launched, but we are always very active. Even as always paying attention to business opportunities. We're going through a very interesting moment that this because the difficulty of purchasing land nowadays is due to the cost of land. But to make sure it's a feasible -- the cost of construction has increased a lot, and this is making it difficult. The calculation to understand the whole project in terms of the costs, we want to practice.

So that being said, we understand that buying land in a pure way, it probably gives us some opportunities now. And within our strategy of positioning company with the products that have a significant PSV in the more prime neighborhoods in the city of Sao Paulo. We are able to develop the prospecting of new land, and we are increasing the land bank as we see these opportunities of building a very qualified land bank. Regarding swaps or purchase in cash, we are following the same strategy of having absolute liquidity in cash and prioritizing occasionally purchases through swap, but this is a strategy that's a balance that considers the cash position the company has at the moment.

So some plots, we purchased in cash. We have a very specific tool to help us with the post purchase to structure the financing of this if we buy the land in cash using the company's financial capacity. And later, we can do a swap, a financial swap under more favorable conditions. So if we consider that swap is not the most -- the best, so in this quarter, we bought a very important piece of land in [ Manuel Danogula ]. It was a significant cost to our cash. But trying to summarize, we have been able to see opportunities in the land bank. And this is very interesting, in prime neighborhood. So we are not missing out on these opportunities because we know how hard it is to build a qualified land bank.

[Gustavo Cambauva, analyst]

Just a follow-up. This plots -- this plot of land that are more premium, which are very disputed, you usually purchase in cash. Have you seen this? Have you seen less competition for this kind of land or it hasn't changed significantly.

[Leandro Melnick, executive]

I think there is competition. We are very competitive. These plots of land are always sought after. There are moments when companies are more aggressive, but the degree of aggressiveness changes. Today, I see that the market is more worried, it's more concerned with less appetite for taking risk. But even -- but even still following that strategy that I've said, buying lots individually. So we have lots that are not in the market. We have been buying these lots and find lots and piece of land that are not out in the market. So we are avoiding this direct competition. So we have a land bank, we are able to put together the slots, and we beat companies that are more aggressive. So it takes us 1, 2 years until we can put together lots enough. So this is not land that's preformatted already. We need to put together new slots.

[Operator]

Our next question Fanny Oreng from Santander.

[Fanny Oreng Avino, analyst]

It's a very quick question. I'd like to understand how you see the demand for studio apartments in this scenario of very high interest rates.

[Leandro Melnick, executive]

Hello, Fanny. Thank you for your question. It's a very interesting question because I think the main point here is to understand the studio apartments within the regions that have a vocation for this kind of product or when the product is created out of there is only low demand. So this is how we interpret it. We see that because of the master plan of the city, there are many projects involving studios in zones, in areas that have no vocation for this kind of product. So from our point of view, this is dangerous. This is a sale that is in a moment, the market is heated. This may happen. But then in the long cycle, when it's about the delivery, we're going to have some kind of noise.

So on the other hand, it is a market that is very warm. It's a resilience of real markets, residential. We had other regions, more commercial regions that -- and we had some regions that really have a vocation for this kind of residential product. So studios have to be understood. Maybe we can have a wrong interpretation because it has to be divided, clearly divided into products where the region has a vocation for that, and the products that were created because of the demand from the master plan. The construction company was forced to create this kind of product, even understanding it was not the best.

So when we separate these 2 levels, you create an interesting way of seeing it. I highlighted Go Portugal, our project that we have just launched with a 100% sale. It was an impressive speed of sales, consistent sales. And we saw other launches where the -- had a high-level difficulty. So the same product, but the studios have to be under some characteristics in terms of the convenience of the place, it has to be a product that is appropriate to the location. So if we launch a project that is really appropriate to the local conditions, the user's condition. This is how we understand it.

[Operator]

[Operator Instructions] Our next question from Marcelo Motta from JPMorgan.

[Marcelo Motta, analyst]

Two questions. The first, if we look at the gross margins you have there is -- some things that happened in the first quarter, some extraordinary expenses. If it makes sense to say that your margins from now on will be at this level or if you think there is more pressure from high costs to come in along the rest of the year? And the second question is how you see the speed of sales for the rest of the year? You mentioned regarding launches that you have been selling well so far, the level of launches is maintained. But if you see that within your plan for the year, if your expectation is to see a year that will be a little more difficult.

[Unknown]

Hello, Marcelo, Daniel here. Daniel here. I'm going to answer your first question about margins. As we saw, as I said, the margins was a little lower, but it was focused on this fact that we have explained. And the tendency from now on is to return to our gross margins we have been having previously. So there's no expectation whatsoever of a reduction in margins. Our cost structural engineering is very strong. Our control processes have been developed along the years and it's very strong. So we do not expect an increase in costs beyond what's already in the balance sheet. So we are confident this was an exceptional quarter.

In relation to the second point, in the second half of the year, I'm going to say what I think, I think it can be even more impacted by the real economy, the increase in the interest rates we have been experiencing. So in a general ample view, I think it's going to be affected by this. But of course, we have all the instabilities, the elections, pre-election we're going to have and also international pressure. Now mixing all this with our projects per se. You have to understand the quality. It depends a lot on the quality of our products, the kind of products we launch in the segment and how this will be affecting the market.

The market in Sao Paulo, there are moments where all projects sell and there are moments where all projects don't sell. And right now, we are looking at the launches in the ceiling. And we have seen that some projects are performing very well and other projects are facing stiff difficulty. So we understand that there is room for good launches for some specific segments, for some specific neighborhoods. So in this scenario, the -- requires caution in a few -- knowing the market as a whole, our projects, in our view, have already been built following this rationale because we were predicting a more difficult scenario. So we are confident that our products will be well absorbed by the market.

The total number of launches in the year, we do not know -- but one of the benefits of our segment and the characteristics of our sector, one of the positive characteristics is that we launch one by one. So we keep tracking the market, analyzing the market. We have some important launches to happen in the second quarter. If we continue having good performance, we will continue launching because the qualified launches are able even to recover the INCC, inflation index cost, which, on average, most projects are not able to.

So the market is -- was taking in the past, projects with 70% -- 100% sales performance. But it was a happy coincidence, but within our sales curve that we are pleased, we are glad with that. We follow -- so that being said, we follow the plan. And because of the quality of our products, and we do not have a commitment not even internal that makes us create some kind of internal guidance. We analyze launches one by one.

[Operator]

[Operator Instructions] There are no more questions. We now close the Q&A session. Now I would like to give the floor back to Mr. Leandro Melnick for his final remarks.

[Leandro Melnick, executive]

I would like to thank you all for your participation, for your questions, and good morning to everyone. Even's webinar is now concluded. Thank you for your participation. Have a nice day.