Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Transcript 2023-Q1

[Operator]

Good evening, ladies and gentlemen, and thank you for holding. Welcome to Even's earnings call concerning the results of the first quarter of 2023. Here with us today are Mr. Leandro Melnick, Mr. Marcelo Dzik; and Mr. Tiago Krall.

We would like to inform you that this event is being recorded, and we'll 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 the company's business prospects as well as its operating financial projections and goals are based on the beliefs and assumptions held by Even's management and on information currently available.

Forward-looking considerations are not a guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events and therefore, depend on circumstances that may or may not happen. General economic conditions, industry conditions and other operating factors may affect the company's future outcomes and may lead to results that materially differ from those expressed in these forward-looking considerations.

I will now give the floor to Mr. Marcelo Dzik. Mr. Dzik, you may proceed.

[Marcelo Dzik, executive]

Good morning to you all. It is with great satisfaction that I present Even's results for the first quarter of 2023, with the goal of providing more transparency to Even's and Melnick's separate operations, the following figures refer to even São Paulo, excluding Melnick participation. In our release, you will find the details for the consolidated figures, excluding Melnick.

I would like to begin with the highlights for Even São Paulo in Slide #4. We want to draw your attention to the reduction in inventory, thanks to strong sales of remaining inventory as a direct result of the strategy adopted in 2022. Our deliveries remain at a high volume. And in this quarter, we delivered BRL 733 million, with a special mention to the residential units of our emblematic project Fasano Itaim.

Our net revenues grew 29% in relation to the first quarter of 2022 reaching BRL 326 million. We reported a gross profit of BRL 87 million, a 57% growth in relation to the same period of last year and a gross margin of 29%. The net income for São Paulo's operation was BRL 47 million, which represents an annualized ROE of 14%. We maintain a solid financial structure with a net debt corresponding to 5% of our equity and a cash position of BRL 554 million.

Moving on to the next slide. In this quarter, we did not launch any project in São Paulo. We did, however, begin preparations for 2 launches in the second quarter with a PSV of around BRL 500 million even share.

In Slide #6, we present our sales performance. Our net inventory sales amounted to BRL 167 million, 27% higher than last year. Concerning cancellations, the graph on the right-hand side of the page, we ended the quarter with BRL 48 million, which is in line with previous quarters in spite of the significant increase in deliveries in the past months. It is worth noting that we still maintain very low default levels in our customer portfolio.

In the next slide, you can see our deliveries. In this quarter, we delivered Open Marajoara and Fasano residential projects with a total PSV of BRL 733 million. The pictures of these projects evidence the high quality of the projects delivered by Even.

In Slide #8, we break down our inventory. Our total inventory is BRL 1.8 billion in São Paulo and only 13% of this inventory corresponds to concluded units out of the inventory under construction, 77% will be delivered from 2024 and therefore, we have plenty of time to try to reach the best possible prices for our products. And as for the deliveries in 2023, 64% are sold as shown in the bar graph.

Moving on to our land bank in Slide 9. Even share present corresponds to BRL 4.9 billion, comprising 24 plots locating prime neighborhoods in the city of São Paulo, mainly in the South and West sites. In the first quarter, we bought 1 plot in partnership with RFM. It is located in Jardins neighborhood and has a PSV of BRL 261 million, of which BRL 65 million is Even share, and it will strengthen our position in high-end projects.

In Slide 10 is a relevant part of our strategy, we present our solid capital structure. We ended the quarter with a gross debt of BRL 627 million and a cash position of BRL 554 million, meaning a net debt-to-equity ratio of 5%. In the quarter, we consumed BRL 52 million in operating cash, mostly due to the payment for land. In addition, we paid out in January BRL 31 million in dividends.

In Slide 11, we present our consolidated financial indicators. Net revenues in the quarter totaled BRL 625 million, a 36% increase in relation to the first quarter of 2022, and we delivered a gross profit of BRL 138 million with an adjusted gross margin of 24% and net income of BRL 55 million in the quarter with a net margin of 12% and an annualized ROE of 11%.

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

[Leandro Melnick, executive]

Good morning. We began the year with a clear macro scenario than in 2022 despite interest rates remaining high. The market has been displaying significantly better commercial results in this past month. Our performance in the quarter was positive. In addition to reducing our inventory and reached an important volume of deliveries, we had an increase in margin and a significant increase in net income, which gives the company in a strong cash position and unleveraging.

This result was achieved in a quarter when we did not launch any projects. However, Even has a highly qualified land bank and our plan is to increase the number of launches in relation to last year. We did our planning for the company last year very conservatively in light of a scenario with many uncertainties presented in 2022.

This year, cautiously and after analyzing the company's and the market's performance, we see the possibility of producing a positive outcome. The beginning of this year has also brought important results for the company. In this month, we have concluded the full delivery of Fasano Itaim, and we entered into a partnership with Faena to develop a project that will become a landmark in the city of São Paulo.

Thank you. We will now begin to the question -- begin the questions and answers.

[Operator]

[Operator Instructions] Our first question comes from Pedro Lobato, analyst for Bradesco BBI.

[Pedro Lobato Garcia Fernandes, analyst]

I have 2 points here. The first, we had a very strong first quarter in relation -- regarding the operating results and in the segment. Can you tell me something about April if it will follow the same trend? And looking at margins only for São Paulo, we had a considerable improvement in this quarter. But to understand if this is a question of mix or if it's a budget question, I would like to understand this improvement. And what you expect for the rest of the year?

[Marcelo Dzik, executive]

Hello, Pedro. It's Dzik here. Pedro, we have just begun the second quarter. So you have some reference of what we had after the closing of the quarter. Talking about the market, we maintain our optimistic perspective. We think our products are performing well. As we said, we did not have launches, but we were expecting 2 projects with good expectations. So talking about the second quarter, the expectation is the same market at the same level as the first quarter. Regarding margins, we had an improvement, and we believe in a reconstruction -- a slow reconstruction of our margin, especially because of the change in the mix of sales. In 2022, our focus was very clear in selling studio units and part of our inventory in the affordable segment. Sales this year are more distributed along our total inventory. So we had an improvement -- an incremental improvement in our margins.

[Operator]

Our next question from Hugo Grassi from Citibank.

[Hugo Grassi B. Soares, analyst]

I would like before anything to give you some space so you can talk about this announcement about Faena. I think it's extremely relevant that you have this in your pipeline. It has recurring Brazil Journal talked about this recently. So I'd like to understand what you expect from this project when and under what conditions it will be launched? And besides that in a more general way, what do you see, what you needed to see in the market in performance for you to feel confident and motivated to follow on with your pipeline in terms of speed of sales for each project, what kind of discount, what kind of trigger you expect to keep launching? And on the other hand, what would make you stop launching?

[Leandro Melnick, executive]

Well, Leandro here. Thank you for your question. So first point the Faena. it was a very important partnership for Even and it's within a context. That's very important to mention, we are positioning at a high added value project in the most prime neighborhoods of São Paulo. So we have been building in the last few years to concentrate our work -- our operation in this kind of segment. We understand it's the company's profile and we can bring in better results.

So we delivered Fasano, which has the same characteristics. And Faena is a brand that we have studied quite a lot. We have worked a lot on this. It's a hotel that brings with it a history of transformation of the regions of a lot of culture, high gastronomy, and we understand that this complements the residential -- the high-end residential projects as we have considered.

So it's a very special hotel. We are very happy in entering into this partnership, and we understand this will be a very successful project. It's a very big project and it's part -- so it's a very important project, but it's part of a larger strategy of Even's positioning itself in projects with these characters of projects with -- in very prime locations with a high value added.

Talking about the market of launches, we are very disciplined in terms of our strategy. Last year, we made a choice, a very conservative choice. We saw a year as a lot of uncertainties. The macro scenario this year is still challenging, but it's different from 2022. COVID was still impacting and affecting our society, the war that started in Europe. And it was an electoral year in Brazil.

So now in 2023, the scenario is clearer. So it presents difficulties, but it's clearer. So what we are planning is exactly what U.S. We have been following quarter after quarter project after project. And what's good in our segment, in our -- is that every project we launch, we are able to launch it and analyze its performance to plan to then decide next steps. And our main points for analysis is the performance of inventory sales and the performance of launches. As this is going well, the first quarter has shown a very good performance in inventory sales. So we see a great possibility of a good number of launches.

So we have very good projects at advanced stage of approval. So quarter after quarter, we're going to update this, especially considering these 2 factors, the speed of launches and the performance of each launch in our inventory to continue the subsequent launches.

[Operator]

Our next question comes from Matheus Meloni for Santander.

[Matheus de Carvalho Meloni, analyst]

Here on our side, I'd like to understand the sales of inventory if you're going to keep this strategy and also the issue of discounts, both discounts on the list price and the discount on the transfer.

[Marcelo Dzik, executive]

Matheus. It's Dzik here. Our strategy continues. We think it's appropriate to our projects, our positioning in the high-end segment. We have a very low percentage of concluded units inventory, and we're going to work on these projects in the time we have to add that much value as possible. It's part of our strategy. We have some -- maybe some exception. It was a slightly more aggressive strategy in 2022, especially regarding affordable segment and compact units because of the situation of the interest rates in the market. We're going to work on our young new inventory that has more added value, and it will take time to absorb more value as much as possible for the company.

Only complementing a point here that you mentioned because our inventory is new, they are going to become included Even's inventory in a long window of time until the conclusion of this inventory. So this brings us the opportunity to work with more calm, the price and the speed. And we have been trying to get the best price possible and building strategies to enable us to recover the price -- the prices recover the margins that has been affected especially in that moment when the INCC inflation grew too much and the margins were squeezed.

[Leandro Melnick, executive]

So last year, I'm just reinforcing what Dzik said. We concentrated sales in the inventory that, let's call it more difficult. But now we are going after more tranquility because our inventory is newer, so a better balance between margin and price.

[Operator]

Our next question is from Igor Gomes, analyst for XP.

[Igor Queiroz Gomes, analyst]

I have 2 questions. One is a follow-up to what Leandro was saying to understand where the companies had is at. When you look at speed of sales vis-a-vis gain of margins, we can see that with this interest -- higher interest rates, what the priority of the company is in this trade-off? And the second regard is concerning cancellation that I thought was a little higher. I would like to understand if it's something you see that is only the moment or if this is because of a more difficult macro scenario.

[Leandro Melnick, executive]

I will begin here and then Dzik will talk about cancellations. But no question, this is a balance. There is a clear recipe, and this is a consequence of what we've been building together with the market. We have a strategy that's very strong that has been widely discussed in the company. The same way we have a commercial structure. We work with the conception of these products, which is looking to raise the price and the margin for this project.

So [ we believe about the ] SPEs try to go after projects like ARBO in the neighborhood of Perdizes, Platô, [indiscernible] we have just delivered. These are being projects that were different. And we are moving to the highest price per square meter in the region. So we have been developing projects in lots that are well located, and they are a huge area, so we can develop a product for which the supply is very low. It's a region that has a good infrastructure that is super valid now.

We have seen many plots that start growing after COVID. So our development thesis is to go after projects that are looking for land that allow us to be in places that are highly valued, where there is a high demand with the differentiated projects from the competition. There has been a moment. I have already mentioned this. That margin was very lower because the costs went higher than the capacity of the buyer.

And now we have been searching this -- we have been going after this balance and the market has been responding. So working on a long-term strategy of focusing our more difficult inventory, which allows us this to follow this strategy of having our inventory more young, more newer, younger as Dzik mentioned, so we can implement a strategy of going after better prices.

So following this balance, we see this month by month. So we have been trying to improve margins. But if the market is stagnated, then we change course. But this for to 3 or 4 months, we have been able to keep the speed of sales that we think is appropriate, looking for recovery in price.

[Marcelo Dzik, executive]

Igor, it's Dzik here to complement what Leandro said, talking about cancellations. If you look at the absolute number of cancellation, it has been at a reasonably stable level considering the past quarters. In spite of the great volume of deliveries, we have had. So we continue -- we do not see any surprises here in terms of cancellation. Our portfolio is very healthy. We have some oscillation here and there, but we see a slightly lower level in this last 2 quarters. But the important is to consider that our portfolio is very healthy, and we do not foresee any surprise in this item.

[Operator]

Our next question is from [ Rafael Heder ], analyst for Safra.

[Unknown Analyst]

I would like to have a follow-up regarding deliveries. As you said, you have a more significant volume of deliveries and thinking in this scenario with interest rates a little higher. If you see if there are some projects that may be more restricted in terms of the transference of financing and also ask you how you see the cash flow for the year? If this quarter, you had some great relief in terms of cash position, how you see it?

[Marcelo Dzik, executive]

Rafael. It's Dzik here. We have been going through in this past few quarters with a high volume of deliveries and linking this to the issue of cancellation. We have been guiding the company and we have been concentrating in this high-end segment. So we have -- say they make a huge down payment in the -- until the delivery of the [ keys ]. Normally, they do not -- they pay off for the project with their own resources. So we have an LTV that's lower.

In this segment, we haven't had any problems. Maybe some clients that opted for getting some long seeing an opportunity in the market, but we have some affordable projects with a lower ticket. So the difference in the interest rates, in this case, will make us work a little more. So we're going to have a process of transfer that is more difficult, but it's a smaller part of our portfolio. As I said, it's very solid. And currently, we do not have any difficulty any obstacle here, and we don't see any difficulty until the end of the year.

[Unknown Analyst]

And regarding cash generation?

[Marcelo Dzik, executive]

Cash generation will depend on our land acquisition, but the level we have had this quarter will be roughly the same level we're going to have in the next quarters. But it will depend on any acquisitions we might make and the prospect of launches, we expect good things for the year, but it will depend on the next quarters. Our next steps to confirm this.

[Operator]

Our next question comes from Hugo Grassi from Citi.

[Hugo Grassi B. Soares, analyst]

It's me again. I would like to follow up on talking about the prospect, Even's prospects, the clients, but I would like to hear from you if you have been talking about the competition. If you can talk about this segment of upper income, higher income segment, what the strategy is? How you see the volume of launches evolving, the level of inventory for São Paulo City? If you have seen some demand decreasing a little this financing to the company. Especially for lower -- I would like to see the quality of how you see this in terms of loan?

[Leandro Melnick, executive]

So let me start with a more qualitative view and Dzik will talk about the data more. Since last year, we have seen this high interest rates, and this has been increasing and concentrating the high-end segment. So we have some companies that this is already in their DNA. It's part of their natural strategy.

And we have seen companies that end up and migrating into this segment because it's a more segment that theoretically is more protected, and I have seen this in other moments that because the high income -- because they have more power to choose, they choose the property with a series of characteristics.

So it's not because the segment is good that the project will be good. This client wants a project with certain characteristics, that's not easy to provide. So the place where the view is great to some solutions, architectural solutions. So in this race of high-end segment, just because of a macro scenario, we see some real estate solutions that are just average. So we see some projects doing very well and some projects doing not so well. So it's not just a question of interest rate. It's the high -- in the high-end segment, they have a more qualitative view of the project.

There is more a discrepancy in the results that's directly related to the quality of the project itself. So we have a good number of launches that the customer can choose better. So we are very pleased with our performance. We -- Even it's been following its purpose of producing unique projects and making partnerships that will bring elements that the upper income and the high-end segment demand, but in a general view of the market, we see projects performing very well and projects that are just average not performing so well.

So it's a conjunction of 2 factors. You have the question of the high interest rate, but you have the other characteristic of the high-end client that it's -- that the characteristics of the products are more important than macro-economic scenario.

[Marcelo Dzik, executive]

Complementing Leandro. We see the market that's more cautious in terms of volume of launches. Our market is extremely seasonal. So the first quarter is less representative in terms of launches. But if we compare with the first quarter of last year, we see a decrease of 25%. It's a little bit of the environment. It's a little bit of credit crunch, so especially average-sized contents, but we see the market more cautious. The city has a very low level of concluded units inventory. So we monitor this very closely in absolute numbers and especially in relative numbers.

São Paulo does not have a high volume of concluding inventories kind of an inventory that's more complicated, which probably require more discounts. And detailing this breaking this down a little more, the high end is on average selling well. We see that the customer is more protected against these issues of inflation, high interest rate, the market is selling well, but in the higher end, very well demand, but we see project that on average, are selling well. And -- but we see the unique projects that we have differentiating factors performing very well. So with a few figures on what Leandro said.

[Operator]

[Operator Instructions] The Q&A session is now closed. We would like now to give the floor back to Mr. Dzik for his final remarks.

[Marcelo Dzik, executive]

Thank you all for participating partners, analysts, market investors, also our team at Even and the Investor Relations team is at your disposal for any doubts you might -- any questions you might have.

[Operator]

Even's webinar is now concluded. We thank you all for your participation, and have a good day.