Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for holding. Welcome to Even's webinar concerning the results of the second quarter of 2022. Here with us today are Mr. Leandro Melnick, Daniel Matone and Tiago Krall. We would like to inform you that this event is being recorded.

[Operator Instructions] Before we proceed, we'd like to clarify that any statements that might be made during this presentation regarding business prospects of the company as well as its operating and 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 guarantee of performance, involve risks, uncertainties and assumptions since they refer to future events that depend on circumstances that may or may not happen. 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 now give the floor to Mr. Daniel Matone, CFO and Investor Relations Director. Mr. Matone, you have the floor.

[Daniel Matone, executive]

Good morning to you all. It is my pleasure to present Even's results in the second quarter of 2022. Let's begin with the highlights in Slide 3. In the graph on the top left side of the slide, we see the significant increase in the volume of launches, amounting to BRL 461 million Even share, which represents a 114% increase in relation to the same period of last year.

Net sales represented BRL 479 million Even share, which is a 35% growth in relation to the same quarter of last year. Our net revenue totaled BRL 672 million, a 29% growth in relation to the second quarter of last year, mainly due to a better performance in the sales of inventory. We delivered in the quarter net income of BRL 58 million, which means a return on equity of 12% on an annualized basis. Even remains very well capitalized with a solid cash position of BRL 865 million and net cash to equity ratio of 16%.

Moving on to launches in Slide 4. We launched four projects in the quarter: Two in Sao Paulo and two in Rio Grande do Sul, amounting to BRL 608 million, of which Even share is BRL 461 million. In the first half of the year, we accumulated BRL 1.4 billion of PSV, roughly BRL 900 million of it is Even share, a 15% increase in relation to 2021.

In this quarter, approximately 65% of our projects are in the middle and upper middle income segments, 21% in the affordable housing segment, 10% of compact units and 4% in lots development, as you can see in the pie chart at the bottom right of the slide. As you can see, this breakdown shows very clearly the execution of our strategy of focusing on the segments in which we historically have had positive results within our area of competence.

In the next slide, we show you the projects we launched in Sao Paulo, Go Platô in the compact unit segment, which is 100% sold, Mairin Ibirapuera in the upper income segment, which is 26% sold. These figures are up to date as far as July. In Slide 6, we present our sales performance. Launch SoS in the quarter was a healthy 31%, as you can see in the graph on the left side of the slide.

We want to draw your attention to the strong inventory net sales of BRL 335 million, bringing our SoS up to 12%. Regarding cancellations, in the graph on the right side of this slide, we ended the first half year with figures on par with the figures of the same period of last year. It is very important to notice, we have the lowest level of [ diesel ] in our client portfolio, but we will remain monitoring all these indicators along coming months.

In the next slide, we present our deliveries. We delivered in this quarter four projects: Misce and Byway located in the neighborhood of Vila Madalena, Sao Paulo, with a PSV of BRL 176 million. The other two in Rio Grande do Sul, a PSV of BRL 20 million, Even share. You can see some photos of these projects. In Slide 8, we break down our inventory. We have a total inventory of BRL 2.9 billion and only 12% concerns concluded projects.

When we disregard the Melnick, the inventory in Sao Paulo is BRL 2.4 billion in Sao Paulo, and only BRL 223 million, concerns concluded inventory and [ BRL 88 million ] out of this refers to Hotel Ibis, Ibirapuera. Regarding inventory under construction, 80% will be delivered in 2023 and onwards, which will give us ample time to pursue the best possible price per square meter for our products.

Out of deliveries still happen in 2022, 81% is already sold. As you can see in the bar graph on the bottom right side of the slide. Moving on to our Land bank in Slide 9. We currently have BRL 5.7 billion in our Land bank, Even share consisting of 55 plots located essentially in prime neighborhoods of Sao Paulo and Porto Alegre.

In the quarter, we purchased 5 plots with a PSV of BRL 442 million, Even share. In Slide 10, we present our capital structure. We ended the quarter with a gross debt of only BRL 451 million and cash position of BRL 865 million, which means a net cash of BRL 415 million or a net cash to equity of 16%, presented in the chart on the left side of the slide.

In the quarter, we burned EUR 86 million in operating cash, most of it as a consequence of paying cash for the purchase of new plots -- in addition to the BRL 24 million distributed in dividends by Melnick, which has an effect on our consolidated cash.

In Slide 11, we present our results. In the graph on the top left side, we present the quarter's net sales which totaled BRL 672 million. We delivered a gross profit of BRL 154 million and net income seen at the bottom of the slide of BRL 58 million in the quarter, representing a net margin of 12.6%.

In summary, as you could see in the data presented -- we delivered a significant recovery in relation to previous quarter, which makes us extremely satisfied with the results we achieved. I now give the floor to Leandro Melnick, Even's CEO. Thank you.

[Leandro Melnick, executive]

Good morning. We are really satisfied with our results for the second quarter, in spite of the high interest scenario in the quarter, which represented an increase in INCC index, we were able to sell significant part of our revenues. We implemented our strategic sales strategy that put in evidence the liquidity of our products, which are products, which have a high added value. I highlight in our projects, the leisure area, which are great quality.

This good sales performance resulted in a growth of our profit 7% in relation to the second quarter of 2021. The company's inventory is also distributed in a very healthy way in Sao Paulo, we have only 9% of concluded units inventory, 61% of our inventory will be concluded only after 2024. So it is well distributed along our projects under construction with a much heavier weight in the projects that will be delivered after 2024, which gives us some comfort and allow us to implement these sales strategies as we did.

In the launches, we also shown some growth when compared with the second quarter of 2021. In our engineering, which is a very important point, it is still showing great operating confidence and keeping our projects within our budget with all the pressure incurred to the rising costs. We have been able to maintain our construction cost according to budget. So these results increase our confidence in the strategy the company is developing with a focus in projects with high added value.

So let's now move on to the questions and answers. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Bruno Mendonca from Bradesco BBI.

[Bruno Mendonca, analyst]

Thank you for the presentation. Let me ask you a general question regarding the market. And you -- if this is as you think -- we saw in the quarter the pressure on the margins in the whole industry everyone having some kind of drop in the margins. A lot of people justifying this as a review in the cost budget because of the pressure on the costs. It's not what I felt in your results. I saw your results. The driver in the -- for the margins has been the price of your units? Do you think maybe a combination of both, but the price of your units. I would like to see if you can give us some more details if my understanding is correct.

If you had some extra effort in the sales, a more aggressive sales strategy, but if here in Sao Paulo in some specific products, this is happening and what we can expect from now on? This is the first question. The second question about your financial results. It was -- it contributed to the result of positive profit and a good part of this income comes from the financials that you call interest to clients. If you can talk about this. If you have some strategy on the portfolio directly that's bringing in this result?

[Leandro Melnick, executive]

Thank you for your question. Leandro here, the first point is, your analysis is correct. Even since the beginning, we have been showing this long cycle of increasing INCC and an increasing costs in general. We have been showing a very positive performance in the security with the data we have been working with, we have been showing. So we did have some revision in our costs. Our engineering structure is very consolidated with many years in the market. They have been through all kinds of problems, the cost overrun a decade ago. So we built some strategy to keep our strategy under budget. So a few quarters we had some talks because it was a very peculiar situation -- our situation is very peculiar. And now we are confirming this that indeed this is true. We were -- we have been able to manage these changes in the INCC index. And of course, we have corrected our budget by INCC, but we did not increase our forecast for the budget above INCC.

So because it's a combination of -- if our margin had a decrease in relation to last quarter, we have an effort in the price. So here, we can -- we're open to an interpretation that's positive. Our inventory is distributed along and we used to have a problem in our product, we had a high concentration. So we do not need high levels of discount to have good performance. But this quarter, for Even, we had -- we were able to increase our volume of sales. This is the real world. So the affordability of our products with a low need for discounts, but there is a point that shows that when we analyze the impact on margin, it's even smaller because Melnick, which consolidates our figures -- Melnick has an annual event that which even does not hold anymore. In -- this quarter was very important, so in this event, some discounts were implemented. We have been doing this for more than 10 years. And specifically in this quarter, this event means that we have more discounts. So -- and another point that has to do with Even's strategy, again, consolidated figures.

But in this quarter, we had a high impact in our concluded units inventory in the basket of concluded units we had in this quarter, part of our inventory that has been loading on our sales, it has a margin that's a little lower than the margin of launches. So we had a quarter of high volume of inventories -- concluding inventory sold. So the distribution, so it's not a reduction in margin, but we already sold a part of our inventory that was carrying part of a margin that was lower. So this also has to be taken into consideration. We were able to -- it requires very little effort to increase the amount of sales and this path work is actually lower than it shows in our first analysis because Melnick has the numbers and the basket of finished units concluded units that has had a lower margin. Now Daniel will answer the financial aspect.

[Daniel Matone, executive]

So regarding your second question, Yes, the financial income was higher this quarter, and there are some explanations. First, indeed, the higher interest rates, which affects positive way. So part of it is -- this is the adjustment by this higher interest rate and the other explanation, which is important is that we have significant deliveries in every adjustment in our portfolio after the construction work, it goes through the transfers, so the financial results. So we had a quarter of a high number of deliveries, so this impacted the second quarter results. And looking forward, because we have a year of a lot of deliveries. I think this is going to be high along the next quarters in this year.

So that's the explanation why the financial result increased, and this will happen in the next 2 quarters. It's also important to talk about our portfolio. We have been monitoring. Regarding our nonperforming loans, our NPL continues low, -- with a level of inventory that's ever lower with -- in cancellations in the same line, also at a low level. So we've been monitoring the market. Our cancellations are in line when compared with last year.

We have an area in the company departments monitoring this specifically, but its behavior has been seasonal and appropriate, and the same thing with default. So the levels are low, so we consider it as a healthy level. And your other question, I think in relation to the direct portfolio, in Sao Paulo, we do not have a direct portfolio that's relevant. It's very small. Melnick, yes. Due to its -- the Urbanizadora unit has a direct portfolio that's much higher, but nothing really relevant. I think I've covered all the points of your question, but if you have any doubts.

[Operator]

Our next question, Mr. Hugo Grassi from Citibank.

[Hugo Grassi, analyst]

Congratulations on the results. I would like to ask a question regarding deliveries. It seems to me that we are at a cycle where the volume of deliveries is very high. So there is -- it's a reflex of the launches made in 2018 and 2019, 2020. I'd like to understand what you see in terms of how this impacts the deliveries, but I think these financial results -- financial revenue, you mentioned, I think there will be a complement of financial revenues because of these deliveries as they happen because they are indexed to the INCC index that changes to IPCA index, but what do you see how this impact in terms of cash generation especially in terms of cancellations. If you can comment what is the LTV of this portfolio is? We have been from a cycle of prepaid high income clients, but this is not true in the middle income. So if you can signal if you have any concern regarding the future deliveries, taking into consideration the volume of deliveries is very high in relation to market cap.

[Leandro Melnick, executive]

Leandro here. Thank you for your question. Really, our volume of deliveries has been relevant this year. You are correct in your analysis. BRL 2 billion approximately of PSV delivered and some important characteristics. We have a portfolio for these projects. It's a share of this portfolio that is in the high income. These are projects that were well sold. As I mentioned before in the call, we have our inventory -- very little participation of concluded units inventory because we consider -- what we consider as concluded inventory as the projects are really finished, the ones that are delivered along the year. So we have been having -- these projects we're selling very well.

And because these are high income level, it's a receivables portfolio that has a payment performance that's above average. So we have had many receivables, so this means we also have sales for those people who lived the issue of cancellations in the past, this is not a distant past. Sales were more solid. We're as solid as the percentage of payments that clients had already made. So we have projects that are well sold in projects that have a percentage of payments made that is very significant. On the other hand, by the year of the delivery, the revenue decreases if you have this automated reading of our segment.

When you look at the average, the transfer happens more than to the tune of 80%. So when the transfer comes, there will be some risk. Our portfolio has this characteristic of upper income, well performed with a revenue that has already happened. So we have a smaller generation than the traditional expectation of indicators for a future portfolio, but it's a very positive scenario because this means that all the benefits we have by the delivery of these projects. And now Matone will comment.

[Daniel Matone, executive]

So in face of the scenario, that's more macro scenario that Leandro has mentioned in relation to the impacts that you asked about cancellations, the portfolio, the quality of this portfolio and the impact on the cash flow. We have a very specific portfolio because we work mainly in this upper and upper middle segment, which has a different characteristic in terms of payments from other segments. So we've been monitoring very closely, this being a year of relevant deliveries. So as I said in the previous question, these levels are very healthy. The cancellations we are monitoring closer to. So regarding the financial revenue, yes, we're going to have an impact, as I have already said. The only thing I think we should pay attention to is the issue of cash flow.

We may have a slightly lower volume of revenue, but there is a practical reason for this. We have a very healthy balance sheet. We have alternatives. You see our net cash is at 15%. So it's not something that concerns us. So history -- historic data and the snapshot of our balance sheet right now, so I think it's important that this is said -- that this be said. So it's important to note that by the end of the year, we have two deliveries that are not in the upper and upper mid.

It's Marajoara and [indiscernible] these two are open projects. These ones, we are monitoring because we can have some indicators that are slightly worse in relation to cancellation, but we are already working on it. These are the two things that we needed to focus on. But these are small PSVs. They do not represent significantly the whole of our portfolio.

[Operator]

Our next question Elvis Credendio from BTG Pactual.

[Elvis Credendio, analyst]

Two questions here. First, regarding launches, if you can give me some more details regarding the pipeline of launches for the second half and also your view in relation to the market. So you had a view in the beginning of the year of a slowdown launches. I'd like to know if this has changed or not in relation to your perception of the market. And my second question is relating to costs. If you can give us an update relating to construction costs at the end. Material -- the cost of material, if you see something specific happening if you can give us an update.

[Leandro Melnick, executive]

So regarding launches, we have been analyzing the market very closely because we have been going through a very volatile period, the previous quarters since the moment of the COVID and then the return of COVID and all this volatility in interest rates. So it's not a moment to plan a cruise flight for 1, 1.5 years. We have been analyzing the performance of our launches and considering this performance, we analyze quarter-by-quarter, the decisions about launches. A positive event is, we have been having a good performance, both in terms of price and volume, Even has been operating in a way -- has been operating for the past 5 years. Today, we focus on our projects -- on projects that have higher added value.

It doesn't mean upper income segment, but it has more added value than the competition. Every project that we launched, the price per square meter is a little higher, but our projects also have more attributes, leisure area, for example. And this has been generating differentiating factors that keeps a volume of sales at a very good level for a good price. We have this bias of launch, what we believe can be absorbed by the market. Yes, we are keeping our initial planning, maybe even a little higher than we expected because this scenario was really turbulence in the beginning, and other characters of our launches. We have been pursuing for a long time. The best curve of price against speed.

So we have been -- so we have not been pursuing great speed of sales. We have been going after an optimum curve of price against speed of sales. Sometimes you have launches like this quarter, Go Portugal that was sold 100%. And this was a project with compact units that was very well received by the clients, but it's not the usual profile of our company. So all this to answer you that yes, we have been keeping our planning with a bias of a slight growth as we consider the sales as they have been.

Regarding costs, we have seen in some areas that the cost composition, for example, the materials -- in some kind of materials. A reduction of the increase. It has been increasing less so reducing pressure. Some kinds of materials are still under pressure from costs from inflation, but some others are clearly this -- in this -- stalling the growth of the price because it's a composition of -- a basket of products for various projects. So maybe at the end of the curve, we will see a stabilization. And of course, we monitor the world phenomena that are happening in terms of macroeconomics, the price of petroleum, that's been decreasing its price.

So all these factors, the conditions in some countries, some important countries in the global commodity supply chain. So it's clear to us that the trend is for this curve to accommodate. It's cared to everyone, but now these prices are -- the commodities price are now accommodating.

[Operator]

Our next question, Rafael Santos from [ KR ].

[Unknown Analyst]

Congratulations on your results, the company has been able to transfer the increase in INCC to sales. If there is some campaign to move up, what is the rate of discount for these promotions?

[Leandro Melnick, executive]

Thank you for your question. We have been able to transfer depending on the product line. In some segments, for example, upper income segment, we have been able to achieve a better performance and there are other projects that we haven't -- we are not able to transfer this increase in costs. It's important to understand this in a time line -- longer time line. Because if it's in our opinion, our analysis that maybe the INCC curve may have a loss in relation to IPCA. So maybe 1 month or 2 months. Like this quarter, we are referring, INCC was very high. So many aspects affecting the INCC inflationary scenario, so it's a quarter in which we weren't able to just in time transfer all these costs. In a more general view, we see this in margins. We have been able to transfer a good part of this INCC increase, not completely, but a good part of it.

So we have not been doing specific campaigns at Melnick, which consolidates our figures. Like I said, Melnick has a specific calendar, but Even has been working on a project-by-project basis, the best curve for each project because each project has a timing -- has the best timing to perform sales for the best possible price. So if the moment is closer to the deliveries, if there is a sales stand or not, so we have been doing specific actions for specific projects, but not a campaign.

So we do not have a structured campaign. Another point that you asked was if we're going to move up -- campaign to move up some of the transfer. We do not have a clear -- we have been through some moments in the economy because that was more positive or less positive depending on the customer. So we do not see a financial benefit that will justify this -- that will justify for us to move up to this.

So we have a good payment level, especially in the upper income, not for a campaign. But because it's the usual structure for upper income segment, which is a very important part of our market share, which is a shorter campaign with maybe a movement in which the payment is moved out.

So we see a portfolio with properties, with installments that have been paid that's higher than the average. It's not because of a campaign, but it's because it's a high income portfolio. So during the flow, it reduced the financial -- the financing that it will need at the moment of the delivery. So we do not have a specific campaign.

[Operator]

[Operator Instructions] We now conclude the Q&A session. Now I would like to give the floor back to Mr. Matone for his final remarks.

[Daniel Matone, executive]

So we now conclude our earnings release. I'd like to thank you all for your participation for the questions. And we are here at your disposal, should you have any other questions. Thank you.