Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, and thank you for holding. Welcome to Even's earnings call concerning the results of the second quarter of 2023.

[Operator Instructions] We would like to inform you that this event is being recorded and will be made available on the company's IR website where the complete material concerning this earnings call will be available. It is also possible to download this presentation. [Operator Instructions]

We would like to clarify that any statements that might be made during this teleconference regarding Even's business prospects as well as its operating and financial projections and goals are based on the beliefs and assumptions held by the company'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. Investors should understand that general economic conditions, industry conditions and other operating factors may affect Even's future outcomes and may lead to results that materially differ from those expressed in these future considerations.

Here with us today are the Chief Executives of the company; Mr. Marcio Moraes, CEO; Mr. Marcelo Dzik, CFO.; Mr. Tiago Krall, Strategic Planning and Investor Relations Director, and Mr. Leandro Melnick, Chairman of the Board.

I will now give the floor to Mr. Marcelo Dzik, Even's CFO.

[Marcelo Dzik, executive]

Good morning, everyone. I am pleased to be here presenting Even's results concerning the second quarter of 2023. Aiming at providing more transparency to Even's and Melnick's separate operations, we will now present the figures concerning Even Sao Paulo, excluding Melnick's participation. In our release, you will be able to find in more detail the breakdown of the consolidated and ex Melnick's figures.

I would like to begin with the highlights for Even Sao Paulo in Slide 3. In the graph on the upper left-hand side of the slide, we highlight the significant increase in the volume of launches to the amount of BRL 774 million Even share, which represents a growth of 89% when compared with the same period of last year. Our net sales totaled BRL 541 million Even share and represented a growth of 55% when compared with the same quarter of last year. Our net revenue totaled BRL 517 million, up 41% when compared with the second quarter of last year.

We reported gross profit of BRL 197 million accumulated in the year, up 35% when compared with the same period of last year with an adjusted gross margin of 25.5%. The operations net income in Sao Paulo was BRL 46 million in the quarter and BRL 92 million in the first half, representing an annualized ROE of 12.5%. We maintain a solid financial structure with a net debt to equity of 10.5% and cash position of BRL 543 million.

Moving on to launches in Slide 4. We had 3 projects launched in Sao Paulo, totaling a PSV of BRL 887 million, of which BRL 774 million is Even's share. In the next slide, we show you the renderings of the projects in Sao Paulo, namely Casa Alto de Pinheiros in the luxury segment and Joaquim and Madre in the upper-middle segment.

In Slide 6. We present our sales performance. We had a great performance in the launches with an SoS of 44% in the quarter. As you can see, in the graph on the left-hand side of the slide. In total, we sold BRL 541 million Even share and reached a total SoS of 21%. Concerning cancellations, the graph on the right-hand side of the page, we closed the quarter with BRL 59 million in line with the previous quarters, despite the significant volume of recent deliveries. It's worth noting that we remain with low levels of defaults in our client portfolio.

In the next slide, we show our deliveries. In this quarter, we delivered Fasano Itaim Hotel and Modo Saúde projects, totaling a PSV of BRL 430 million. Again, the photos of the projects are a testament to the quality of the projects delivered by Even. In Slide 8, we break down our inventory. We have a total inventory worth BRL 2 billion in Sao Paulo, of which only 14% is concluded. Out of the inventory under construction, 88% will be delivered from 2024, therefore, giving us plenty of time to capture the best value possible for our products. Concerning the deliveries to be made in 2023, 59% is sold as you can see in the bar graph.

Moving on to our land bank in Slide 9. We have currently BRL 4.9 billion in land bank Even share comprising 23 lots located in prime neighborhoods in the city of Sao Paulo, mainly in the south and west side. In the quarter, we purchased 2 lots in Sao Paulo in the neighborhood of Vila Madalena and Jardins with a PSV of BRL 782 million, BRL 645 million of which is Even's share, strengthening our positioning in high-end projects.

In Slide 10, as a relevant part of our strategy, we present our solid capital structure. We closed the quarter with a gross debt of BRL 707 million and a cash position of BRL 543 million, representing a net debt to equity of 10.5%. In the quarter, we burned BRL 91 million in our -- of operating cash, especially on the purchase of land and on our construction work. In Slide 11, we present our consolidated financial indicators. Net revenue in the quarter totaled BRL 759 million, up 13% when compared with the second quarter of 2022. We generated a gross profit of BRL 161 million with an adjusted gross margin of 23.5% and a net income of BRL 56 million in the quarter corresponding to a net margin of 10% and an annualized ROE of 11%.

I would now like to give the floor to Márcio Moraes, Even's CEO.

[Marcio Moraes, executive]

Good morning, everyone. I would like to begin by briefly introducing myself. I joined the company in October last year as a Board Member. And last May, I took over as Even's CEO. I have been in the real estate market for around 44 years, working in construction and development through RFM Group, which I founded with my partners. Last year, RFM signed a joint venture with Even to develop new high-end projects in prime neighborhoods of Sao Paulo [indiscernible] work in a specific market niche that has been proving highly successful. I'm extremely happy about joining Even's team and feeling really enthusiastic about this new challenge in my career.

We had a great second quarter with an expressive volume of launches and sales besides a very good absorption of our inventory. Our net income in the first half year is already higher than the one delivered in all of last year, and we see clear signs of improvement in the market with the expectation of reduction in interest rates. We see some certain stability in construction costs with INCC index around 3% for the last 12 months. So apparently, construction costs should no longer be a problem for the industry in the short term.

The changes to the master plan of the city of Sao Paulo should facilitate the purchase of land in the city, generate new and good opportunities for the industry. We are excited to continue launch always with a focus on the profitability. Even has a highly qualified land bank built over the years with great high-end projects in greatly desired regions of the city of Sao Paulo. We also have excellent operational capacity and a robust balance sheet to execute our projects, take advantage of good opportunities in the real estate market.

Thank you again for your presence. We can now move on to Q&A.

[Operator]

We will now begin our Q&A session. [Operator Instructions] Let us now proceed to our first question comes from Pedro Lobato, sell-side analyst from Bradesco BBI. We'll now open your microphone, so you can ask your question.

[Pedro Lobato Garcia Fernandes, analyst]

The first question is regarding margins. The consolidated figures in the first quarter, it had showed a very good improvement, especially in Sao Paulo. In the second quarter, we have seen a slightly lower margin. I would like you to explain this in more detail. How you explain this drop in gross margin? The second question regards inventories. We have seen the [ 20 ] months' worth of sales, the consolidated inventory. I would like to understand how you -- your sales strategy, if you're being worried or if you are comfortable with this level of inventory? And how this affects your launch strategy looking forward?

[Marcelo Dzik, executive]

Hello, Pedro. Thank you for your question. Dzik here. I would like to start by talking about the margin. We had an event. That's a nonrecurring event. The process of the delivery of [ Fasano ], the residential project we had already delivered, but delivering the hotel is a very complex issue. We had some increased costs to deliver this hotel, but it's now over. So this impacted the results in the second quarter, but this is over. So if you don't consider this specific event, we are recovering our margins we had last year that was really hard especially because of the sales of emerging market -- emerging segment inventory. So we sold all this inventory. And now we have been emphasizing the work on our middle and upper-middle and luxury inventory.

And now joining with your next question, this is a very new, young inventory. We have 14% of our inventory, it's concluded. In 1/3 of this is Ibis hotel, is not really concluded inventory. It's not on sale. It's not for sale. We have been through a difficult moment during the pandemic, but the hotel business is recovering very well. So we had a carry trade that's carry off that's much better. And we'll see market environment that's much better to allow us to sell this hotel. So to answer our inventory, our concluded inventory when you don't consider Ibis, it's a very low volume, and we had ample time to work on these products.

[Operator]

Our next question comes from Matheus Meloni, sell-side analyst from Santander.

[Matheus de Carvalho Meloni, analyst]

I would like to understand what is in this market of Sao Paulo, especially the high-ended luxury markets? If you can give us some update on the [ Faena ] project and the [ Rio Park ] project.

[Marcio Moraes, executive]

Matheus, Marcio answering. In the 2 aspects, what we see in terms of competition in the high-end luxury market, it's a very active market with a very good absorption. We have unique projects. The profile of our launches are unique. So great common areas, leisure areas, Spanish ports, this differentiates our products from other small lots products. This differentiates our projects allow us to raise more value for it. This is not going -- the competition is not going to harm our sales. We are very confident for next half year.

Regarding [ Faena ] and Morumbi. Faena, we are finalizing our projects to launch this. We have already begun working on the lot putting up the sales stand, and this will be ready by the end of the year. And it's also a very unique project. It's a mix of high luxury hotel, art center, restaurant, and very high-end residential units. I think the performance of this project will be very good. Our [ Rio Park ] projects, it's -- we'll probably be for 2024. We are developing the final details to launch this next year.

Thank you.

[Operator]

Our next question comes from Hugo Grassi, sell-side analyst from Citi Bank.

[Hugo Grassi B. Soares, analyst]

Gentleman, thank you for the results. I'd like to ask you about master plan. What these changes in your mindset? I see you have been finding a lot of good piece of land, but if you understand that this new master plan will provide much better opportunities, more flexible possibilities for purchasing land. Will this bring you better opportunities for tactical purchases of land bank?

And looking at PSV that you already have, the land bank you already have, if you could tell me somehow -- if you could quantify somehow what is the potential gain in terms of PSV? Even with these projects, if you can file these projects within the new master plan, how this will affect? And what kind of pipeline you have in line with this new master plan? If this would delay some launches or if you would prefer to launch anyway? Or maybe even give us some time between the next launch, so you can take -- maximize the potential according to this master plan.

[Marcio Moraes, executive]

Hugo, Marcio here. The master plan that has been approved, it has been discussed since 2021. One of the items that have just been approved, they were on the agenda, they have just been adjusted, and they were approved this year. What the market understands is that this is pro-business. I think we are studying the opportunities, but this new master plan is still contingent on the new zoning plan, which will actually rule the changes that -- so we have some land bank lots that we are studying if the performance will improve in light of this master plan or if we can take some more time before we launch or launch now. We are still studying this. We are depending on the approval of the zoning law, slated to happen by the end of the year.

So the market is waiting for this -- the ruling regarding the zoning laws. So we can effectively take measures. Right now, from the point of the land bank, the existing land bank, what we can change and gain some value here. We still do not have these figures we have not calculated this because we are depending on the new law to be approved. And for the new land, we are studying it twofold. One, without any significant alterations in the master -- in the zoning law and another one, if the zoning law changes staying significantly.

We were just complimenting [indiscernible]. He was very specific. We are studying this on a product-by-product basis. So we have an urban operation. So we do not see any future alterations. It will follow our normal dynamic of approval. For other projects, we're going to try to understand the cost benefit, the potential and the launch deadline because we have this project within the urban operation axis, which is part of the master plan. So we are going to get -- we are going to study these projects case-by-case.

[Hugo Grassi B. Soares, analyst]

If I could just follow up on my question, does it change anything for you if you consider purchasing through swaps or purchasing through purchasing cash? Does this new master plan change anything in terms of how you plan on purchasing, in terms of gain of margin?

[Marcio Moraes, executive]

So complementing your first question. The master plan itself, no, it won't change anything, but we have been refining our swap strategy. You can see this in our last purchases. We have been taking some decisions. In our last decisions of purchase, we did that in cash. We are not abandoning our strategy of purchasing through swaps. We are refining this strategy. So we are opportunistically choosing some loss and understand the best timing, the best moment to buy this through swap. It's not related to the master plan. It's regardless of the new master plan. We have already made some purchases in cash, for example, last year, to optimize our swap model in terms of deadline and in terms of the right moment to bringing this investor with a better interest rate.

[Operator]

Our next question comes from Elvis Credendio, sell-side analyst from BTG Pactual.

[Elvis Credendio, analyst]

Two questions here. Firstly, regarding demand and the appetite for launches on your side. Apparently, we see an improvement in the market, but it seems to me it's a little early to say, to tell, but if you see this is going to affect demand. If this would change the company's strategy in terms of volume of launches looking forward. If you're going to have more appetite to speed up this launches, especially this new partnership with RFM. And the second question regards cost of construction and margins. This has decelerated quite. I don't know how this has been translating to you in terms of the cost of materials in construction work, if you can see some savings in construction work in these coming years.

[Marcelo Dzik, executive]

I'll talk about launches first. Marcio will talk about the costs. As you well know, we had a very aggressive environment in 2022. We went through this very high interest rate, elections, the war till the end of last year especially. The first quarter in this year in Sao Paulo, we did not launch anything, but we had a good surprise. We have seen the market responding well. So regarding the demand, we see the demand is stronger than we imagined in the beginning of the year. And this gives us a very good environment to launch in the second half of the year. We have a very big land bank. We have lots that are already in condition to be approved. And this is an effective good environment to retake launches.

So in this quarter, we have increased our launches, and we are optimistic. The SoS has been very good, over 40%. So we see a very positive environment for more launches. Concerning volume and the number of projects, it will depend on the maintenance of this environment and the results we will have. We are also following up on our remaining inventory. So the first cut in base interest rates we have seen now. So we are excited about this. We are working with very large projects. Faena is one of those. Marcio talk about it.

[Marcio Moraes, executive]

Marcio here. Just to complement regarding construction costs. It has been stable for the last 12 months, around 3% measured by INCC in this. We do not see looking forward any change in this because basically, construction costs is extremely related to the cost of commodities, energy, which is a very important commodity for our cost. We have -- we do not see an increase in cost for the energy. It's raining a lot. Our reservoirs are full. So the wind energy, the solar energy, we do not see any problems on the energy side. In the dollar, we see the dollar stable for next year. We do not see any bumps in this, and inflation is going down. If these assumptions do not change, the construction costs will stay stable, and this is not going to change our costs right now.

[Operator]

[Operator Instructions] The Q&A session is now closed. We would like now to give the floor back to the company for their final remarks. Please, Mr. Marcelo Dzik, you may proceed.

[Marcelo Dzik, executive]

I would like to thank you all for attending this call, analysts, investors, partners, collaborators. We are very optimistic and enthusiastic about the company's results. Our Investor Relations team, Tiago and Mariana are at your disposal for any further questions you may have. Thank you very much.

[Operator]

Even's earnings call concerning the results of the second quarter of 2023 has now concluded. The Investor Relations department is at your disposal to answer any further questions you may have. Thank you to all the attendees, and we wish you a nice day.

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