Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Even's earnings call concerning the results of the second quarter of 2024. I would like to point out that for those who need simultaneous translation, the tool is available on the platform. To use it, you have to click on the button, interpretation, the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English.

For those who will listen to this teleconference in English, there is an option available to mute the original audio in Portuguese by clicking on the mute original audio button. We'd like to inform you that this event is being recorded and will be made available on the company's investor relations website, where the complete material concerning this earnings call will be available.

[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 involves 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 this future consideration.

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

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

[Marcelo Dzik, executive]

Good morning, everyone. It is a pleasure to present Even's earnings call for the second quarter of 2024. As a consequence of the reduction in our participation Even no longer controls Melnick and the financial statements will now be presented in an unconsolidated format from now on.

I would like to begin with the highlights of the quarter. Net sales amounted to BRL 486 million. We sold BRL 322 million in inventory, the highest volume in one single quarter since 2020. Representing an increase of 63% when compared with the previous year.

In this quarter, net revenue totaled BRL 923 million, a 78% increase.

We reported a gross profit of BRL 190 million, 73% higher than the same period of last year and an adjusted gross margin of 26.8% whereas REF and inventory margins ended the quarter at 26.2% and 32.7%, respectively. São Paulo's operations generated a net income of BRL 114 million with an annualized ROE of 26.6%.

Adjusting this profit, according to what will be explained in the next slide. The reported figure is BRL 73 million, which is an annualized ROE of 16.9% Our consolidated net income in the quarter was BRL 101 million. In the graph, we demonstrated the effects of our participation in Melnick, which when added negatively impacted the results by BRL 13 million. We would like to point out that the BRL 42 million portion of the net income for São Paulo originating in the accounting adjustment in the result of minority interest in the SCPs, which was allocated as financial expenses and therefore, deferred in proportion to realize the sales of the projects, where part of the cost was recognized in this quarter and the remaining balance will be recognized in future quarters.

It is important to note that contract terms are being renegotiated by the partners with possible consequences in the way it is accounted for. And even an eventual or a possible reversion or adjustment in future results.

In the next slide, we present a net income history for São Paulo operation for the last 18 months. We can see a consistent delivery of profit quarter-over-quarter, an increase in the level of profitability supported mainly by gradual recovery of margins and gain in efficiency. In this quarter, we launched the first phase of Faena São Paulo with a PSV of BRL 1.1 billion, of which BRL 552 million is Even share. The launch was a success and 45% of the project was sold when you consider the swaps.

We can see in this slide, some of the images of the project, a complex that combines luxury services and art and is located in Faria Lima region.

Now we present our sales performance. The volume of net sales in the quarter was BRL 486 million, BRL 322 million of which from inventory. An expressive increase of 63% when compared with the same quarter of last year. With an SOS of 16%. Accumulated in the year, we sold BRL 770 million, which is a 9% increase despite the lower volume of launches.

Concerning cancellations, we closed the quarter with BRL 60 million, in line with the last year's average level. It is worth noting, we continue having one of the lowest historic percentage of default in our client portfolio.

Moving on to the next slide. We're showing the delivery of [ Clari ] Residential and Studios, totaling a PSV of BRL 279 million and 296 units. We are at the beginning of a relevant cycle of deliveries. We've estimated at BRL 2.7 billion of PSV for the next 12 months.

Here are some photos that demonstrate the high quality of execution that our company has with one more beautiful project in Pinheiros neighborhood 100% sold. We ended the quarter with total inventory of BRL 2.1 billion in São Paulo, mostly from middle income to luxury segments, representing 17 months worth of net sales. Our finished inventory is 25% lower than in the previous quarter, closing at BRL 206 million which is only 10% of total inventory.

Moving on to land bank. We acquired three lots in the quarter, two of them in Itaim and one in Vila Mariana, for a total PSV of BRL 707 million Even's share. Our land bank consists of 25 plots or phases totaling a PSV of BRL 5.6 billion located mainly in prime neighborhoods in the south and west side of São Paulo City.

In the next slide is a relevant part of our strategy. We present our capital structure. We ended the quarter with a gross debt of BRL 1.4 billion, mainly for financing production, plus the portion concerning the minority partners of SCPs to the amount of BRL 155 million, which has been reclassified in the accounting from shareholders' equity to that as mentioned before.

We point out that in this investment structure, our partners received participation in the net result of the project, ignore the risks of the business in general and without fixed or guaranteed returns and they can end the partnership after 24 months from the conclusion of the construction work.

We ended the quarter with a cash position of BRL 628 million which represents a net debt-to-equity ratio of 40% highlight the amortization schedule of corporate debt with very extended periods and consistent with business side. In this quarter, we burned BRL 3 million in operating cash, whereas the sales of Melnick stock generated BRL 83 million in cash in the period. Paid out BRL 100 million in dividends to our shareholders, highlighting our strategy that focus on profitability and value generation. We present the evolution of our participation in Melnick. We announced last March the operation concerning sales of stock. We have sold so far 18.3% of our participation, generating BRL 172 million in cash. As a consequence of the aforementioned sales, our current participation is 19.3%.

In July, we liberated an additional 9.8 million shares from the shareholders agreement for future sales. This movement's aim has given the shareholders more freedom in their choices of participation between Even and Melnick besides cash generation for the company.

Now I will give the floor to Marcio Moraes, Even's CEO.

[Marcio Moraes, executive]

Good morning, everyone. I would like to begin by thanking you all for attending our earnings call for the second quarter of 2024. We launched in the quarter Faena, São Paulo, the biggest real estate project in the company's history, a fantastic project, full of concept, art and architecture which really will transform that region of Faria Lima. We created a sales pace that offers a unique experience to visitors, including an immersion room, sophisticated, the great model apartment with 370 square meters, an extensive landscape in the almost 20,000 square meters of the lot for events that will be attended by our clients and the most relevant influencers in the luxury segment.

We have had good sales volume this year, especially of inventory, which is a testimony to the quality and acceptance of our products. Our inventory is at a very healthy level of 10% with only 10% finished units. We acquired 3 high-end lots, 2 of them in the really desired neighborhood of Itaim, highlighting our already consolidated position in prime areas of São Paulo.

Concerning financial results. This was the sixth consecutive quarter in which we delivered relevant and consistent results with expectation of the continuing this ascending trajectory. We are focused on profitability, value generation for our shareholders.

In closing, we remained focused on sales, preparing new launches for 2024, always closely following the market and certain that our operating financial capacity will generate real estate businesses of high added value.

Thank you again for attending this call, and we can now proceed to the Q&A.

[Operator]

[Operator Instructions] Let's now proceed to our first question from [ Juan Argento ] from XP.

[Unknown Analyst]

I have two topics I would like to question. First is the -- your schedule for launches, just an update on your pipeline. I know some of the projects in Arizona, Harmonia are projects that depend on land bank. These are partnerships with RFM. These are closer to being launched. I would like to understand, if you see these projects in 2024 or if you see a normal approval rate in the [city home]. We know we had a problem around two months ago. I would like to know if this problem has been normalized.

And the second point is sales of inventory. Besides Faena in this quarter, the SOS of inventory grew a lot. So it caused our retention. What do you see that can help with this performance, some focus on the sales force or maybe another strategy. If you can break it down, what you can do about this inventory. Regarding more recent launches or more performed inventory.

[Marcio Moraes, executive]

Juan, thank you for your question. Marcio, here. Regarding the pipeline of launches for this year, we have a well advanced Arizona, Harmonia projects are leaving this year. They were delayed in the second quarter because of the approvals problem, as you mentioned. The pace of approvals is normal. So we will have 4 launches, Arizona, Harmonia. 2 [ Faena ] and 2 from RFM. [ TFT], probably Alameda Franca. So these 4 projects we will be launching this year.

Regarding the pace of approvals, really, the first half year was really a [ chance ] because the master plan of the city is dependent on decrease in loss that regulated this approvals. And this was done at the end of July. It is still not the normal pace because it was, I think, 2,500 projects that we're accumulating, but now this will be regularizing August and September for all companies. But we are well underway for that to happen.

Regarding inventory, what we had was a growth. A strong growth in sales. I think there were 2 factors that helped with this. The lack of new launches of all companies because of this postponement of approvals. It generated an increase of sales of the projects, the projects that were ready. The ones that most sold, I think Dzik has this position. The class of properties that increased more in sales. Dzik is here just complementing my suggestion.

[Marcelo Dzik, executive]

Yes, our sales were very strong. We even broke it down in our release by year of delivery. Most of what we sold was finished inventory. So it's a good moment in the market. São Paulo's market is showing to be very healthy in Brazil. Volume of launches decreased because of our perception of this slowing down in this approval process. Said in many questions about it. So the remaining inventory has been sold very well. And concerning our projects more specifically, we have been delivering good projects. We highlighted [ Clari ] in the beginning of the year, it had a relevant inventory, but we have already sold 100% of this inventory.

[Operator]

Our next question comes from Pedro Lobato from [indiscernible].

[Unknown Analyst]

I have 2 questions. The first one is I would like a few more details. What impacted your margins. We saw a good improvement in the last quarter. Now I would like to see why this negative impact in the second quarter? I would like a few more details, if some of this impacts is on the inventory in this margin.

And the second question is regarding your capital structure, you had some leverage of 40%. The impact of this reclassification, which is not -- which cannot be disregarded, but I would like to understand how you see your capital structure looking forward. If this policy of dividends will have an impact. So your strategy concerning purchasing of land in cash. How you see your capital structure looking forward will be?

[Marcelo Dzik, executive]

Dzik here. Talking about the margins, we have broken down our numbers, our REF margin, our inventory margins, what we have been designed in the previous quarters is a recovery of this margin. This has been happening quarter-over-quarter. In this quarter, specifically, we had some effects that went against this. Doesn't change our thesis. Doesn't change our strategy. Our inventory margins are still strong, but we sold a lot of inventory, finished inventory, our older inventory which had a little narrower margins, lower margins and the Faena had a high volume of swaps which has a lower margin than our average margin. So these two effects showing the margins besides the one we mentioned, this reclassification -- accounting reclassification which showed in the cost. It does not show in our adjusted margin.

But when you look at our gross margins, it represents a relevant effect, it represents 4 percentage points. So our thesis is still standing. We see an improvement of margins. It's been happening. But a mix of units, the Faena swaps in this accounting reclassification has had an impact.

The second part of your question. When we talk about leverage, with this adjustments, we reported a leverage of 40%. We may still have some kind of fluctuation within this year, which is a year we were predicting, a burning of cash, a high burn of cash. But we can see very clearly that the high volume of deliveries for future years, a cash generation that will be significant already contracted for 2025. So we may have some fluctuations now. But for 2025, this number will go down. Our strategy does not change. We remain buying.

Our land in cash. We reported 3 acquisitions this quarter. Obviously, it depends on the projects, the volume and the risk, we may see some leverage strategy that makes sense for the company. But our thesis here is very safe. 2024, which was planned with a little bit more burning of cash, but we'll reverse this in 2025.

[Operator]

Our next question is from Matheus Meloni from Santander.

[Matheus de Carvalho Meloni, analyst]

I have two. One is to understand how you see this issue of costs regarding materials, which is the point people are more concerned with the labor. And the second question is to understand your idea, your mind in relation to Melnick, what we can expect looking forward?

[Marcio Moraes, executive]

Thank you for your question. Marcio, here. I'm going to answer the first question. Concerning the cost of materials, raw materials, we see some detachment, a very small detachment, 1% or 2% in relation to the INCC index. I think it's a little bit because of the increase in the dollar in the exchange rate. But it's still within what we predicted, no strong reaction regarding labor. We had a concern about the scarcity of labor and now adding to that, we are already reupdating in our costs, the regeneration of labor beginning in 2025, 2026. Some new projects in our pipeline already have this regeneration costs. But we still have not seen this scarcity of labor. We hired labor 4 months before we began making construction work. The hiring for Faena, for other projects has already been done. At first, it's not an impending concern, but we'll be monitoring this date.

Now, Dzik will answer the second question.

[Marcelo Dzik, executive]

Dzik here. Melnick is a recurring issue. We have a partnership that began way back. It's a company that is operationally independent, it's been for some time. This time, the controlling block has changed. So the moments of opportunity, we have been selling our participation. There is no judgment of value concerning the company. It's more like an opportunity for the investor to decide what is the better allocation for the -- and this process of sales began 1 year ago. We have been decreasing our participation, 19% right now. We have already liberated 9.8 million shares that will be sold as the opportunity comes. So the strategy is to sell in time, but understanding that this asset has a relevant value. There is no judgment regarding the value or strategy of the company. We are hand in hand with Melnick. And we see value in it. It's going to take some time, maybe more or less depending on the circumstances for us to sell the rest of our equity on Melnick.

[Operator]

Our next question comes from Rafael from Safra.

[Rafael Rehder, analyst]

I have 2 questions. The first is concerning RFM if you want more land this year. I would like to understand, in the midterm what you think this might represent in your launches and understand your strategy of land acquisition. If you are going to purchase smaller lots that will be easier.

And the second question is concerning dividends. You paid BRL 100 million in dividends. Its significant, but I would like to understand how this new level of leverage. If you're not going to be generating cash and if this will maybe reflect on a smaller payout. What is your strategy, I would like to understand that.

[Marcio Moraes, executive]

Thank you for your question. Marcio, here. Concerning RFM, our idea is to maintain their launches, [ resched ]. We bought 2 lots in this first half year. It will probably launch these projects this year, and there are 2 more for next year. It will probably continue in this space. Today, it represents BRL 400 million of PSV Even's share per year. If we keep this level, it will be very good for Even, which we'll start to reap in these results on 2026. RFM, it works more in the high end neighborhood. It has a more restricted region of operation, which means it takes longer to close the deals for this land. Even buildings that you have to buy and demolish. But our RFM's strategy represents something like 25% of Even's launches in coming years. Dzik now will answer your other question.

[Marcelo Dzik, executive]

Talking about dividends, our intention is to pay out 50% of our profit that is to have a light company dividend payer. We have been having the results, a good payout, and we wanted to keep this way. Of course, we always have to see this vis-a-vis debts and in spite of this increase in the short-term leverage. We have BRL 600 million in cash and the reversal that has been very well thought for next year. So the idea is depending on results and our cash position, it is that the company continues paying out this 50% and occasionally additional dividends. It will depend on the sales of Melnick. This can contribute to a higher payout so we will always pay attention to our cash position, but the idea is to keep the company light and pay out dividends.

[Operator]

We have a question by [indiscernible]. He congratulates you on the results and the question is, can you comment on the expressive increase in the net revenue. They were much higher than the sales in the period and last 12 months of ROE for Melnick represented a good evolution. Is this a recurring result looking forward?

[Marcelo Dzik, executive]

Dzik here. We talked about this, about revenue. I'm going to repeat. We had a strong volume of sales. And we also had a significant launch that we consolidate. We have 50% participation on [ Faena ] and also this concept of swaps. So we had a high level of revenue in the quarter. When you look at the ROE, the highlight of the last 12 months for São Paulo's operations, excluding Melnick, yes, we have a consistent trajectory of growth. Our expectation is not just to maintain but to continue growing gradually I talked a little bit on margins. We had highlighted some gain in efficiency for the company. We see our G&A revenue, our selling expenses. So we see in the horizon, not just the maintenance, but a progression in these results from the operation -- for São Paulo operation.

[Operator]

[Operator Instructions] We would like to inform you that the Q&A session is now closed. We'd like now to give the floor back to Mr. Marcelo Dzik for his final remarks. Mr. Dzik, you may now proceed.

[Marcelo Dzik, executive]

I'd like to thank you again for your presence in our call. Thank you very much.

[Operator]

Even's earnings call concerning the results of the second quarter of 2024 is 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.]