Even Construtora e Incorporadora SA

BOVESPA:EVEN3

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, and thank you for holding. Welcome to Even's earnings call concerning the results of the third quarter of 2022. Present with us today is Leandro Melnick, Daniel Matone, and Tiago Krall. I would like to inform you that this event is being recorded with simultaneous translation into English. [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 conditions, industry conditions and other operating factors may affect Even's future outcomes for the company and may lead to results that materially differ from those expressed in these future considerations.

I would like to give the floor to Mr. Daniel Matone, Even's CFO and Investor Relations Director. Please, Mr. Matone, you may proceed.

[Daniel Matone, executive]

Good morning, everyone I'm pleased to be here to present Even's earnings for the third quarter of 2022. Let's begin with the highlights in Slide 4.

In the graph in the upper left corner of the slide, we highlight Even's net sales in the quarter, which were BRL 342 million Even share and represents a 24% rise when compared with the same period of last year. Our net revenue amounted to BRL 689 million and represents a 31% increase in relation to the third quarter of last year mainly due to the good performance of inventory sales. In the quarter, we delivered a net income of BRL 31 million and even remains very well capitalized with a solid cash position of BRL 741 million in net cash to equity of 10%.

Moving on to launches in Slide 5. We launched in the quarter 3 projects, 1 in Sao Paulo, 2 in Rio Grande do Sul, amounting to BRL 264 million, of which Even share is BRL 161 million. In the year, we have accumulated BRL 1.6 billion of PSV, BRL 1 billion of which is Even share. And concerning the first 9 months of the year, 64% of the projects are in the upper middle and upper income segment, 17% are in the residential affordable segment, 14% in compact and 5% in the Track Development segment. Information can be seen in the pie chart at the bottom of this slide. In the next slide, we introduced EPIC, a project that was launched in Sao Paulo in the compact segment which is already 74% sold according to information as recent as October this year.

In Slide 7, we present our sales performance. Launch SOS in the quarter was 49% as can be seen in the graph on the left side of the slide, this is a very high figure, which demonstrates our assertiveness and successful choice of strategy for the launch of our products. We also draw your attention to our net sales of inventory, which amounted to BRL 736 million in the first 9 months of the year, 26% higher than the same period of last year.

Concerning cancellations, as you can see in the graph on the right side of the slide, we ended the quarter with BRL 74 million, which is on par with the figures of previous quarters. It's worth noting we have one of the lowest levels of default in our customer portfolio, which is a healthy and high-quality portfolio. In the next slide, we present our deliveries.

In this quarter, we delivered 5 projects [indiscernible] Golf Villa Mariana in Sao Paulo, a total PSV of BRL 489 million, one project in [indiscernible] with a PSV of BRL 59 million considering Even's share. You can see the photos of these projects in this slide.

In Slide 9 we break down our inventory. We have a total inventory of BRL 2.6 billion only 14% of it refers to completed projects. When we disregard Melnick, Sao Paulo's inventory is BRL 2.1 billion, only BRL 250 million corresponding to completed units. And the latter of the latter, BRL 91 million corresponds to [indiscernible] hotel. Out of the inventory of units under construction, 92% will be delivered from 2024 onwards, giving us more than enough time to reach the best prices per square meter for our product. Our deliveries in 2022, 89% is already sold, as you can see in the bar graph in the bottom right corner of this slide.

Now looking at our land bank in Slide 10, Even share is BRL 6.7 billion, consisting of 58 plots of lands located mainly in prime neighborhoods in the series of Sao Paulo and were granted us in the series of in Sao Paulo this quarter, we purchased 2 plots with a PSV of BRL 1.2 billion living share, also located in the best regions of Sao Paulo, strengthening even the strategy of operating within our area of expertise. In Slide 11, we present our capital structure and we ended the quarter with a gross debt of only BRL 473 million cash position of BRL 741 million, which means a net cash of BRL 261 million or 10% of our consolidated equity, which you can see in the chart on the left side of the slide.

In the third quarter, we consumed BRL 147 million of operating cash. Most of it is a consequential payment cash for the new plots of land we have acquired also the BRL 7 million paid in dividends by Melnick, which impacts the consolidated cash. So in Slide 12, we present our results. The graph in the upper left corner of the slide, we show our net revenue in the quarter amounting to BRL 689 million. We delivered gross profit of BRL 156 million in the net income shown in the graph at the bottom of the slide at BRL 31 million in the quarter, representing a net margin of 7.7%.

So after having presented the main figures for the quarter I now give the floor to Leandro Melnick, Even's CEO. Thank you.

[Leandro Melnick, executive]

Good morning. We are going through a moment of great instability and volatility both in Brazil and in the rest of the world. Even as management has always been very attentive to this scenario and have always been conservative, and we chose this year to privilege to favor our cash and the performance of each project launched instead of expanding the volume of our operations. Our cash position is very solid and the company's deleverage with a net cash to equity of 10%.

In the first 3 quarters of the year, we launched at BRL 1 billion Even share. We focused our efforts in selling inventories, where we increased, and that's important. We increased 26% the volume of sales of inventory in relation to the same period of last year. In this quarter, we launched at BRL 116 million with the SOS that was very strong. We had an SOS of 49%, which represents 58% increase in relation to the previous quarter. So at every launch, we have been able to follow the performance and launch projects that the market is absorbing well.

In our deliveries, we did in this quarter we made 4 projects. We delivered 4 projects in this quarter BRL 409 million of PSV and 2 operating points here that are very relevant. The cost of construction and the percentage of sales. These projects, on average, had a slight savings in relation to the budget of the beginning of the project of 0.4%, which demonstrates the quality of our engineering team which managed to overcome all this period of the inflation index on the construction. And as we said in the last quarters, we have been able to deliver projects within budget. And the projects have been launched 90% sold, which is the effort we are making in focusing our sales structure, both into our launches as well as in our inventory, delivering projects that are well sold.

And in spite of the stable moment, I understand that next year, we have a more stable situation in Brazil and in the world next year. So we reinforced our land bank by 22% in this quarter with BRL 1.2 billion of land purchased that are highly qualified in our land bank is at BRL 6.7 billion. And we kept our strategic discipline, meaning having a solid company, lean operation with a great land bank, which leaves us on one hand confident to face the uncertainties and volatility of the economy and also ready with the cash position land bank to grow in the market under perfect conditions.

Thank you. We are now open to questions.

[Operator]

[Operator Instructions] Let's now proceed to our first question, comes from Antonio Castrucci, sell-side analyst from Santander.

[Antonio Castrucci, analyst]

I'd like to understand the pressure on the margins this quarter. What were the main effects if we had some effect due to mix of sales because of the cost and understanding your prospects looking forward, what do you expect will happen with these margins if they will be closer to that level of 30%.

[Leandro Melnick, executive]

Well, Antonio Leandro here. Thank you for your question. Margin has suffered this reduction. It has nothing to do with cost. Our performance was really good in this regard. Our projects were delivered in this quarter with actually a slight savings in relation to the budget in the beginning of the construction process. We went through this process of pressure on the costs, but we did have regarding the margins, is something related to the mix of products. We had a concentration in this quarter.

As I said, on the sales of inventory, we know that the completed units inventory for these projects still show a lower margin and we also had some kind of projects that we understand we should have a higher speed of sales due to their characteristics. And when pursuing this sales speed, we also speed of sales, we also had a decrease in margin. And we haven't been able, as a whole market in Brazil we haven't been able to transfer this increase in costs to the sales price. So we had these points as the main points of pressure in our margin.

I understand that starting next year, of course, is still depending on the macroeconomic of the country, how the external factors will behave, but our expectation is one of the costs being normalized. We have seen this happening in previous months. and other indicators like IPCA, we see that as this goes down, we're going to start recovering our margins, which is we understand that's more appropriate. So in this past few quarters, and in this quarter, we have been trying to achieve a balance between speed of sales to maintain our inventory low, but this had an impact on a lower margin. And next year, we'll be able to recover this margin.

[Operator]

Our next question comes from Pedro Lobato sell-side analyst from Bradesco BBI.

[Pedro Lobato Garcia Fernandes, analyst]

I would like to understand something that you commented regarding your default that your default is at a very low level but we have seen in this quarter that level of provisioning for cancellations, very high much higher than what has been the reality in previous quarters. I would like to understand the rationale behind this in provisioning some clarification about that.

[Leandro Melnick, executive]

Pedro, thank you for your question. Just highlight yes. Our portfolio has historic low levels. It's a very healthy level of default. We had a slight increase in the number of cancellations, but nothing relevant. If you see the history, if you look in relative terms, it is stable, we did have an increase, but nothing relevant. We are still controlling every project with the magnifying lens following this process of cancellation and we haven't seen anything that can negatively impact all these levels. So yes, we have seen a percentage that is slightly higher in the affordable segment but it's not relevant to the whole percentage of the portfolio.

So this first question in relation to cancellations and default but regarding provisioning, yes, we increased the provision but it's somehow occasional questions that has nothing to do with the general level of cancellations. These have been specific questions regarding technical assistance maintenance some legal settlements, some process that are at the end of the warrant, there's always a moment when we have to deal with this. But our understanding is that this was not relevant, and the trend of this provisioning for the next quarters is to stabilize in the same levels as previous quarters. I don't know if I answered your question.

[Operator]

Our next question comes from Hugo Grassi sell-side analyst from Citibank.

[Unknown]

First, congratulations on your results. My question is about land, the market of land. You purchased 2 huge pots of land in prime neighborhoods in Sao Paulo. I would like you to talk about the adequacy of this land bank to the new site. We have seen a rotation a turnover in this land bank. Something that sustained is the effect of this accumulated inflation... So besides the profile of your land bank, I would like to learn about how you look at new purchases you see that to buy how you see the pricing conditions for these new purchases.

[Leandro Melnick, executive]

Hello Hugo. These dynamics of purchasing land is super important for the everyday of our company and this is our basic material. So our operation is very clear. We focus on few neighborhoods in Sao Paulo, middle and upper middle miners. So this is the criteria we're looking for, large areas of plots, and we keep this profile of trying to develop highly depreciated projects, internally, we call this project a fantastic project. Projects that have high added value in very prime neighborhoods of the city as you can see this desire of consumption. So these 2 plots have these characteristics.

They have huge areas. They are comprised by several smaller loss that will enable the launch of highly differentiated projects because we see this vision of stability of our country, we have been purchasing land that have this profile, which is projects that differentiate themselves from the competition due to their location and their sites. So these are products that will offer great infrastructure. We are not going to go into detail for each plot, but these are plots with this characteristic. So our land bank does not consist of small plots or in peripheral neighborhood we focus on prime neighborhood. So the dynamic of purchase in these new areas in our case is not only related to the moment the current moment of the market, we read this in a deeper way regarding the cost of opportunity for a good purchase.

And these are negotiations that sometimes demand months, sometimes even years. So we are always on the lookout for good opportunities to purchase land when they present good opportunity and we have been showing the companies that have a more comfortable cash position. Some very good opportunity in these last months of the year.

[Operator]

[Operator Instructions] At this moment, we closed the questions-and-answer session. I would like now to give the floor to Mr. Leandro Melnick for his final remarks.

[Leandro Melnick, executive]

So as I'd like to say again that the company's strategy is one of focusing on this operating solidity in this year of volatility and building a land bank that's highly qualified, preparing us was more stable moments that we understand will happen starting next year. And with this, we conclude our call. I thank you all and wish you a good afternoon.

[Operator]

Even's webinar is now concluded. We thank you for your participation. Wish you a good afternoon.

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