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Good morning. Welcome to Even Construtora e Incorporadora teleconference concerning the results of the fourth quarter of 2020. Present today with us, Mr. Leandro Melnick and Mr. Carlos Wollenweber. Investor relations and CFO.
We would like to inform that this event is being recorded and all participants will only be listening to the teleconference during the company's presentation.
Immediately after that, we'll begin with the questions-and-answer session for analysts and investors only and further instructions will be provided. [Operator Instructions]
This event is also being broadcast simultaneously over the Internet via webcast and may be accessed at the website, www.even.com.br/ri. The replay of the event will be available as soon as it ends.
Before we proceed, we would like to clarify that any statements that might be made during this teleconference regarding business perspectives of the company, as well as its operating, financial projections and goals are based on the beliefs and assumptions held by Even's Board and top management and on the information currently available to the company considerations about the future are not guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events that depend on circumstances that may or may not happen.
Investors should understand the 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. The presentation slides are available for download on the Internet at the following address, www.even.com.br/ri. I would now like to give the floor to Mr. Carlos Wollenweber, the even CFO. Mr. Wollenweber, you may proceed.
Good morning, everyone. It's a pleasure to bring you Even's operating results in -- when we delivered excellent results in the fourth quarter. I'd like first to go over the highlights of the quarter.
Despite the difficult moment Brazil is going through due to the pandemic and the consequent social restrictions, we were able to sell in the fourth quarter, BRL 639 million even share, which represents an increase of 7% in relation to the fourth quarter of 2019, a pre-COVID scenario.
Our net results before real generates business unit being discontinued. As seen in the upper right-hand side of the slide, was BRL 84 million in the quarter and BRL 214 million in the year, representing a 13% return on equity.
Our cash position is very solid at BRL 1.3 billion. As a consequential generation of operating cash of BRL 775 million in the year, being BRL 447 million in this quarter alone. This comes mainly from significant reduction in the volume of finished units inventory, BRL 365 million in the fourth quarter of 2020.
And only 21% of total inventory, as can be seen in the graph on the bottom right-hand side of this slide. Consequently, Even has now a net cash on equity ratio of 34%. It is important to highlight that Gafisa properties payment of BRL 248 million for the balance of the purchase of Fasano hotel took place in January this year, and therefore, these cash amounts not accounted for in the results of the fourth quarter.
Moving on to Slide 3. We sold our inventory of finish usinage to a real estate fund, the RCR 11, as I stated, and the material fact issued on December 21. The sold inventory consisted of 3 residential projects, 2 of which are in Recreio neighborhood and 1 in Botafogo and 4 commercial projects in downtown Rio de Janeiro. The residential projects represented 73% of total sold PSV and the commercial projects, 27%.
This sale was very important to Even because it accelerated Even's plans for reducing cash and discontinuing rediger business unit and reduce the risk in the face of market still in crisis.
It represented an accounting write-off of BRL 116 million and an inflow of cash through sales of $238 million. Given that we discontinued our operations in Rio de Janeiro, we are willing to sell the 2 remaining lots that even has in the state, both located in Recreio neighborhood. Considering our previous expectation regarding the 2 lots was to pursue their development, which consider of the second phases of the 2 projects, RG and loar, both 100% sold. We made a conservative decision of revising the book value of these lots for a possible sale.
Therefore, in this quarter, we recognized approximately BRL 50 million regarding these assets as impairment. In the next slide, #5, we show your net accounting and pro forma results adjusted by the impact of discontinuation of Rio de Janeiro's operations in the fourth quarter and also in the consolidated results. In the fourth quarter, the sale of SPEs, together with impairment of the loss and the negative impact of Rio de Janeiro's operations represent a loss of $173 million.
If we adjust our profits for the nonrecurring effect of Rio de Janeiro, we delivered a net profit of BRL 84 million in the quarter, the best result in the year, which represents an annualized return on equity of 25%. Performing the same adjustments for the consolidated year, our recurring net income would have been BRL 214 million, which represents a 14% ROE.
It is important to mention the second quarter of last year was highly impacted by the onset of COVID pandemic. On the next slide, we show you our launches, representing BRL 482 million even share and BRL 1.4 billion in the year. It is worth noting that a decrease of 30% in volume in relation to 2019 is due to the resumption of launches in Sao Paulo in the second quarter of the year, as a consequence of the COVID pandemic.
Our operating capacity is without a doubt, in line with the volumes we carried out in 2019 of our launches in 2020, 77% were in the middle and upper income segments, as represented in the pie chart.
About the deliveries forecast for 2021, 84% was already sold by December 2020. And so we'll deliver our projects for this year, virtually 100% sold. This is seen in the graph on the bottom right-hand side of the slide. This will keep our inventory of finished units at a reduced level.
On Slide 7, we show you the gains in price, which were above the INCC inflation index for the launches of 2020. Our investment committees for the purchasing of land demand a minimum Rio Tir of 25% and a VPL margin of 18%, considering a cost of capital of 10% a year.
By comparing the selling price as estimated by the investment committees and adjusted by the in site in the period, to the average selling price achieved in every project, we are able to demonstrate that we are reaching real gains in the effective price of our projects.
Some of them are especially noteworthy, such as the sunset project in Rio Grande do Sul, showing 5.4% in generic price and 80% sold. Carreteras in Sao Paulo, 6.4% pricing gain and 50% sold. Carlos Gomes Square in Porto Alegre, with 3% price gain, 48% sold, plateau in Balkan, Sao Paulo, with a 6.5% pricing gain, practically 50% sold.
On the next slide, we'll show your net sales, which totaled BRL 639 million in the fourth quarter, BRL 1.7 billion in the year. And keep in mind that in the fourth quarter, we sold our inventory in Rio Janeiro for $238 million.
So the SOS of inventory sales was 27% in the quarter and average SOS was 24%. As a result of our strategy of pricing gains, SOS of launches was capped on an average of 35% in the last 2 quarters. Regarding net sales in the year, Sao Paulo represented 63%, Porto Alegre 19% and Rio de Janeiro, 18%, as you can see in the pie chart.
I want to call your attention to the fact our volume of cancellations kept decreasing represented only 8% of gross sales in the quarter, as demonstrated by the graph on the bottom right-hand side of this slide.
On Slide 9, we break down our inventory, which is at BRL 1.7 billion in total. And I'd like to point out that considering the average speed of sales in the last 12 months, we have less than one year's worth of inventory for sale in our balance. And in this inventory, the portion that represents the completed units at one point, representing 45% of total inventory represents only 21% nowadays, a lot that's much more in line with our operations.
In the next slide, you can see our land bank even share, which is at BRL 6 billion. Our lots are located in prime neighborhoods of SĂŁo Paulo and Porto Alegre. As reported in a material effect of January 13, we concluded the sale of the Fasano hotel and 32 studios from the residential tower to Gafisa properties for BRL 310 million, as presented in slide last. BRL 62 million of the total amount was paid in the fourth quarter and BRL 248 million in January 2021.
Therefore, there will be an important cash generation in the first quarter of this year. We are very pleased with this deal, which evidence Even's operating competence to develop projects that are really fantastic. On Slide 12, we show you the quarter's operating cash generation.
In the fourth quarter, we generated impressive BRL 447 million, where BRL 62 million corresponds to 20% paid upfront in the Fasano deal. And BRL 228 million come from the sale of inventory in Rio de Janeiro.
Excluding these 2 factors, we generated BRL 147 million in positive cash, in line with the second and third quarters of 2020. We closed the quarter with a cash position of BRL 1.3 billion and net cash of BRL 836 million, representing approximately 34% of shareholders' equity. In the next slide, we present our economic results.
We delivered BRL 445 million of net income in the fourth quarter, BRL 1.7 billion in the year. The 13% decrease in relation to 2019 is due mainly to the postponement of launches in the first half of 2020 because of the COVID pandemic. And the work stoppage on Melnick's construction sites. However, with the 120 basis point gain in gross margin, our gross profit was slightly higher than the one in 2019.
As we have already mentioned, net income in 2020, adjusted by the discontinuation of Rio de Janeiro's operations totaled BRL 214 million, which represents a pro forma return of 13%.
Finally, on Slide 14, we point out that even as a result of its strategic planning implemented since 2016, closed the fiscal year of 2020 with an extremely robust capital structure, with 34% of net cash on equity.
We are delivering a recurring ROE of 13% a year. It is important to say that this return between even Sao Paulo and Melnick without Melnick's participation in the results and without the impact of discontinuation of Rio Janeiro operations, Even delivered an ROE of 16%. Melnick over the last 10 years has delivered an ROE of 20% a year.
After the IPO, it will need to wait a few quarters until the investor resource of the offering generate the expected result before it gets back to its history of high profitability. That being said, it's reasonable to expect a consistent growth of our consolidated profitability. We are focused on SĂŁo Paulo City through our Even brand and on Rio Grande do Sul through our Melnick brand. These are regions whose markets we know in-depth and where we expect to deliver consistent returns to our shareholders. I now give the floor to Leandro, Even's CEO.
Good morning. This income statement has a very special meaning. I call the first cycle of strategic planning of the company. After the -- when we took over in 2015, and I took over the chairmanship of the Board. And we implemented a new strategic plan for the company, planning from 2016 to 2020, this 5 years, we have made important changes in the company with a firm goal of advancing the company.
Our main guide was the ROE and the profitability. And we worked very hard to be the most profitable company in this segment. We have been working on several fronts. I would like to point out some of the evolutions in our operation in Sao Paulo between 2016 and 2020.
In terms of division with the G&A to equity of 14% in 2016 to down to 4.7% now. We solved our problems, our residential inventory. And to the end of 2020 was BRL 365 million, the lowest inventory of completed residential units.
This year alone, we have transferred we move from BRL 800 million to BRL 365 million of inventory of residential units. BRL 3.7 billion in 20 projects. These projects had a gain in price above INCC of 5.2%.
And also in relation to our feasibility, our forecast, we had an increase of 20% in speed of sales. In the last 20 years, we purchased 28 lots. We generated cash, BRL 1.7 billion excluding the Melnick's IPO, our cash generation at BRL 1.3 billion. It's very comfortable. We are going to -- we eliminated the company's leverage. In -- 2020 is still within the strategic plan.
We conducted Melnick's IPO and the result in cash generation that was very positive and meaningful. We ended this cycle of the company, consolidating a business model in which we believe concentrating operations where we have a proven competence. Today, Even consent its operations in Sao Paulo and Melnick in Port Oleg, who is also a market leader.
So we operate where we know where -- how to work and decrease the risks that harmed our segment in past years. Including this planning from 2016 to 2020 coincided with the longest financial crisis of the company, which combined with the COVID pandemic affect the comp. And we are beginning our second strategic planning, 2021 to 2025 at a very positive situation.
The company is [ clinging ] our shareholders in the long run. Our land bank is qualified. Our inventory is very low. We have very good margins in our projects and a business model that we are very pleased about. I understand that after this adjustment cycle, where the operating results has been happening. We are going to have good returns moving forward.
We are highly motivated and with great expectations for the next 5 years. I would now like to move on to questions and answers.
[Operator Instructions] Our first question is from [indiscernible].
I have 2 questions. At the first one regarding deleveraging of the company. In the fourth quarter, you were here very well-developed changes in cash for. And the strong cash generation, as Carlos commented, the sale of Fasano. For the first question is how do you think about using this strong cash generation? So you're going to distribute or reinvest in purchasing more land?
My second question is about the size of the company and its capital structure. People commented that the volume of launches for 2021 should be equal or higher than to 2020. So Melnick has a planning for growth in the next 5 years. So I'd like to understand how even is going to on the size of the equity you should be carrying to support this operation.
Thank you for your question. The company is at this moment with a consistent cash generation, as you said, a very positive result. And we have built a business model with the goal of being able to generate cash in a very consistent way, meaning the capital structure we created for the company, and this is a condition. That's very significant. For the generation of ROE, profitability in a way of having the best, the highest standards in the area in the segment.
So we are simply anything always analyzing the best way of composing our capital structure, but we still do not have any definitions regarding your question objectively, how we are going to get us to manage this to stock leasing. Regarding PSB, we also -- we have never had the guidance of volume. Our guidelines is profitability, not volume.
In our vision, the highest volume possible without harming the pursuit of profitability. This is our main goal.
So we analyze market conditions, the condition of our land bank and we have been having a continued result, positive result on sales. We have been facing a crisis and we are in a way, very optimistic with the way the market has been absorbed in our products, but we do not have a guideline regarding volume of loans.
We have a very well-structured land bank that will provide us the opportunity to take advantage of the good market opportunities as they come up.
Our next question [indiscernible], Itau BBA.
I have 2 questions here. The first, regarding the margin that was really strong in this quarter in operating, but also the sales of Rio de Janeiro. But what levels do you see the margin -- the recurring margins for the coming quarters? And the second question regarding the pipeline of launches.
If you see with these more restrictive lockdown measures, if you see any changes in your pipeline?
So let's go, and thank you for your question. It's Carlos here. Regarding margin, we had an important effect in the fourth quarter. We reclassified the Rio de Janeiro and discontinued operation. So the gross loss that Rio de Janeiro gave us, it was reclassified this gross results and accounted for as a discontinued operation. That's why the margin went up to 36% in the fourth quarter.
If we adjusted this quarter, it was a 32% -- 32.7% margin, which is an excellent month. It's an improvement of 200 basis points if we compare with the previous quarter because now we do not have Rio de Janeiro contaminating the results and bringing into the numbers, a recurring loss. And we have a volume of completed inventory that has a lower margin that's much more adjusted to our operations.
So now the biggest part of our results in income and profit that we have comes from new projects and projects recently launched, which makes our margin being much healthier. We are -- we have been delivering close to a margin that we intend, which is more in line with the recurring margin. 32.7% was a margin that's much more adjusted to the new moment of the company. Without projects that carried over lower margins, contaminating our results.
Talking about the volume of launches and complementing the Andre's answer. Today, we have a land bank that's highly structured. We have been purchasing almost BRL 2 billion of landing in SĂŁo Paulo. In the project pipeline for this year is well thought out. And it's in a highly advanced process of approvals with a capacity to sell to launch in line with what we did in 2019 than with what we did in 2020, which happened in Sau Paulo. We went 6 months without launching in SĂŁo Paulo last year.
It's important to understand when this new wave of COVID will cause its high-impact until now. We have been performing well, both in terms of launches as well as in sales. In January -- in the month of January, we launched 2 projects in SĂŁo Paulo, one in Italy and one in Ipiranga that had very good speed of sales.
We have been able a speed of -- to have a speed of sales, slightly above our expectations. But in the last week, since we had to actually close, all our sales stance, the volume of sales has suffered a lot in this last week.
We do not have a clear visibility for launches this year. If Leandro will comment, if this is a wave that is quick, we are well positioned to launch. But actually, we need a better visibility to decide and complementing the question. Well, it's my personal opinion. I understand we are going to have a window of restrictions in relation, a shorter restriction than what happened in previous periods in other places. So within this scenario, we all Brazil root for this to happen a shorter wave of restrictions.
We hope this does not impact the number of launches that we have planned for this year. So right now, we are not in conditions. The last launches have been well absorbed by the market. And I hope this will not impact within the year, our planned volume of launches.
Our next question Alonso from Citi Bank.
Firstly, thank you for the results for how the company is moving along. I'd like to ask about the land bank. From since 2019, even has been growing its land bank, especially in the high-end market. So we're going to focus on the high end in SĂŁo Paulo. And how is this going to work during the pandemic? This high end, these high-end launches, which demand a great sales force, a great sales stand how does it work in the context of pandemic? And what about other projects that you now have in Ireland Bank that are very similar to the Fasano project?
And if we can see in the cash access, some dividend distribution now in this year?
I don't know if I could understand all the questions. The audio was not good, but let me see if I can answer. So first, regarding the land bank -- the high and land bank. We focus -- our focus in the company that was very clear since 2016 to act where Even has its best competence. So we have concentrated in SĂŁo Paulo in the regions of higher income margin.
And we have become company with a focus of developing projects that are unique that first give us a higher margin, and that brings with it an added value in relation to the competition. So we have been able with these examples, which on our last launches.
We have a strong focus on this strategy, and we have been able to perform very well. Within this strategy, there are some bigger lots in our land bank that we really can deliver, both in the common areas of the project and the individuals areas of the project, quality of this project that's better than the competition. And several of our launches have had this characteristic.
And this is being recognized by the market in terms of price. And this can be seen in the game of prices we have been able to have. Fasano is a reference, but it's not -- in answer, it's not our only project where this happens. If you can see our launches in past years. So we tend to continue reading the market in the same way.
The medium, upper medium and high-end markets, is a segment where we are very good at. And we have built a land bank of all segments, but with a bigger focus on lithium offer and high-end market because this is land we were able to purchase in moments of -- that offer the better opportunities. And we believe -- I believe we will be able in the next 5 years to continue having this increase in margin in relation to the market.
In relation to this project you mentioned, we do not plan on not even internally any clear guidance on how to do these launches. This is a project that we believe in that it can bring a very good performance, and it's being developed at a good pace. But I cannot give you a more specific and more objective information carding today.
Could you just please repeat the second part of the question.
If you in these high-end projects will be impacted by the lockdowns due the COVID, because, in my opinion, they demand a better sales stance, more, a bigger and more qualified sales force. So if this is going to be somehow harmed by the COVID. And if there is any perspective of distributing dividends, considering the company now is deleveraging.
No, no. I do not believe there will be an impact because of COVID. I think the other way around, I think we have been able to have a project in bigger lots and our core working this -- the kind of product we have is actually benefiting from the lockdowns in the COVID and offer of solutions within the site itself, the website itself, the great entertainment areas in our projects. So this is a differentiating factor.
We have heard that some important residential project outside of the scene. But the true phase, most of the population live inside the metropolitan region of SĂŁo Paulo, and this is very aligned with what we think.
I will -- I don't believe we'll have impact because of the COVID. We have -- our speed of sales has been showing great positive results. And we have had these restrictions that we are monitoring, but my expectation is that we are able to keep the consolidation of the year for the projects according to our plans. In relation to your question, well, dividends, I'll ask Carlos to answer.
This is Carlos. Our capital structure. Now is really comfortable. No questions. We have a very conservative view regarding keeping the company, a very solid company to go through any moment of crisis. Our general meeting is scheduled for the 28th of April. So until the 28th of March, we are going to release the summon for this general meeting.
And there, we will show our proposal for dividends distribution. So until then, I cannot give you any objective numbers.
[Operator Instructions] Our next questions comes from to Marcelo Motta, JPMorgan.
So if the question has been answered, please feel free to tell me, but I'd like you to comment on the costs regarding the margins. You mentioned the projects are gaining prices. You are optimistic about the scenario. But I would like to understand this adjusted margin of if you exclude the effect of Rio de Janeiro, if you think there is any risk due to construction costs or supply chain problems. If you if you see any problem with the margins?
Motta, Carlos here. So we have been able to put out a margin income much better adjusted to what we consider healthy. When we look forward, that's why during the presentation, we brought some examples. We have been able to transfer our square meter, the press of our square meters sold that is above the INCC inflation index. In practice on the construction side, we have the increase in cost is coming a little bit above INCC 2. So we do not promise a grow fee margin, but we have a good safety margin that we were able to recompose margin as a function of these gains in prices that we have been having on the products we sell.
So we believe we believe the margin will remain stable. We do not see in principle any reduction of margins in our results.
Just a comment, I think it's interesting. One more piece of information. With the tools that we have developed in the past few years, all the studies that we did the last decade, we learned from them. We learned how to understand the appropriate moment to launch, to see that this increase in costing consequently transferation price. And because of this -- because we have this capacity, we can do this more precisely than in the past.
The result is that sales continue at a good volume. We have been able to transfer the cost to the price of sales and our portfolio of receivables is still healthy. It is still positive. So this makes me feel very safe that this margin will not decrease a retention.
Next question [indiscernible]
If this excess of cash, if this can change your company's strategy, of buying land through swaps.
Thank you for your question. No. It will not change our strategy. In our company, we have developed a strategy and your question helps me to answer that. It's a strategy. It's not a question of opportunity of moment circumstances? No, we believe very much this view of protecting our ROE of being a company that has a healthy management where we can put the land -- the projects in the market at the right moment.
The moment our products will be well received with -- so we do believe that this structure is a very healthy structure in our segment in a country like Brazil, in -- and this guarantees the generation of good profitability, a high ROE.
And on the other hand, we have the volume that the company has and we believe we are in condition to generate projects that will give us a great return, but that will not incur any mistakes.
Sometimes that the pressure on launches can lead. So to wrap up the answer, we do not intend to change our -- the company's strategy, of course, a bigger cash.
We have -- we are always doing -- performing some adjustments. But we will not perform any -- do any change -- make any changes because this is a strategy for the long term.
[Operator Instructions] There are no more questions. So we now close the questions and answers. I would now like to give the floor to Mr. Carlos will ever for his final remarks. You may proceed.
Thank you for the participation. In our earnings call. I would like to say, as we try to transmit here, we are very pleased with the company's results and very excited about 2021. Thank you.
[Operator Instructions] Even's earnings call is now concluded. Thank you for your participation. Have a good day.
[Statements in English on this transcript were
spoken by an interpreter present on the live call.]