Melnick Desenvolvimento Imobiliario SA

BOVESPA:MELK3

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and thank you for holding. Welcome to Melnick'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 would like to inform you that this event is being recorded and will be made available on the company's website, ri.melnick.com.br, 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 Melnick'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 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 Melnick'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. Leandro Meinick, CEO; Mr. Juliano Meinick, CFO and Investor Relations Director; and Mr. Joelson Boeira, Administrative and Investor Relations Director. I will now give the floor to Mr. Juliano Meinick.

[Juliano Meinick, executive]

Good morning. It's a pleasure to have you here for Melnick's earnings call concerning the second quarter of 2024. As you already know, due to the floods that hit our state in last May, we had a very atypical quarter, which severely impacted the results of our operations.

In the first moment, we focused all our efforts on humanitarian aid, especially in rescue operations and in opening with partners 2 shelters for people displaced by the floods. Later, we guided our efforts towards a cleaning campaign and resumed our operations by reopening our sales stands and construction sites. We also provided assistance to dozens of employees that were affected by the floods, and many of them actually volunteered to participate in our aid efforts.

I would like to use the opportunity to express my gratitude for the donors, partners and employees who joined us in this very difficult moment of our state. As we will see further ahead in our presentation, and with some data acquired after the closing of the quarter, our construction work is at full steam and very close to 100% of our capacity. We are back to launching again and with good commercial performance, which makes us more optimistic to face the second half of the year.

In Slide 3, we point out that according to best practices of governance and transparency, we tried to impact in this quarter all the direct and indirect effects that we could map out resulting from the floods of May, such as direct and indirect costs on the construction work. We had 3 projects directly affected with potential delay in the deliveries, resulting in increase of costs related to these delays and also write-off of land bank that were impacted and will no longer be developed.

Let us now move on to Slide 4 with the highlights of the quarter. Sales for the second quarter of 2024 were affected by the floods, considering the number of days in which the sales stands were closed. And afterwards, the focus of the city on reestablishing normalcy. In the graph on the top left corner, we can see this BRL 61 million from net sales, all of which from remaining inventory once the company did not launch any new projects in the quarter. It's worth noting that even with the negative impacts of the floods, Melnick's net sales in the first half year reached BRL 433 million, a 4% increase when compared to the same period of last year.

In the box next to it, I'd like to point out the inventory of the projects to be delivered this year corresponds to only 90% because they are, on average, 91% sold. And we still have 6 months left to improve this performance. As we have already mentioned in these previous quarters, we have been able to deliver our projects almost completely sold. In the box on the top right-hand corner of this slide, you can see there were no launches in the quarter due to the floods. However, at the conclusion of the first half year, we have had an increase of 43% of launches when compared to the first half of last year, already reaching BRL 617 million of net launches.

The box on the bottom left-hand corner of this slide shows our operating cash in the quarter, the amount of BRL 60 million and BRL 112 million in the first half, 307% higher than the BRL 28 million in the same period of last year. In the next box, we can see the company's financial robustness with a cash position of BRL 506 million and BRL 185 million of net cash. In the last box, we highlight the BRL 41 million paid out in dividends in the second quarter, keeping up the company's policy of being a recurring payer of dividends.

Moving on to the next slides, where we will exceptionally show you some subsequent data after the closing of the quarter, but that brings relevant information for the moment the company is going through after the floods. In July, we already launched 3 new projects with a PSV of BRL 189 million, Melnick's share, which, on average, reached an SOS above 40%, proving that even in July, which is seasonally slower to the school vacation, the market's absorption was very good. With these launches, we have already reached more than BRL 800 million in launching PSV this year, Melnick's share, which is more than the PSV launched in last year.

In addition, in July, we passed BRL 100 million in sales, Melnick's share, as a result of the good performance of our launches and also the sales of finished units and remaining inventory. Lastly, our construction work is at a pace that's very close to the one before the floods and very close to our normal levels.

The next slide, #6, we show you the 3 launches in July, highlighting the great performance of GO Moinhos, with most of its units already sold, and the opening of third phase of Grand Park Moinhos, which besides the sales of the third tower, boosted sales of more than 10 units of previous phases. It demonstrates the success of this project in Canoas.

Now we move on to Slide 7, where we break down the launches of the company. We can see, as mentioned in the highlights, that there were no launches in this quarter. And the total launches in the first half amounted to BRL 617 million, Melnick's share. Note that our participation in the total launched PSV reached 91% of the BRL 634 million of gross launched PSV, demonstrating we always try to maintain a relevant participation in gross PSV launched by the company. The graph on the right-hand side shows the increase of 43% in launched PSV, Melnick's share, compared with the first half of previous year, growing from BRL 432 million to BRL 617 million.

In Slide 8, we see the company's net sales. The graph on the left-hand side, we can see the average SOS was 5%. Since there were no launches in the period, SOS of remaining inventory is the same 5% of total SOS. You can see in the graph that sales in the second quarter amounted to BRL 61 million, which were impacted by the lack of launches and the closing of sales stands due to the floods.

I want to point out that from the second quarter of 2023, the company had been on a ascending sales trajectory, which was interrupted by the climate catastrophe. With the good performance of July sales, we hope to recover the good levels of sales pre-flood. The pie chart on the top right-hand corner of this slide shows a breakdown of sales by business unit. As you can see, virtually all the sales came from our developer unit.

Finally, the bar graph on the bottom right-hand corner. When you look at the projects that will be delivered this year, 91% of units have already been sold, and we still have the remainder of the year to sell the 9% left. Equally important is that deliveries of 2025 are also selling very well with only 17% of inventory left.

In the next Slide #9, we present the company's new distribution of deliveries whose deadlines were impacted, as we mentioned in the highlights, from 1 to 6 months depending on the project because of the floods. Considering that before the floods, there would have been a concentration of deliveries in this year. But now, deliveries will be more distributed along with 2024, '25 and '26 and will be close to BRL 700 million per year with a peak for 2027 of almost BRL 1 billion of PSV. In the next box, you can see the company's almost 4,400 units under construction, spread over 24 active construction sites, totaling almost 700,000 square meters.

Moving on to Slide 10. We present the 7 deliveries expected for this year, which are 91% sold. I would like to highlight the Hillside and Zen, which are scheduled to be delivered in the third quarter of this year, and both are selling very well.

On Slide 11, we break down the company's inventories by year of conclusion. Graph on the left-hand side shows we have currently BRL 1.2 billion worth of inventory and only BRL 68 million corresponds to products to be delivered this year. The graph on the top right-hand corner, we break down the composition of our finished inventory of BRL 270 million, BRL 14 million of which are in the Urbanizadora unit, BRL 84 million are residential units, and BRL 44 million are leased. And of the leased liquid inventory, the commercial units amounting to BRL 173 million, BRL 76 million are leased or are hotel units. It's worth noting our reversible lease policy, by which our tenants have the opportunity of acquiring their units by using partially or totally their rents as down payment. We've been able to convert around 1/3 of these leases into sales. Finally, in the graph on the bottom of the screen, we see the duration of our inventory is currently at 17 months.

Slide #12, we discuss the company's land bank. Due to the climate events, we performed an extensive evaluation of our land bank, and we canceled 5 lots or phases, representing BRL 438 million of PSV. And after this reduction, our current land bank is BRL 2.7 billion approximately, Melnick's share. 26% of it were purchased in cash. As of now, around 35% of this land bank is approved, enabling us to launch the best project in the market at the right moment and not just the next one to be approved. In the pie chart on the right-hand side, we break down our land bank by market segment, and around 55% are in the middle and upper income segments.

In Slide 13, we present the company's financial indicators. You can see in the graph on the top left-hand corner that revenue of -- net revenue of the quarter was BRL 141 million, 42% decrease when compared with the second quarter of 2023, and that's because of the floods. In the first half, net revenue was BRL 386 million, 29% less than in the first half of last year. The graph on the right-hand side shows the gross profit in the quarter, BRL 6 million, with a gross margin excluding financing to production of 8.6%. In the first half, gross profit was BRL 60 million against BRL 102 million in the same period of the previous year. Gross margin was 19.2%, a slight decrease when compared with the first half of last year.

On the bottom of this slide, you can see the loss amounting to BRL 29 million in the quarter and the net margin before minorities interest of minus 16.9%. The net income in the first half of the year was BRL 2 million. It's important to say that due to the PoC methodology, a significant part of the negative result in the period is a result of stoppage in the construction work. This result is not lost. Instead, it is transferred to future quarters until the conclusion of the projects.

We are now on Slide 14, where we can see our capital structure on the left-hand side. We ended the quarter with a net cash position of BRL 185 million, which corresponds to a gross debt of BRL 321 million, mostly concentrated on financing the construction of ongoing projects, and a total cash position of BRL 506 million.

Currently, our shareholders' equity is approximately BRL 1.17 billion, and our capital structure represents a net cash to equity ratio of 15.9%. I would like to point out, we are a company without corporate debt. Finally, you can see on the chart on the right-hand side, we generated BRL 60.4 million in operating cash. Let me highlight, in the last 12 months, operating cash generation was BRL 136 million, and we paid out BRL 41.4 million in dividends in the quarter and BRL 132 million in the last 12 months.

In the last slide, 15, it shows our track record of dividend payout. From our partnership with Even in 2008 until our IPO in 2020, our payout average was 90%. Since the IPO, we have already paid out around 21% of the company's shareholders equity for a payout of almost 100%.

I would like to reiterate our solidarity with the gaúcho people, and thank our employees for their tireless dedication to our actions of support to the people afflicted by this tragedy. Also, our strong belief in the recovery of our state.

I will now give the floor to Leandro, our company's CEO, for his final remarks. Thank you very much.

[Leandro Meinick, executive]

Good morning. We are reporting the company's results for the second quarter, which coincides with one of the worst quarters in Rio Grande do Sul's history due the catastrophe caused by the floods. Nowadays, you can have a better understanding of the extension of the damage. We have decided to study the issue in depth to assess, in this quarter, all the direct and indirect costs and the forecasts concerning the effects of the flood on our projects in the long term. Fortunately, the objective -- the direct material impact to our construction sites was objectively low, but we had a significant impact in this quarter for several reasons.

Some of them are the stoppage of the construction work, which affects our receivables schedule, the partial but significant interruption in our sales operation, and the expected indirect effects due to the postponement of the construction work, incurring costs -- indirect costs as well as other expenses.

We're also bringing an unusual piece of information in our statement of income that's very important. The month of July, subsequent to the reported period, when we saw a surprising positive reaction that was significant in the recovery of Rio Grande do Sul's economy and, consequently, our sales figures. We had launches with very good selling performance. Our sales of inventory were also very positive due to the circumstances following other factors, such as the progression of our receivables, the organizational environment itself, the performance of our subcontractors, and the analysis of the production chain.

We observed already in July a significant recovery of our activities. And we understand, in the third quarter, we will have a result that is close to the ones we were having before the floods. And probably in the fourth quarter, it will return to normal.

When we analyze the first half of 2024, we observed that our figures were superior to the previous year -- the first half of the previous year. This shows what we had already noticed and had reported, a recovery of the figures of Rio Grande do Sul's economy as well as Melnick's beginning in the fourth quarter of 2023, materializing more consistently in the first quarter of 2024. We understand the second half will see a return of these figures, and we will end the year in a similar situation as the one we had at the beginning. The current scenario is one of more tranquility, albeit one of a lot of work and expectations.

The commitment of the gaúcho society and the Brazilian society that we have seen since the floods will materialize as the recovery of our economy and that life in our state will go back to normal. It already is and, therefore, our company's figures will also go back to the ones that we had planned before the floods. Thank you very much.

[Operator]

[Operator Instructions] Let us now proceed to our first question. It comes from Ruan Argenton from XP Investimentos.

[Ruan Argenton, analyst]

I have two topics that I would like to touch on. The first one is a little bit more of the prospects you have shown in July, especially the launch SOS. It was above 40%. It caught my attention. And I would like you to comment on the effort -- the selling effort after the floods. What kind of product has been drawing more attention? If you could talk about the segments, something like that. It would be interesting if you could.

And the second point I'd like to mention is the impact on future results. You showed in the quarter that you made a reassessment of land bank and some extra cost due to the delay of deliveries. But looking forward, what do you think? Do you think it will kind of be concentrated in this quarter, in this half year? Or you're seeing in future quarters if that will have some effects on these extra costs?

[Unknown Executive]

Let me begin by the prospects concerning our launches. We had the launches in this quarter. They were -- they were projects that were on purpose of low PSV, and the numbers were different. In Canoas, in a high-end region in Porto Alegre, we had more compact units in another region in which we do not have a lot of launches here in Porto Alegre where the real estate pressure is more relevant. It's important that we have good performance. It surprised us, and these are projects from different segments. So this amplify our prospects, our expectations concerning the economy. And we have seen -- we have been paying a lot of attention to these launches, and we know that the purchase of an apartment is related -- directly related to the confidence of the buyer and this becoming true. It shows a great boost in our sales after the climate events, after the floods we have. It was a very significant impact. So it was -- we had high expectations and all the people in the state that how we would see this recovery, so a recovery in the economy.

And of course, as I said, it's related to the confidence of the consumer. So this was a positive reading. And we still see these numbers as the sum of the recovery of the sales of inventory that obviously started at the same level yet as the first quarter before the flood, but the sales of inventory is also a good point.

And regarding the impact, we have done a study, a very in-depth study, as far as it was possible. In trying to concentrate the impacts in this quarter, we commented that we made a projection of the effects that may have happened not in this quarter but in future quarters, but we already tried to impact it in these results. So we have -- our expectation is to have taken into consideration all the possible impacts in this quarter. Thank you very much.

[Operator]

Our next question comes from Elvis Credendio from BTG.

[Elvis Credendio, analyst]

Our questions here are, first, if you can go into more detail what took the company -- what led the company to cancel this -- the purchase of this land and how these cancellations will impact your pipeline of launches that were expected. So the pipeline for 2024 and 2025, what the effect will be? And second question is concerning costs, understanding the local supply chain. If there is some point of attention, some disruption in the local supply chain or some specific item that may be under pressure from high costs?

[Unknown Executive]

Thank you for your question. They are important. Regarding the land bank, what did we do? So our land bank is mostly swap. So we have the development of these lots, so we saw that some lots, the probability of launch will not happen in the short and midterms because of an analysis -- a market analysis after the floods. So connecting to my previous response, so we'll try to project future impacts and try to recognize the loss of sales of the invested amounts and try to include this in the development of these projects. So that's how our analysis happened.

So if some of these projects go back to being launched in a future opportunity, the owner of the land will be able to see -- to reuse or take advantage of parts of these projects. But this makes the impact of these cancellations to be lesser, so the objective cost of the land in itself.

And regarding pipeline, the launch pipeline, it will not have a bigger impact. Melnick has a very significant land bank. And the number of launches that we have, it also comes from this strategy of swapping most of the land. And in this, a complement to, after the IPO, an increase in purchase in cash. But we have this condition of -- we are in condition to move faster. And the company can react quickly when we had some changes in the market, whether it microeconomics or local. As it happen now, we can move our land bank more quickly because we have a land bank that's relevant in relation to our launch pipeline.

Concerning the other question, the production chain, it's more difficult to understand. At the first moment, we had some impact because as you know, we are an industry that's part of a very ample chain, so we are labor-intensive. And part of a relevant -- a significant part of this labor was highly impacted by the flood as well as the logistics, which affects our construction sites.

So we see a recovery nowadays, a positive recovery, that we were surprised. And this restructuring is due to efforts from all the production chain, which comes from other regions, not only Rio Grande do Sul. And they supported moving the supplies around the state, and the impact that we see in the midterm in each project has its particularity. We see this as 90 days, and we understand that the estimation will be enough.

So we had a significant impact in the moment that the flood happened and in subsequent weeks. But now, the situation is not completely regularized and the values are not absolutely regular, but we are very close to being back to normal. So we understand that the impact in the deadlines in the periods of construction that were given by the companies and have been impacted, it's already enough to take care of the rest of the construction work and the conclusion of the work.

[Operator]

[Operator Instructions] We have a question by text from Mr. [ Adriano Valente ]. His question is, good morning, I'm a shareholder. I would like to know if the impact of the floods in Rio Grande do Sul, if the company is thinking about moving this operation to other states.

[Unknown Executive]

Thank you for your question. It's interesting. Yes, so Melnick has been analyzing other place in Rio Grande do Sul. We have never stopped analyzing these other regions. The closest regions to us, which is the state of Santa Catarina and Paraná, we even have a partnership of a launch in Curitiba, which is ongoing. And we have -- it has always been close to our strategy of looking at opportunities together with a close attention to real estate developments outside of the geography we control, we must, and we know the complexity of this kind of operation.

Therefore, we still have the same format of being close or being visiting other states, other regions, and see if we could have some kind of relationship with Rio Grande do Sul in close proximity, a distance we deem appropriate. But we didn't -- we haven't done this because of the flood. It's something we have been doing constantly. In a way, we have always been attentive to these 2 states that I mentioned.

[Operator]

[Operator Instructions] We have one more question by text that comes from [ Alcides Camaro ]. Ticker MELK3 participates of the Minha Casa, Minha Vida governmental program?

[Unknown Executive]

Yes. We have an operation -- a small operation. We use the brand Open. And connecting to what I said before, the regions outside of our state, we have been analyzing. We also have the same understanding. We see as possible an expansion of our operation in different segments and geography but in a very carefully studied and cautious way. We have been acting in this segment for 2 or 3 years. We have a few launches, one in Canoas and one in Porto Alegre. We have recurring launches. We even had one launch scheduled for next half year, which is already being sold. The brand is Open, and we have been going through a learning curve in a gradual and slow way, so we can be prepared for this opportunity. If it comes in a more intense way, we have some questions of internal capacity to take advantage of this opportunity. At the moment, we are acting on operating the segment through the brand Open.

[Operator]

[Operator Instructions] We have another question by text. The question comes from Mr. [ Carlos Felipe Joson ]. He congratulates you for your efforts in Rio Grande do Sul during the floods. And his question is, what's the evolution of the average price per square meter in Porto Alegre after the floods? What are the prospects for medium and long term against other capitals?

[Juliano Meinick, executive]

Juliano here. With concerning your first question, our average price, I think things are normal. We have been selling. We have some projects even with a gain in price before the floods, but these are local issues. So these are some finished projects that wanted to move to other residence. But we -- I would say that this is stabilizing and it's good because we do not have any projects that in neighborhoods that were severely affected. I imagine in these neighborhoods, the price probably has been affected more significantly. But our projects are in higher parts of the city, and they are normal.

Concerning other capitals, I would say the price per square meter in Porto Alegre is under a little more pressure than in other capital cities that have been recomposing or compounding the prices. So Porto Alegre has this depression in price compared to other capital cities, but we have a room for a recovery in the price. That will happen over time if the city has -- each city has its own regulations and dynamic, so this changes from capital city to capital city. But on a wider time window, most of them go back to the normal price. So nowadays, Porto Alegre is a little undervalued, so we have some room to improve the prices here.

[Operator]

Thank you for your question. I would like to inform you that the Q&A session is closed, and earnings -- Melnick's earnings call concerning the results of the second quarter 2024 has concluded. Investor Relations department is at your disposal to answer any further questions you may have. Thank you all for attending this call and wish you a good day.

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