Melnick Desenvolvimento Imobiliario SA

BOVESPA:MELK3

Earnings Call Transcript 2024-Q3

[Operator]

[Interpreted] Good morning, and thank you for holding. Welcome to Melnick's earnings call concerning the results of the third quarter of 2024.

I would like to point out that, for those who need simultaneous translation, the tool is available on the platform. [Operator Instructions] 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 materials concerning this earnings call will be available. It is also possible to download this presentation by way of the chat icon in both Portuguese and in English. [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 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 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 Melnick, CEO; Mr. Juliano Melnick, CFO and Investor Relations Director; and Mr. Joelson Boeira, Administrative and Investor Relations Director. I will now give the floor to Mr. Juliano Melnick.

[Juliano Meinick, executive]

[Interpreted] Good morning. I would like to thank you all for being present today at Melnick's earnings call concerning the third quarter of 2024. This was the first quarter following the climate events that hit our state. As you will see during our presentation, our market reacted, and we are back to normalcy with launches happening, sales responding positively and construction work back to its normal pace.

In this quarter, we also had the end of our successful partnership of over 15 years with Even, and we are prepared for a new cycle, which our CEO, Leandro Melnick, will comment on in his final remarks. That being said, let's move on to Slide 3 of our presentation, where we'll talk about the highlights of the quarter.

In the first box on the upper left-hand corner of this slide, we see BRL 843 million of net PSV launched in the year. Even in the face of the floods, this number is 25% higher than in the same period of last year and 15% higher than all the volume launched in 2023. In the box next to it, we see the volume of BRL 601 million in net sales in the year, in line with the same amount sold in the same period of last year, even with our operations shut down for a few weeks during the floods.

In the last box at the top, we observed an SOS of 53% for the launches in the third quarter, which demonstrates the good acceptance of our 4 launches.

In the first box on the left-hand side at the bottom, we can see BRL 102 million of operating cash generated this year, an increase of 126% when compared with the same period of last year. In the box next to it, we show our financial robustness with BRL 520 million in cash, of which BRL 176 million represents net cash. Finally, in the last box, we have BRL 36 million of net income in the quarter with a 31.2% of gross margin.

In the next slide, #4, we can see the 4 launches of the third quarter, where I highlight the great performance of Go Moinhos, which has already sold approximately 80% of its units, and the opening of the third and last phase of Grand Park Moinhos, which was slated only for next year, highlighting the huge success of this development in Canoas.

Moving on to Slide 5, where we break down the company's launches, at the top of this slide, we have the breakdown of the 4 launches in the quarter, which amount to BRL 225 million of PSV, Melnick's share. And it is important to point out that we resumed the launching after the climate event that took place in the second quarter, both in Porto Alegre and in Canoas.

In the graph at the bottom of the slide, we can see an increase compared to the same period of last year of 25% in net launches, going from BRL 675 million to BRL 843 million, which means participation in the gross PSV going from 66.7% to 84.3%. As mentioned in the highlights, this BRL 843 million in net launches already means 15% more than all the PSV launched last year.

In Slide 6, where we will discuss the company's net sales, the graph on the left-hand side, we can see the SOS of launches in the quarter, which was 53%, while inventory SOS was 4%, yielding an average SOS of 12% in the quarter. In this quarter, we were highly focused on the sales of launches, which performed very well, as well as in the sales of finished inventory. Net sales totaled BRL 168 million, 5.6% less than in the third quarter of last year, but 175% more than in the second quarter of 2024. All in all, we had BRL 48 million in sales of inventory and BRL 120 million in sales of launches.

In the pie chart on the right-hand side at the top, we break down sales by business unit, where 82% of sales came from the developer unit, approximately 15% came from open through the Minha Casa Minha Vida program, and the remaining balance came from our Urbanizadora unit. In the bar graph on the bottom right-hand side, when we look at the projects to be delivered this year, 91% of these units have already been sold. It is important to point out that the deliveries to be made in 2025 are also selling very well and only 17% of this inventory is left.

In the next slide, #7, in the graph on the left-hand side, we can see the company's deliveries, which in 2024 totaled BRL 127 million of delivered PSV. It is worth noting that, at the end of October, we delivered the project Botanique, adding nearly BRL 130 million to the PSV delivered this year, and we still expect to deliver an additional BRL 381 million of PSV from 3 projects by the end of the year.

Let me point out that the pace of construction work has already been normalized and all the delays resulting from the floods that affected the state of Rio Grande do Sul in the second quarter of 2024 have already been accounted for in the forecast of future deliveries.

On the right-hand side, we have some information concerning our operating capacity. Currently, we have 27 active construction sites producing roughly 4,800 units and 720,000 square meters under construction.

Moving on to Slide 8, we will show you the 4 deliveries scheduled for the fourth quarter, which are already 91% sold. As mentioned in the previous slide, Botanique has already been delivered.

In Slide 9, we break down our inventory by year of conclusion. In the graph on the left-hand side, we can see that, at the moment, we have BRL 1.34 billion in inventory and only BRL 62 million of it refers to products to be delivered this year.

In the graph on the top right-hand corner of this slide, we break down the composition of our finished inventory worth BRL 250 million. BRL 10 million comes from Urbanizadora, BRL 71 million comes from residential units and BRL 31 million of this is leased. And out of the leased liquid inventory, the commercial units, which amount to BRL 169 million, BRL 73 million of it is leased or refers to hotel units.

At this point, let me remind you of our reversal lease policy in which we give our tenants the opportunity to acquire their units using totally or in part the rent paid as down payment. We have been able to convert roughly 1/3 of these leases into sales.

Finally, in the graph at the bottom of the screen, you can see the duration of our inventory, which currently is at 20 months.

The next Slide, #10, we discuss the company's land bank, which is currently worth close to BRL 2.7 billion, Melnick's share, and 20% of it was paid in cash. As of now, around 21% of this land bank has already been approved, giving us the opportunity to launch the best projects in the market at the right moment rather than just the next project in line to be approved.

In the pie chart on the right-hand side of this slide, we break down our land bank by market segment, and approximately 55% corresponds to middle and upper middle income segments.

On Slide 11, we show you the company's financial indicators. You can see in the graph on the top left-hand corner of the screen that the net revenue in the quarter was BRL 246 million, a 5% decrease when compared with the third quarter of 2023. In the year, the net revenue was BRL 632 million, a decrease of 21% when compared with the same period of last year.

The graph on the right-hand side shows the gross profit in the quarter. It was BRL 67 million with a gross margin, excluding financing for production, of 31.2%. In the year, gross profit was BRL 127 million against BRL 140 million in the same period of last year. Gross margin was 23.9%, almost 20% higher than in the same period of last year, which was 20%.

At the bottom of this slide, you can see our net income of BRL 36 million in the quarter and net margin before minorities interest of 21.3%. In the year, net income was BRL 37 million with a net margin of 11.2%.

Moving to Slide 12, where you can see our capital structure in the chart on the left-hand side of this slide, we closed the quarter with a net cash position of BRL 176 million, which translates into a gross debt of BRL 343 million essentially concentrated in financing the construction of ongoing projects and a total cash position of BRL 520 million. Presently, shareholders' equity is approximately BRL 1.21 billion, and our capital structure represents a net cash to equity of 14.6%.

It is worth noting we are a company with essentially no corporate debt.

Finally, in the chart on the right-hand side, we see that, in the quarter, operational cash burn amounted to BRL 9.7 million. And in the year, we generated BRL 102.2 million in operating cash, and we paid out BRL 41.4 million in dividends in the year and BRL 98.7 million in the last 12 months.

And the final slide, #13, we show our track record of dividend payout. From our partnership with Even in 2008 until our IPO in 2020, we had a 90% payout average. After our IPO, we paid out the equivalent to roughly 21% of the company's shareholders' equity, a payout of nearly 100%.

Thank you for your attention. I would like now to give the floor to Leandro, the company's CEO, for his final remarks. Following that, we will open the Q&A session.

[Leandro Meinick, executive]

[Interpreted] Good morning. The results of this quarter show a significant piece of information regarding Rio Grande do Sul's economy after the great floods that affected the state. We'd like to share that Melnick, in the city of Porto Alegre, [ adding this to the characteristic ] that the purchase of a property goes to the confidence the buyer has in the [ sale ]. It shows that the high absorption of our launches in this quarter point to a positive recovery and surprising recovery to the economy in Rio Grande do Sul. We launched in this quarter 4 launches in different segments for a total of BRL 225 million of PSV, which was 53% of these units sold. With the good commercial performance in terms of price, this impacted our gross margin and the results of the company in the quarter.

In this period, we also had important changes in the shareholder base of the company. Even concluded its process of divesting, closing our partnership that started in 2008. The 16-year-old partnership between these companies was one of the most highly successful partnerships in the company -- in the country. When we formed this joint venture with Even, up to that month, we went from a family company in the high-end industry that we were not even among the top 10 companies in the Rio Grande do Sul to the first company that's publicly traded in the state. We generated net profit over BRL 800 million and 90% of dividend payout, more than 100 projects launched, 16,000 units, in this period, corresponding to 2.3 million square meters built with more than 10,000 active clients at this moment.

This partnership also presented solid results to Even. And I would like to take advantage of this opportunity to thank Even and wish them huge success. With the manager [indiscernible] [ Funds Investments ] now holds almost 47% of Melnick shares, giving the market a signal that the founders really trust the solidity and the ever-lasting position of the company. Thank you.

[Operator]

[Interpreted] Thank you. We'll now begin our Q&A session. [Operator Instructions] Our first question comes from Juan [ Arentone ] XP Investments.

[Unknown Analyst]

[Interpreted] I have 2 points I'd like to discuss. First, regarding launches, you commented on the presentation that, the first 9 months of 2024, the volume of launches had a significant growth. My question is to what you regarding [ to ] understand what you see in terms of forecast for 2025, if we're going to grow this number of launches? And what is the leverage for this growth, if you see that some segment is more interesting to leverage this growth?

My second question is regarding gross margin. You showed a very important growth in increasing gross margin. I'd like to understand effectively what boosted this increase in gross margin, and what we can expect from now on, if you expect this level to stay.

[Unknown Executive]

[Interpreted] Thank you, Juan. Regarding the launches, we understand that the volume will be watched quarter-over-quarter. And we'll see the relevant impact of the floods had, but this quarter was very positive concerning this [indiscernible]. So we are planning to maintain this volume at a level that we will maintain this volume for next year. But with attention, Melnick positions itself in a way that we respect the absorption from the market, and this can be very volatile, but we also search for the leverages that will boost our growth inside the company. It means we have a relevant land bank. Most of the land bank has already been approved. We have a very comfortable cash position. We try to work within the volatility, which is common in the Brazilian real estate market, in the [ Galucho ] real estate market. And we always watch carefully the absorption by the market quarter-over-quarter. This can vary a little, but the company is prepared to speed up launches very quickly if we understand the market is ready for it. So we have planned a volume of launches that's similar to the ones we have now, but it will depend on these conditions. And we have been increasing responsibly, with a very careful look, the emerging -- the economy segment to observe an increase in launches in this segment. We have seen this in the last 3 years using our open unit. But it's a movement that started back a few years ago, and we have been ready to improve, increase the number of launches in this segment because it's been showing a good result.

[Juliano Meinick, executive]

[Interpreted] Juliano here. So let me talk a little bit about the margins. So the company mainly bought its land through swaps. Now we've been buying the land in cash. It's natural that there is some variation quarter after quarter. The sales of launches and the margins are very good. So it depends -- we can see that -- this increase in margins from last year to this one. And basically, if this number will remain at this level, 27%, 28%, 30%, it will depend on the quarter. So we can see this mix of products that, every quarter, it happens in a slightly different way. So we have been pursuing an REF margin that we have been pursuing.

[Operator]

[Interpreted] Our next question comes from [ Elvis Beteger ].

[Unknown Analyst]

[Interpreted] My question refers to cash generation. You have presented the deliveries for the fourth quarter. You have a high volume of deliveries, but at the same time, the company has been growing the percentage, Melnick's percentage, in these launches. What does this reflect on the cash generation? Can we hope the company continues deleveraging? How does this talk to the company's policy of dividend payout? Are you going to keep this high payout considering the company has been growing its percentage of participation in the projects? And the purchase of land in cash, if you will channel these resources to land purchasing, how do you understand to allocate this capital?

[Unknown Executive]

[Interpreted] [ Elvis ], thank you for your question. Melnick has a very consistent policy regarding this issue. We are not a leveraged company. This concept of leverage, it's not usual in this segment, in this industry. But our characteristic is, in all our presentations, in all this past quarter, we talked about our history of dividends. It has been 15 years since we began our partnership with Even. This model of auditing, considering it was a public company, we have been -- we have had an average of 90% payout, dividend payout, generating cash to pay dividends. This is because of capital structure that we created in which the composition of buying land with cash from investors, which allows this growth without consuming a significant cash and helping the company be deleveraged. So we're going through a process of growth more than other years. So maybe we're going to have a balance, a future balance, between cash generation and cash burn.

Our company is highly deleveraged. So our tendency is, yes, to keep this consistent, to keep consistently generating cash and pay out significant dividends and maintain our average of a 15-year-old average of 90% a year. And this shows that this format that's unusual is very possible.

[Operator]

[Interpreted] Our next question comes from [ Matesh ].

[Unknown Analyst]

[Interpreted] What is the company's strategy regarding leverage?

[Unknown Executive]

[Interpreted] Thank you for your question. Our strategy is linked to our last answer. We understand this situation. We see the company as a nonleveraged company, so it's a light company. So some changes may happen from quarter to quarter slightly, but our strategy is to be not leveraged and continue generating cash, which allows us to pay dividends in a consistent way.

And taking advantage of your question, let me point out that our gross margin on a first analysis may be understood as smaller than or lower than other companies. In reality, it's a set of indicators that's part of our strategy. The real image you should see our company is as a very healthy company. But because we keep this structure of purchasing land bank from investors, our margins are usually smaller. When we do this in a consolidated way, the margins are lower. But we have a cash burn to sustain this growth that's much reduced, because we know our industry. It burns a lot of cash to buy land. So when we -- so we sell and then we come to financing for our production. So this is part of the company's strategy. It's been going on for 15 years, so our financial structure is designed for this objective, huge growth, and low leverage and paying dividends.

[Operator]

[Interpreted] Our next question comes from [ Mike Elgin ] from [ Cabauva ] [indiscernible].

[Unknown Analyst]

[Interpreted] My question is about inventory. It's a follow-up to what you have been discussing. When we look at the inventory, especially the finished units inventory, especially commercial units, we still have a high volume. You have been working on leasing these units. My question is if you if you think you can develop a strategy to speed up the sales of finished inventory, whether it be a bigger sale, like wholesale, to a real estate fund, if you have been thinking about a different kind of structure that would unlock this value of this finished inventory in a faster way? Because when we see where the stock -- the share price is being traded against this value of inventory, we could unlock a lot of value in a quick way and bring this capital faster into the company.

[Unknown Executive]

[Interpreted] Thank you for your question. It's a good question because it allows us to go over some important issues. We have to break down the analysis of inventory. The analysis of inventory in these past few years and the vintages in which we have been producing, it's very positive. It's been very well absorbed in our history. And this would lead to the conclusion that the inventory should be low.

On a second-level analysis, this finished -- this residual finished inventory is dated from older projects, older launches, and this is important to consider because, when you see a high finished inventory, without going deeply into it, we may come to a wrong conclusion. So you think that the launches are not selling well, the absorption is low. But the delivery of our projects, we usually deliver it 90% sold, and this has been going on for a few years. This finished inventory is composed of -- some part of it comes from stores, some part of it from offices, part of it from hotels. So these are, in most cases, projects that sold very well, more than 90% from different projects. And we structured this idea of leasing to enable the price, and sales were very low, so to increase this. And that was the strategy that we developed to bring this to the market. We repositioned it at a sale price that the market would absorb. And in this last quarter, we had a very good sales performance of this inventory. We have been lowering this inventory. It's an older inventory.

Of course, when you do a general analysis, we include the new finished inventory from new projects. But when you look at this older finished inventory, it's been showing a positive increase in sales. And we understand that, in a few quarters more, this will be reduced significantly without structured selling it to some kind of fund. And this connects to the last 2 answers.

When you look at Melnick, this is a company with a high equity that's not leveraged. And this is great information because we have these assets in the company, which we do not need right now to generate cash for the company's growth. So the sale of this finished inventory will happen in future quarters at a normal pace quarter-over-quarter. And this will generate cash and will generate the capacity of continuing growing and using this part of this capital for the projects that we'll deliver in the future. Thank you and have a good day.

[Operator]

[Interpreted] Our next question comes from [ Ilga Naciova ], investor.

[Unknown Shareholder]

[Interpreted] What are the company's prospects considering [ SELIC ] at 13%?

[Unknown Executive]

[Interpreted] Thank you for your question. This is a central topic for the Brazilian economy. We have a peculiar question that mitigates the problems, the serious problems, that are caused by a high interest rate. And one of this is something we have mentioned, which is the company's economic situation. It's a company that has no leverage, and we have a positive cash position. We have a shareholders' equity that's way above our debt. So because we are not leveraged, this affects the company less.

And I also -- your question regarding the [ SELIC ] interest rate, this is going to impact the financing for production. This will impact the industry. But in our case, because we are a nonleveraged company, we have a good standing with the banks, and this puts us in a privileged position. So it is something to be considered. It impacts the market as a whole. But our company is in a better position than other companies that have a higher leverage.

Another point is the segmentation. Melnick is a company that operates in a limited geographic region. But in all segments, and this is very important, we wanted to build -- we want to work this idea of work in all segments to give us flexibility during the Brazilian economic cycles. So right now, in the emerging -- in the affordable segment, the performance is very good. And in the high end, it's also reasonable. And [ SELIC ] affects -- the high [ SELIC ] affects the [ capacity ] of financing. And the fact that we are in all these segments, it brings us flexibility to operate in the segments where the impact is lessened. Of course, it impacts the interest rates. But the way the Brazilian programs go, we are in a good position.

[Operator]

[Interpreted] Our next question comes from [ Adrian Varecci ].

[Unknown Analyst]

[Interpreted] The company is showing great recovery considering the climate events. Do you see the company paying dividends in 2024?

[Unknown Executive]

[Interpreted] Thank you for your question. As I have been saying, the company's strategy is towards this. So the answer is affirmative. We have a strategy of generating cash, and we are -- we have no debt, so we can pay dividends. We'll continue working towards this goal of generating value to shareholders, and the way we understand a company shows less risk, considering the economic situation of our country, but sustainability of this policy, this strategy allows us to be a great dividend payer. So it's the company's strategy to follow in this direction.

[Operator]

[Interpreted] Our next question comes from [ Paulo ], shareholder.

[Unknown Shareholder]

[Interpreted] The land acquired in the first half year is more than 8,000 square meters. Could you give me more details about the purchase of this land?

[Unknown Executive]

[Interpreted] [ Paulo ], thank you for your question. We like to allow our investors to -- we do not have here the intention of breaking down our land bank and showing our strategy, our positioning, to the market. So this is a lot that's very good. And Melick has a very good position in the purchasing of land bank. It will generate cash in a positive way, especially when you consider Porto Alegre's market that was affected by the floods. Our competitive advantage was very good. In this moment of very active economy, these waves of IPOs, it's a very positive moment. So differentiation of having a good cash position gives us advantages.

In this moment, we have a good cash position. We have a very good significant land bank. And this gives us the ease of mind to buy only very good land. We have a very simple discussion internally. We only go on good opportunities. And our position gives us this possibility of only buying land that we believe is very well suited to the market, because our land bank structure gives us this comfort. We can put it to you in a conceptual way, that we believe very much in this particular piece of land. It has very singular characteristics considering where it's located, but I would not like to go into further details.

[Operator]

[Interpreted] The Q&A session is now concluded. We now give back -- give the floor back to the company for their final remarks.

[Unknown Executive]

[Interpreted] Thank you all. We thank you for all the questions. And our Investor Relations department will answer any other questions that might not have been answered. We have an Investor Relations structure that is ready to answer all of your questions. Thank you all.

[Operator]

[Interpreted] Melnick's earnings call concerning the results of the third quarter of 2024 is now concluded. The Investor Relations department is at your disposal to answer any further questions you may have. Thank you all for attending this earnings call, and we wish you a good day.