MRV Engenharia e Participacoes SA

BOVESPA:MRVE3

Earnings Call Analysis

A Year of Significant Sales Growth and Record Revenue

The company experienced substantial success in 2023, with net presales increasing by a hefty 45%, stemming from higher unit sales and price hikes. Record net revenue hit BRL 7.2 billion, and accounting margin growth, although the margin could have been even higher if construction had started earlier. Sales grew by 45%, reaching BRL 8.5 billion, marking the highest in the industry, with average ticket sizes increasing by 45% and gross margin improving from 19.3% to 22%.

Strategic Positioning Above Competitors

The company strategically outperformed its competitors with its net presales growing by 45%, in contrast with competitors’ growth ranging from 26% to 33%. This equal growth of BRL 2.2 billion is particularly significant as it matches the combined growth of three competitors.

Solid Operations and Profitability Targets

Operationally, the company has shown robust growth with prices increasing by 57% over four years, while construction costs increased by 40%. The gross margin reached 32%, equal to their performance after the IPO, showing solid profitability moving forward. The vision includes achieving 40,000 units per year with a gross margin of 35% (38% excluding financial costs), and a net margin of 15%, leading to a net revenue of BRL 10 billion and a net margin of BRL 1.5 billion.

Techniques to Optimize Cash Generation

To improve cash generation, the company ended 2023 on a high note with BRL 130 million in cash. The strategy includes developing new receivables products to leverage new funding sources, assuring improved liquidity through receivables assignment and lower interest rates, alongside maintaining a strong focus on operational efficiency.

Company's Expansion & Investment Plans

Moving forward, the company outlined strategies including focusing on housing programs, both federal and state, and targeting net revenues at the upper end of guidance. Gross margins were reported to be in the middle of guidance, while net debt over equity remained below guidance, indicating a healthy capital structure.

Recovery and Expansion of Subsidiaries Urba and Luggo

Despite a challenging operational mismatch in 2023, which impacted profitability, the company expects Urba to resume robust profitability and grow steadily. Luggo faced a seasonal downswing but is anticipated to improve with new projects and revenue recognition in alignment with construction progress. Both subsidiaries are expected to contribute positively soon, without additional capital outlay or new debt, adhering to the company’s policy of no cash burn.

Labor Costs and U.S. Market Conditions

Labor costs have not posed an issue for the company, given its extensive geographic spread, although specific regions like Sao Paulo have shown signs of competition-related challenges. The company's U.S. ventures, through subsidiary Resi, hint at favorable occupancy rates that are reportedly better than the market average, despite concerns regarding a potential oversupply in the 'sun belt' markets.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good morning, and thank you for holding, and welcome to MRV's Fourth Quarter of 2023 Results Conference Call. Today with us, we have the CEOs of the company, Mr. Rafael Menin and Mr. Eduardo Fischer; and the Chief Financial Officer and IR Officer, Ricardo Paixao. We would like to inform that all participants will be in listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question-and-answer session when further instructions will be given. Now I would like to turn the floor over to Mr. Rafael Menin, the CEO.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Good morning, everyone. Thank you again for attending this call. And let's go through the presentation slides to talk about the highlights of the year of 2023. We published the earnings release yesterday in the evening. And Eduardo Fischer and I represent the CEOs are very happy about the year with delivery and some of the metrics were not the best. But from the operational point of view, it was a major turnaround. We completed the turnaround successfully. We -- you all know that we came from a very tough cycle, COVID, pandemic, 2021 and '22 were very different years compared to our history. We've been listed for 17 years now, and our results have always been highly above the average for the industry. And we've -- in many years, we presented the best industry results among company listed in -- companies listed in Brazil. So let's talk about the year 2023. Our net presales grew by 45%, which is a huge growth. This comes from the price increases as well as from the number -- higher number of units sold. We also had a record year in revenue, net revenue of BRL 7.2 billion, and the accounting margin has also grown. There is a time delay, and this margin could be higher if we had started construction earlier, there is a time gap between the launch of the project and the beginning of construction. We increased this buffer in 2023. But even so, there was an important impact on the income statement. So our prices have grown by 45% in the last 2 years. It's a very robust growth.If we look at the prices, we used to sell before COVID in 2019 and the prices of 2023, the growth of prices are way above inflation in the period. So like I said, sales went from BRL 5.8 billion and reached BRL 8.5 billion last year. It's by far the largest sales in the industry with a growth of 45%. The average ticket between the fourth quarter 2021 and 2020 -- fourth quarter 2023, a 45% increase, and the gross margin went to -- from 19.3% to 22%. On Slide #4, we have a comparison that's quite interesting, which is growth of net presales of MRV when compared to other competitors that are listed as well. Our net presales grew by 45% compared to 33% comparator to 29% and competitor 3 -- 26%. And if we add up the 3 competitors there -- the stair -- sales grew by BRL 2.2 billion, and we grew by BRL 2.2 billion in the same period. This slide -- this graph on Slide 5 is very interesting. It shows growth prices. Our prices have grown 57% in this 4-year period and cost measured by INCC, increased by 40%, which shows the quality of the company's operations in 2023. The sales of 2023 has been better as the season than the year 2019 and very much in line of the second cycle between -- after the IPO, which is between 2013 and 2019. In a period in which we had an average gross margin of 23% or 32%. And last year, it was the same 32%, which is a very good indicator. We still can grow more, and I will talk about that soon, but it places us in a profitability level, especially in the fourth quarter that was higher than the 32% because the gross margin of the year grew quarter-by-quarter, and that places us at the top performance of the industry. So in the gross margin in the fourth quarter reached 36.5% ex financial costs, which is a very good margin. As for cash generation, we finished the year generating BRL 130 million in cash, which is a great recovered when compared to previous quarters as well as compared to the year of 2022. The next slide talks about the housing programs that are [indiscernible] my house, my life. That's a federal program that was updated in last year, and it's now very good. And given this important period of inflation during COVID in Brazil, the program improved considerably. And in addition to this federal housing program, every quarter, we see new housing programs implemented by the states. And these state programs account for a subsidy of BRL 17,000 per customer, which is used partially to reduce Prosaluto to improve sales over supply and improved prices. We're using the subsidies to improve these 3 indicators. And in addition to the programs shown on the screen that are other states that have negotiations ongoing. So we believe that until the end of this year, other states will announce programs to support the federal housing program. On Slide 8, we talk about MRV Day projections. So in terms of net revenue, we are at the top of the guidance on gross margins in the middle of the guidance and net debt over equity, we are below guidance. Obviously, the follow-on plays an important part in that. As for cash generation, we are slightly below guidance. We closed the year very well, but in the year-to-date figures, we are below guidance. And these are the 3 main reasons. The first is that we did very well in the launches of the year. And a good percentage of them the construction has not started. So that caused the average percentage of completion for the year to be below the historical average for the company. But we continue to spend a considerable amount in land. And this is a strategy we had defined as of 2015, 2016. We aim to reach 60,000 to 70,000 units per year, and we purchased 60,000 to 70,000 -- or 70 units per year, and we used this wrongly. So the strategy of purchasing more than 50 -- more than 50% of land -- of plots of land were purchased in cash. And there is a period you can wait until you can pay, but there is a period -- there is a time when you do have to honor that and pay for the land. So we spent a lot more than we should have. And we certainly could have spent in 3 years, 450 or 500,000 less. And last year, we spent BRL 100 million more for that line. But we have a very high-quality land bank. We have more than BRL 2 billion in land expenses disbursed and spent with products that were either not launched or units not sold. So this is an absurd amount of money given that in the year of 2022 and '23. And looking forward, this will be how we work mostly paid in financial swaps. And -- so this will cause -- this amount disbursed in land that we already paid for to be much lower in the future. So this is a great opportunity to generate more cash and have a lighter balance sheet. But let's talk about that on MRV Day for 2024. We'll address that. Finally, we would like to reinforce the vision that we talked about in the follow-on last year, and we are very much sure that this vision will become real, which is 40,000 units per year with a gross margin of 35%. This gross margin is with interest 38% and then and net margin, 15%. Our purchase -- average purchase is 250,000 with a net revenue of BRL 10 billion, BRL 1.5 billion net margin and cash generation of BRL 1.5 billion. Our team will strive for that fiercely, and I'm sure we will deliver this in a very near future. Finally, to wrap up my part, we must highlight the historical moment we're going through. In January, we delivered a key number of 500,000 never achieved by any other construction company. So we are very proud of that. We have delivered keys to more than 1.6 million inhabitants in Brazil. And so 1 in each 5 or 6 inhabitants or Brazil has an MRV product. So on 1 in each 60 Brazilians live in a product built by MRV. We reached BRL 2 billion in infrastructure of investment in infrastructure and direct and indirect jobs, 1.5 million direct and indirect jobs were created. And now Kakao will talk about the financial indicators.

[Ricardo Paixão, executive]

Thank you, Rafa. Good morning, everyone. I would like to focus a little bit more on the financial results of MRV real estate development. We see that the operational improvement shown in the quarter and the year was still shy in our statements, but led the net revenue to BRL 1.9 billion in the quarter and BRL 7.2 billion in the year. The evolution of the accounting gross margin close to growth. Caused us to close the fourth quarter 24.5%, 4 percentage points above the fourth quarter of '22 and 3.4 percentage points year-to-date. Commercial expenses rose along with the expansion of PSV. G&A had an effect with BRL 38 million provisioned fully in the fourth quarter of '23. And other expenses, we had sales of land representing BRL 24 million of losses in the fourth quarter, which caused a loss above regular values invested. Investigations and researchers -- market researchers. This is a nonrecurring effect and is a result of adjustments that we're making to our land bank, along with the strategy to leave some towns. The final adjusted result by equity swap and mark-to-market for the debt swap closed at BRL 52 million, the net income for the quarter and BRL 82 million in 2023. Another point that became quite relevant lately was the assignment of our portfolio. We have developed 2 different products, Pro Soluto assignment and our own portfolio assignment. We see this as a new funding source along with the savings accounts and FGTS. This week, we had a chance to make an event, hold an event for the market in which our differentiation points were very clear for rating modeling to grant credit, collection and selection of portfolio to assign receivables. We had a performance that's better than the expected default rate, which increases the trust of investors in this type of product. And the decrease in the interest rates are great leverages to understand the rate in this type of transaction. So we are developing something that the market doesn't have that will provide excellent liquidity. Let's now move on to the Q&A session.

[Operator]

Thank you. We'll now start the Q&A session. [Operator Instructions] The first question comes from Andre Mazini from Citi.

[André Mazini, analyst]

Thank you for the questions. The first is about RET 1 to understand that 30% of the volume of MRV has dropped regarding RET 1 that will become available soon. And if you have any time line for regularization of revenue. And the second is a topic about the portfolio assignment that all investors are looking at it. If you could remind us of the mechanical. So you sell the portfolio, the difference between the case value and the amount you receive that goes to financial result, but not everything. In the quarter of the sales, it sometimes is transferred to the next quarter. So if you could give us an amount of portfolio sold in 20 -- that will be sold in 2024? And how much forward would it be accounted for. Let's say, 3 or 4 quarters, what is the remaining impact going forward?

[Eduardo de Souza, executive]

Andre, this is Fischer speaking. I'll answer the first one and Kakao answer the second one. As for the hedge, yes. Our sales are in Q1. What has happened is that there is a bias in the program to benefit that income level, some things could happen that could cause this level to go up. We have a meeting in March with the Board Committee of the FTTS. And if these funds could be used, that would be a major impact would causing this figure to go up along with the RET that you mentioned that it provides an additional benefit for us at the same income level. So we believe that this will grow in the company want to capture that in several ways. Everything that we've said is our strategy to reduce the granted portfolio. We have a future use of FGTS, an opportunity to have a more aggressive approach when this becomes available, which we hope will be soon. And the RET 1 is an additional benefit that maybe will exceed this 1/3 of sales. And so this is a great benefit we can use that will be converted into margin naturally regarding RET and reduction of portfolio and increasing prices, this -- we're working rather receivables. So we want this FGTS in the future to be approved before RET1. But we believe that we will be approved soon. FGTS will be solved in March, but RET 1will be so maybe take a bit longer. But there is a major pressure and everyone involved wants that to be approved. Mr. Kakao will answer the other question.

[Ricardo Paixão, executive]

We noticed in the sales of receivables that you were talking about discount of assignment reaches the difference between the remuneration of the receivables assigned to investor and the amount of the correction of these receivables. These receivables has a duration of 20 months with a maximum turn of 40 months. And this discount for assignment is made a monthly -- on a monthly basis on results throughout the period of the receivable until this assignment transaction is fully paid for. Just an observation, Mazini. We look at your report in the comparison of Pro Soluto, if you look at only Pro Soluto after key delivery, there is no 10% doubt of our '17, we're much closer to 10%, as you put for our competitors.

[André Mazini, analyst]

Okay. It's clear. '17 includes everything. So that's an important point.

[Operator]

Okay. Our next question comes from Andre Debi from Itau BBA.

[André Dibe, analyst]

Thank you for the presentation and for the question. I have 2 questions. Was the gross margin for new sales. If you could comment on this major leap in the quarter, what were the main contributions to that maybe these state programs, change in the mix? And what is the base of growth we could expect for the future? In previous calls, you -- in the previous question, you mentioned the FGTS for the future and RET1. Although the impact in Pro Soluto, how can you think we could accelerate the pace of new sales -- and the second question is about the prospects of Urba and Luggo since they are falling a bit behind for the year. What you -- can you do in 2024 and '25, for these to deliver closer to the guidance.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Good morning, Andre, this is Rafael speaking. As for the gross margin of new sales, this margin of 36.5% is ex income. So it's equivalent to 33%. And if we compare to the previous quarter, it was 32%. So the gross margin is going up each quarter. And the reason is what we said last year, our cost was slightly below INCC, and prices continue to go up a lot. At the closing of the year shows that MRV operation is better than 2019. We had a very good fourth quarter, so well, good volumes, Pro Saluto going down. So it's a very round operation. Gross margin could go up more, 35% interest would be a gross margin of 38.5%, and we are very confident that soon, this will be MRV real estate development profitability level. Certainly, the housing programs, both the federal and the regional programs are very helpful. The Mikasamiavi, the federal housing program was a positive surprise. It was better than we thought it would be. It's a great leverage for us to capitalize on the operational recovery of MRV. And we've seen the states -- there's no geographic consultation for housing programs. There are new programs stayed for the states in the South, North, Northeast, Midwest areas of the country. So more and more states are realizing how important housing is. And a fully subsidized housing program is very expensive. So states do not have budget to address that. So the most rational choice is to provide subsidy. So there are states that provide subsidies of 10,000, but some states provide subsidies up for 30,000 for Group 1. That makes a huge difference, changes the purchase capacity of customers highly. If you're purchasing something that cost BRL 190 that's for group 1, and then you add a subsidy of 30,000. That's a game changer that allows us to raise prices almost finish Pro Soluto and increase the sales over supply. So for the states that have implemented the program already, the operational difference is major. As I said in the opening of this call, we've seen states start negotiations and discussions about that. So this seems that this is an agenda that's here to state some states are copying the model. And this is a new ingredient that maybe is not so noticed by analysts and investors, but that makes a major difference in the operation of companies that operate with low income brackets. So it would be worth for you to study these programs that have been implemented already, those that are being studied in other states of Brazil. And looking at the federal, we have a special tax regime RET1 and FGTS future that close to be implemented, they are the final stages now. And with that, we can have another positive surprise for this segment that's very well balanced in terms of purchase capacity subsidies, interest rates levels. So there have been many years since we've seen such a good, well-thought of program for low income when we add the state housing programs. As for Urba, now in Urba, we've seen a scenario of '21, and we try to make an IPO of Urba in the window. And then we entered a rapid growth model to try to use that window. There was a high demand for that program, and there is still a high demand. We're very positive at Urba, but there was an exposure in the cost of the main raw materials, and there was some operational mismatch this year, which caused us to finish the year with a low profitability. But we are the only company in the industry that's able to provide receivable discounts. This is a sector with the life cycle -- financial life cycle that's very long. So Urba went back to the profitability of what it used to have 2, 3 years ago, which is very good with an additional item, which is the discount on receivables. So we're very confident that Urba will follow the golden rule that's good for Resi and Urba. No cash burn. And quarter-on-quarter, year-on-year, Urba will show some growth and a growing profitability. This is a one-off event, which is not something we -- that concern us. We are very confident that Urba will continue to grow in coming years. We accelerated growth to 2 years ago. So we learned about the industry in terms of product model, funding model, we are very mature now and our mine model for Urba is highly consolidated in the company. And I'm absolutely sure that the company will bear great fruit for MRV and Luggo. Luggo has a seasonal effect and it had a negative quarter because it's the expense of the company. But looking at 2024, we have 2 good news. First, we will have new projects sold. And the second news is that the sales during the construction stage will become true. And obviously, the revenue using average percentage of completion will become true. We also think that this is not a company that won't grow very fast. We won't have any additional capital for any new debt for Luggo as per our golden rule, but the demand is growing and prices growing below IPCA. So it's organic growth with high-quality growth, but it will be a different company in a positive way soon. So we remain very optimistic about these 2 companies despite this not so good result in the year of 2023.

[Operator]

Our next question comes from Bruno Mendonca from Bradesco BBI.

[Bruno Mendonca, analyst]

I have 2 questions. One is broader and the other one more specific. The first one, Rafa, you mentioned the vision of MRV, talking about 40,000 units and a gross margin, 35% and net margin of 15%. My question is how the capital structure, what is the capital structure that you envisage to reach this net margin? Because I have this impression that the gross margin is going well towards this direction. It's more of an accounting thing of having the average percentage of completion closer, but the net margin seems a bit more distance in terms of capital structure. So what is the ideal capital structure? And how long do you estimate until you reach that point? That's question number one. Question number two is a bit more specific. It really caught my attention the line of other revenues and expenses. And particularly, I have a question about the results of Luggo. You mentioned the vision of Luggo going forward, but maybe Kakao could explain to us this result of Luggo in the quarter because it was an important loss even with the sale of assets. And in the other revenues and expenses line that really decreased the final net income of the company and the consolidated figures.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Okay. Now MRV vision, this delta of 35% to 15%. If we look at previous years, Bruno between 2015 and 2019, this average data was slightly below 20%. That was possible because our SG&A is not moving -- not changing much. It's been around 14% to 15% at historical level. Going forward, since we'll have an important growth of net revenue, you see that sales grew much more than net revenue. We sold BRL 8.5 billion and had a net revenue of BRL 7.2 billion. We want to reach BRL 10 billion in sales and therefore, BRL 10 billion in net revenue. And the SG&A won't grow at the same rate. So there is some dilution gain there. Another important point is the financial expenses. As we start to generate cash, and we deleverage the balance sheet of the company. And even with the sale of the receivables, which was an important point lately, even if we sell revenues rather, if we sell receivables, you have to understand that the sales of receivables, either Pro Soluto or direct sales receivables is an option. We'll always look at the cost. We see the credit market improving on a quarterly basis, slic interest rate going down. So this is an opportunity we have now. We created a very good product that we consider an asset of the company because we provide a good credit. We charge a good amount. We have a default under control. So going back to your question, as we go back to generating cash and reduce financial expenses.And I'll also answer a bit of what Kakao will say, this year, we had a cleaning of the land bank. So BRL 50 million extra than compared to business as usual. Every year, there's investment that's taken to other expenses as feasibility studies, market research, topographic surveys and other expenses that are accounted for. So that's part of the business. If you have an operation of 40,000 units spending BRL 20 million a year, which sets studies is part of the business. But last year, we did have an additional disbursement of BRL 50 million that won't be repeated in the future. So there is no major land that we'll have to sell. And so reducing financial expenses in addition to other expenses and having a dilution gain in SG&A, this doubt of 35% to 15% is totally feasible and it has been lower than 20% and not very far in the past. And it will happen, Bruno there's no reason for that not becoming true. We're very comfortable with these indicators we proposed in our vision. Of course, we depend on having control inflation, a very well-done execution. I've been talking to many people. Our challenges for a company that has been making 40,000 units for 10 years that proposes to make the same company that has operated simultaneously in 120 markets. We are now at 100, and we reach 80. So from now going -- looking at the future, we have a less complicated operation when compared to the 3 previous years. The products are good. Sales are doing well. So reaching 15% net income completely feasible levels, and we are confident we'll deliver that. And as for cash generation, as we reduce the CapEx with land, we have BRL 2.5 billion in land dispersed in our land bank. So from now on, we have an opportunity to decrease the balance and maybe even have some cash generation in the period above the net income of the company. So I think I was able to address your question and the question about other -- there are other things in this line that Kakao will address.

[Ricardo Paixão, executive]

Okay. The main item is the land bank. We cleaned the land bank and the strategy of leaving some towns. And when you look at Luggo, although there were sales in the quarter, in this quarter, specifically, we sold Luggo projects that started in the middle of 2021. So we established the price back then, but the cost inflation was much higher than the IPCA inflation rate for the same period. It's like we are betting against INCC. The same thing happened in MRV. There was a major drop in margin in the sales of LUGO projects. And if we were to establish a net sales margin for Luggo, Luggo is at a very healthy levels now for the new projects. The prices are much healthier than in the past and prices are under control. So this is a delivery of a bad seasonal projects for Luggo. That's completely different from the future

[Bruno Mendonca, analyst]

Okay. So just connecting both questions, it's clear that part of this operation is a deleveraging. But this line of other expenses specifically, do you believe that we'll still hit in coming quarters? And could you give us an idea of how -- what that would be the impact in 2024, says Bruno.

[Ricardo Paixão, executive]

Bruno, in the first quarter, there was still -- there may be some land going through those lines still. But for Luggo, we do not have -- we don't expect any negative results for Luggo for this year or in the future.

[Operator]

And Question is from Matteo's Malone from Santander.

[Matteo's Malone, analyst]

My first question, I would like to understand what were the KPIs for the year and the quarter for this provision. And I would like to understand the rationale. And this possible spin-off of hedge. Is this something in your mind that you're thinking about? And how could that be carried out?

[Eduardo de Souza, executive]

This is Fischer speaking, Matteo's. Well, what happened here is that we started the year 2023 with operational goals that were quite ambitious that would lead us to the full recovery of the company compared to the results of 2021 and 2022. Our idea was to have a recovery year, recovery, ambitious, aggressive operational recovery in 2023. So 2 points guided our strategy. First, leading the company to a level as a precedent conditions to make it a cash generation business as it always has been. We had a heavy hard homework to do in the recovery of gross margin that came from increased price increases and cost reduction. That was an important motor for 2023. We had to deliver that. And our goals were aimed at that. In that front, we -- according to our ambitions and our goals, we delivered. So clearly, the margin evolving very well, and the gross margin of new sales grew, but we also needed a volume that justified that to accelerate our recovery as this higher volume goes through our results. So these were 2 important components that guided our recovery plan. So recovering the gross margin for new sales, along with a growing volume, we were able to deliver both. Margins grew according to our goals, and the volume also grew. We had a growth in BRL 2.6 billion in sales comparing both years. So these were 2 important KPIs for us. This was connected to our sales and PLR. Another important point that we've been saying it's a belief of MRV. We are in a business that very dispersed geographically -- geographically with a very long life cycle financially speaking. And -- so you need to have a team that's highly engaged for the first time in our history, we had -- there was a year in which we didn't pay anything given the results. So we wanted to encourage the team. So it was an engagement project. So I'm very pleased. And I know that what we've done -- we have done is adequate according to the challenges we faced in 2023. It's not only a belief of myself, but of the entire management of the company and the Board as well. We delivered what we set ourselves to deliver. This caused the company to go back to previous levels. And now we want to go beyond that. 2023 was an important landmark for us to reach what we just disclosed in terms of our growth plan and the 40, 35, 15. That's what we want to reach. So I'm very happy to what -- in terms of what we did and the goals we reached in 2023. And Kakao will answer the second question.

[Ricardo Paixão, executive]

Just to add on your when Eduardo said, it's key to say that we saw some results and -- but those who know our background history in terms of stock option plan, compensation of executives. We've always looked at the shareholders' money with very carefully. We've been part responsible in 17 years as a listed company, we've never -- there was not any ranking in which we were at the top of compensation. We have been very responsible with the money of shareholders. The SG&A is below the average for the industry. There are many other costs. The company has been very cautious, conservative. We have a controlling shareholder that's looking at the many years to come. So all of you have to be rest assured of our respect for the company's money, cash. It's a bit -- it worries me a bit. I mean, to see some reports that highlights there are some analysts that said the wrong numbers for a company that has a DNA of being extremely cautious and conservative and always being careful with the money of shareholders. So this is a decision that was made in the end of 2022 when we set the goals with the board. A part of those goals were met. We had an important year, a turnaround that was made in 12 months. So these questions can be raised is okay. It's part of the business. But for a company that has always had a very ethical -- and in terms of compensation, I think you can question, but it's not a problem. I mean, I'm being very honest with you guys. Okay. The second question now Kakao speaking. In terms of the resi preliminary spin-off, we are studying this carefully because in the case of a spinoff, we will see what's the best structure.

[Operator]

Our next question comes from Marcelo Motta from JPMorgan.

[Marcelo Motta, analyst]

I have 2. First, if you could comment on the outlook for cash generation since you've issued securities at the relevant level, maybe this could delay this BRL 1.5 billion in cash generation and income. Maybe talking about '26 and '27, maybe 2025 could be a year in which we would see cash generation below income. When we're thinking a 20-month average duration, that's 2 years. And the second question is about Resi. Unfortunately, the line was still negative in sales. What could you -- could we expect for this year maybe in terms of margin, should you wait to sell just these 2 topics.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Okay, Motta. So regarding cash generation projections. Since we -- as we said, these transactions are receivables anticipation. So it's for 2023, we are discounting 2024, '25. So this is how it works. It works on the dynamic of future cash generation. If we continue with the same level of assignment of receivables, this will reach a cruise speed. So it doesn't help or damage the cash generation in the year. So there will be a level in which we assigned the same amount that we receive. So assignment won't increase. That's the idea. As for 2024 and '25, I think we can better discuss this at the Investor Day when we'll talk about the future projections of the company. This is Rafa speaking, Matt. I'll talk about Resi. What happened in resi in 2023 has been widely discussed. We had the compression of the cap because the cap rose a lot. We sold properties with a cap of 4%. And then the cap went to 6%. And the yield on cost is close to 7%. So naturally, profitability was compressed and that has a brutal impact on the net income, SG&A, you have G&A and taxes. So the model of aiming at a gross margin of 30% with 30% gross margin paying SG&A and taxes. Profitability of the company is very good. The return on invested capital is exceptional because the leverage is 70% at the project level. So the Resi thesis, we continue confident about it. What I said about Luggo and Urba, I even highlighted stronger for I stress it even more for Resi. There is a competitive product. We're able to place this product lower than the average for the same neighborhood with the construction technology that's unique and much more competitive than local builders that cause us to have a yield on cost of 5%, whereas the middle cost is 6%, and the maturity of the Resi production system we can have a yield on cost higher than 7%. But the main point is interest. As interest rates go down, profitability comes back. And then we'll generate more cash in each sale. Looking at 2024, you asked about the sale, what we see in the U.S. market that every month, the investors, the demand for investors increasing, but the base is very poor. I mean, the fourth quarter was a highly stressed quarter, investors that we're buying, we're looking for opportunities, very different from historical levels. We had to sell the property in the fourth quarter. At a margin, we were not happy with, but we had to sell it because of cash. And today, the market slightly improved. We believe that 3 months will improve even further. So our role now is to find the right ideal moment to sell the property. The more we wait until the end of the year will be better. But we have to look at cash as well. So the Resi, what we mentioned in terms of sales goal at Rsi remains the same. It was a fun with investment in Brazil to start 3 to 4 projects. This year, we raised capital, and there's still capital being raised. So again, we are very comfortable and positive about reseats. -- product, geographical area, construction technology, competitive advantage regarding the market. And we believe that this market that started very few projects in 2023 as well as in 2024. -- and the demand remains really high. So at some point in time, interest rates will drop, and I believe that 1, 2 years from now, there will be a constraining in this supply and demand and market will be highly favorable for sellers, not for purchases. And we make decisions thinking about 2024, '25, '26, '27. So consider what we've said, I am absolutely sure that Reis from now on will be an operation that will become better year after year. Okay. Thank you. It's a pleasure to talk to you, Motta.

[Operator]

Our next question comes from Ygor Altero from XP.

[Ygor Altero, analyst]

We have 2 questions. With these new initiatives of future FGTS and RET 1 and gross margins going up, could you think about accelerating the launches in 2024? And the second point is about the improvements of the program. Do you see room to discuss the increase in the income levels of the program.

[Eduardo de Souza, executive]

Ygor, this is Fischer speaking. I will answer both. What we look at for MRV as our north is the 40,000 new net sales. We have launched less last year and sold more, we used up -- we reduced our inventory, which was very good. So my answer to the previous question, the idea is to convert all these benefits into margin, mainly in the reduction of receivables. So we'll see these benefits when they come trying to convert them majorly in operational improvement. Nothing changes in the vision that the company is a company of net units of 40,000, up or down slightly, but this is the main figure and we'll be able to deliver the gross margin and net margin figures that we discussed previously. As for your second question, this is always a point of discussion between the government and the industry. The signs are positive. We -- there will probably be an update of the income levels. Of course, it's impossible to say for sure because it doesn't depend on us. But we believe that levels will be corrected at least for inflation.

[Operator]

Our next question comes from Eleni Caldera from Bank of America.

[Unknown Analyst]

Many topics were discussed in previous questions. And I would like to go into the sales of CRIs and MRV receivables in CRI, credit receivables sales, could you explain a bit the current situation? Are you able to issue CRIs according to this latest rules after the decision of the Monetary Council. And since there will be a special meeting today, do you have an expectation regarding that. In term -- in the event you cannot sell those CRIs. Do you have any other option you could use to -- to receive the receivables in advance. And could you update how much you're making of Pro Soluto at the end? And how do you expect this to evolve throughout the year? And in the direct funding, this has grown a lot in 2023. I would like to know what is the ideal size of this I know many questions. And if this makes sense in the strategy

[Ricardo Paixão, executive]

Okay. Kakao speaking, I'll be very straightforward, but help me Pro Soluto 16 -- 13%. We want to go back to 12 million -- this would be a payment that's close to what we receive in the year. We wouldn't have the Pro oaluto going up to reach Pro Soluto of 12. Our own portfolio of receivables. It's part of our strategy to have 15% to 20% of PSD outside of GTS. So our own portfolio of receivables is an option to bank fund financing. And we believe that with the drop of interest rates in the future, maybe other types of credit will become more interesting this our own portfolio of receivables. But we also think there will be a compression in the assignment rates of receivables towards the future. It's been a good thing to do, and there's a good liquidity in the market, and it's a product we want to continue to develop Oh, CMM, the National Monetary Counsel. Okay. The resolution as it is now, is not clear. So there are renowned lawyers that think we could still make issues of CRIs and others don't believe so. So we don't want to reach the last days of the quarter and have the transaction denied by the Brazilian SEC, the CVM. So we are having discussions to change this resolution, and I believe this today's afternoon meeting will be good.

[Unknown Analyst]

As for the National Monetary Council in the -- if you cannot use the current structure of CRIs, there another option to assign receivables that could work?

[Ricardo Paixão, executive]

Yes, there is. If we build a structure in which I don't retain risks and benefits, we can carry forward with the transactions. But if there's a denial, yes, there is an option we could choose from.

[Operator]

Our next question comes from Victor Tapia from UBS.

[Victor Tapia, analyst]

I would like to address 2 points. First, more relating -- related to cash generation. The scenario has improved. The margins of projects in the season of 2023, new sales have been very good. 2024 continues to improve. But could you give us some more color on what is still to come not in terms of income statement, maybe it's a node season that hasn't started construction yet -- in the short and medium term.

[Ricardo Paixão, executive]

Your audio, could you repeat it because it was very low, I couldn't hear you.

[Victor Tapia, analyst]

Is it better now?

[Ricardo Paixão, executive]

Yes.

[Victor Tapia, analyst]

Okay. So the first point was cash generation. So the seasons of 2023 have a good margin. The beginning of the seasons of 2024 reached the historical highs, that's going fine. What I would like to understand better from you is about the old seasons, not only those that haven't gone through the income statement yet, but others that you haven't focused on maybe some old constructions that you will accelerate now that could potentially have an impact on cash generation in the short and medium terms. And my second question -- as a follow-up on the last question, I would like to understand what is the average term that -- how long it takes you on average since you start the roadshow until you can issue the CRI and have the money in your account. So just to understand a prototype offer of CRI.

[Ricardo Paixão, executive]

Okay, this prototype, this is Kakao speaking. Since we are experts on those issues, we have been able to do it quite fast. Now once the resolution is published. Now we're at the end of March, we have everything started or structured rather with an investor. So issuing will not be a problem. The market can rest assured of that. The second point regarding cash burnc-- relative cash burn. There are some projects that we start -- we still -- we have not started construction for the works that have a good margin rather than those have a poor margin. There is no season in 2021 that we haven't started construction. There are some projects that are in execution that we reduced the pace because of sales that were not so good, but it's just a few. So in 2024, we see the impact going down almost reaching 0 until the end of the year of construction from 2021. From 2022 we're not so great and we'll go through. And then from now on, it will only improve 2023 has been very good and '24 also. So cash generation will continue to develop. So I think I have answered your question.

[Victor Tapia, analyst]

Yes, you have. It's clear, but, let's say, can you show or explain somehow in the next report and is relief showing by season in more detail, so we can have a higher level of comfort regarding the operational rates. I mean I understand the what you said, but if it's the quantitative data, but maybe it's too strategic and you cannot.

[Ricardo Paixão, executive]

Well, in quantitative, I think we better leave it for later.

[Operator]

Our next question comes from Jorel Guilloty from Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I have 2 questions. First is the labor cost in Brazil. I see the figures that are going down as a component of labor. But we hear people saying that labor is scarce and that scarce -- that could cause prices to increase in terms of labor construction. Is this true? Is this becoming scarce and more expensive? And what would you do to mitigate a possible increase in labor costs? And second question is about Resi. I see figures in the U.S. We understand that the sun belt markets, where Resi is located have significant increase in the supply, which causes an impact on rentals. Since you do have some buildings that are rented now -- when you're doing the lease-up for the apartments, is this what you see? And could that potentially affect the yield on cost, the future yield on costs for those buildings, that's it.

[Eduardo de Souza, executive]

Jorel this is Fischer speaking. I'll answer the first, and then Reis Rafael will answer. In terms of labor costs, there has not been an issue when you look at our geographic extension, 250 construction work sites dispersed along the 22 states, this is not a problem that we've heard of. When you look at some specific regions and specifically in the city of Sao Paulo, when there is a strong competition, yes, we do face some additional difficulty, but nothing that's really an issue, honestly. And in terms of mitigating that, as you said, some important points. First, as you know well, we've been managing the buffer of our construction. As Rafael said, we have been calibrating the construction beginning and the pace of construction, looking at cash that gets in the way of the sequencing of construction. But as this passes and I can accelerate the pace, then the cost decreases. So this would be a natural way of mitigating that. Another important point is that we made a movement to simplify our footprint. We are present in fewer towns. That's helpful because we can have a better sequencing of the launches in the places we remain. So I have more launches in those cities. And I can -- this productive labor works in a sequential assembly line. So being objective, I don't see this as a pain point. Maybe in the city of Sao Paulo, we face more difficulty, but considering Brazil as a whole, that's not an issue. Now Rafael will answer about Reis.

[Rafael Nazareth Menin Teixeira de Souza, executive]

Pleasure talking to you. What's important to understand about these figures that are being published. The market is highly segmented. In each of these regions, there's a market with rentals of $1,500 to $500, $3,000. So we see that the market at the higher income level has an excess of supply, but the market in which Reis operates, as I said in the beginning of the call, we were able to create a product that's a bit different from what the market offers for the workforce segment. So within the workforce segment, I'd say that Reis is in the soup segment. Our unit is more efficient. Is it slightly more compact. Its construction process is industrialized. So that allows us to have a good yield on cost, and we can offer rental prices slightly below what the market offers for a very similar product. That's an important point. So today, there are 4 or 5 developments, there are properties being leased, we see a very good speed of rental. Your information is right at higher income levels, but it's true, but at the income level that we talk about 2 bedrooms, 2 bathrooms in Florida, we're renting for $2,100 or $2,200. And rental prices in Florida have gone up a lot, but now they are stable. We are renting a project -- a property close nearby at a good level, a good speed, the same speed of what we saw in '22, '23, when we moved to Georgia and Texas, rent prices are slightly lower, but on the other hand, land prices are lower. So the yield on cost is not much different. So we continue to see a market with a high demand with a good sales pace and rentals allowed us to have a balanced yield on cost. But more importantly, than looking at the snapshot of today, the number of units and projects that started in '23 and '24 will be much lower than the capacity of absorption of the markets. So if today, you look at the market and it's relatively healthy, what will happen in the next cycle of '25, '26 or '27 is a given. So it's a highly different -- difficult market for consumers, but highly favorable for developers. So in terms of society and the public authorities, what will happen is a more serious housing problem for those geographic areas. But looking from our side as a company, Reis, I'm sure it would be positive for us. Did I answer your question?

[Wilfredo Jorel Guilloty, analyst]

Well, yes, it's very clear. Thank you, Fischer.

[Rafael Nazareth Menin Teixeira de Souza, executive]

I think that if you look at data -- there are some other report -- there are some reports that provide segment per income level. So when you analyze it this way, you can see what I mentioned here more clearly. If you need Augusto, Kakao can help you sending you additional material good. Thank you. Pleasure talking to you are. Have a good weekend.

[Operator]

Our next question comes from Rafael Rehder from Safra.

[Rafael Rehder, analyst]

I have 2 questions. Just a follow-up on the cost dynamics. In addition to labor, what are the other inputs? I mean do you think there will be pressure in some specific costs and also in terms of equipment because we've been had a strong market recently in the last recent last year. So do you see any difficulties in terms of rental of equipment. To continue with the construction works? And the second question, the remaining units that haven't been signed yet, do you have any expectation to start construction in this first quarter? Or will you remove them?

[Eduardo de Souza, executive]

This is Fischer speaking. I'll answer both questions. First, what we've seen in stability with some reduction, I don't see any movement contrary to that in terms of costs. And I don't see in the short-term horizon, anything different. Considering the world market, China mainly, we've seen a gradual reduction in prices. So I'm confident that the inclination of this curve is favorable for us -- the equipment we use, except for the aluminum mode, we use very few equipment. So there is no pain point there either. So just to summarize, we've seen some stability and cost reduction since the beginning of the second half of '23. And this is the trend we see for 2024. So there's nothing in our radar that shows a different direction. On the contrary, when we set on negotiations is to reduce prices. We've started negotiations. And as for the second question, in the less than semester, we have some difficulty with the mayor of Sao Paulo to use the budget from last year this year. So March to April of remaining contracts. So consequently, you won't see any works being started by MRV in the first quarter because we are already in March. This is what I can say for now. There is a certain level of uncertainty regarding the exact date. But the city authority is doing its work, and this is expected because they have to transfer funds from 1 year to the other in terms of budget. But in the next 35 or 40 days, this will be clarified. I hope I have answered both of your questions -- both of your questions.

[Rafael Rehder, analyst]

Yes, that's very clear.

[Operator]

This ends the Q&A session. For the final remarks, I would like to turn the floor over to Mr. Eduardo Fischer, the CEO. Go ahead, Mr. Fischer.

[Eduardo de Souza, executive]

Well, we've had a very broad call. We covered many of the things that I plan to say to you. So I'll just highlight what I find most important, 2023 was actually a transformational year for MRV. The operation reacted very quickly to the challenges we set given the levels we came from in 2021 and '22. So presenting -- delivering the growth we delivered is not trivial. It's an important landmark for us. We grew BRL 2.6 million, 1 year from the other. And this is -- makes us very confident that in terms of operations, we start 2024 stepping on the gas battle, and we have a robust pipeline of launches in line with the strategy we presented. January, we did well in sales. March is traditionally a strong month. The regional products have been very helpful, not only in sales volume but in accelerating this operational recovery. All the benefits that come from the federal and state housing programs will be converted in increasing margins, operational improvements and lower receivables so that we can have the results going faster in our income statement. And also importantly, we highlighted this in our material. We reached BRL 7.2 billion in net revenue last year. Our sales levels are above that. And there is no cancellation. So as we move on on this buffer, we see the revenue of the company growing towards the figures, which are the goals for net revenue in the future. This year will be still challenging, but I believe we will consolidate even further what we started building in 2023. We remain very optimistic, although these results are not what we aimed for, but we are sure that the company will provide the pillars to meet our goals and deliver what we promised. So again, we are not at the levels what we want, but all the previous criteria have been met. So this is why I'm so pleased with what we built in 2023. This is my main message because this is a spirit. We are now facing in MRV right now. Thank you very much for the audience and see you in the next quarter.

[Operator]

MRV's conference call has now ended. Thank you all for attending, and have an excellent day.