Metrovacesa SA

MAD:MVC

Earnings Call Transcript 2020-Q1

[Juan Carlos Calvo]

Hello. Good morning, and welcome to the Metrovacesa First Quarter 2020 Results Presentation. The slides of this presentation as well as the financial accounts have been released to the market earlier this morning, and they are available through the company website as well as the CNMV website. And hopefully, you have received them by e-mail from us. We have with us the CEO, Jorge Perez de Leza; and the CFO, Borja Tejada, who are the main speakers in today's presentation. We are going to go through the presentation now. And at the end of the session, we will be taking questions from the conference call and also questions sent online to the webcast. I now pass the word to our CEO, Jorge.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Thank you very much, Juan Carlos, and good morning, everybody, and welcome to our first quarter 2020 results presentation, and I hope you're all well and healthy. Let me go through the highlights, Page #5. We continue our operational progress in the first quarter of '20. We now have circa 3,750 units under construction, with the addition of 510 new units during the quarter. In commercialization, we have a total of 5,500 units. And the presales backlog has increased to 2,248 units, representing EUR 630 million of future revenues. Specifically, during the quarter, we presold a net amount of 263 units, and we delivered 146 units, and EUR 49 million of land sales were booked in the quarter. In the financial section, I would like to highlight our strong financial position with EUR 292 million of cash position in March, which is a substantial rise in the first quarter, representing a net LTV of 3%. We generated a positive free cash flow of EUR 25 million, and we have no material debt repayments in 2020. And as I will talk about it later, we are in business as usual mode, signing new debt facilities for the development of our projects. As you all very well know, the COVID-19 is representing a disruptive event since early March, and it's still too soon to evaluate the impact on earnings, cash flows or timetables for the year or for early 2021. The key priorities as I will go through them right now for Metrovacesa are cash preservation, a conservative approach to management, business continuity to minimize the impact and of course, health and safety preservation for all our stakeholders. Let me dive in the next page in a little bit more detail on what this means. In terms of commercial activities, all our points of sales were reopened this week after 8 weeks closed. And we have, I would say, around 100 interviews scheduled for the week, which is a good start. Our digital channels like Metrovacesa Digital, with 360 virtual -- degrees virtual tours as well as remote digital signature of reservations and contracts is fully operational since the beginning. We also launched special campaigns like PromuevoConfianza, which means to promote trust for our clients, giving special conditions for these times of uncertainty and as well our BeSafe insurance policy, covering those people that are unemployed or temporarily unemployed, is also proving to be a good measure. In terms of construction, all the sites reopened on April 13 after 2 weeks of stoppage. And while the progress is lower than 100% due to the health and safety measures put in place, we are slowly and gradually improving in speed. As I mentioned before, it's still too early. I'm sure you will have questions about what is our speed. We don't have an answer right now into what this slowdown in productivity will mean, but we hope in the next couple of months to have a much better view on the calendars for each of the sites. We did have new starts in construction. However, we are now more strict in the construction start. What this means is that if before, in some cases, with 30% presales in reservations, we were starting construction, now we are more strict and will require private contracts to be signed and the development loan also signed before we actually put a brick on any site. In terms of employees and structure, all our team is working remotely with good productivity. Our technical teams are visiting the sites on a weekly basis and holding the weekly site meetings remotely. All the safety procedures during the restriction period and for the gradual comeback period have been put in place, not only in the construction side and the sales offices, but also on the central office as we gradually will start coming back in the next month. We also had some social responsibility measures put in place where our employees donated to charities and Metrovacesa matched the amount donated by the employees. And we've also put in place some cost-cutting initiatives, which means the freeze on new hirings, as well as reduction on nonessential general expenses. Cash preservation initiatives go beyond that. And so we put -- we have fully withdrawn the corporate loan that was available. We've also, as I mentioned, been signing new development loans in the month of April. And then we are reviewing on a case-by-case all the land CapEx commitments so that we prioritize, again, liquidity and cash, but without jeopardizing any future launch or any future strategic site for Metrovacesa. Corporate decisions, some of them which you already know. We -- the Board decided to postpone the decision on the dividend for this year to the second half of 2020 due to the limited visibility that we have right now. The share buyback program remains in place and will be fully operational again after the shareholders meeting that we will hold in a couple of weeks. The guidance on 2020 free cash flow is suspended, as I mentioned before, due to limited visibility. As you know, our free cash flow guidance is mainly based on deliveries as well as land sales and the current situation does not allow us really to give an accurate number or anything close to accurate. So we have to wait until we have more visibility on that. And as I mentioned before, the annual -- the general meeting will be held on May 25 and will be -- as we will continue under state of alarm in Spain will be held primarily on a remote basis. However, physical presence is also possible but is not recommended. Moving on to the business update section. On Page #8, you can see here a summary of the key data. I will go through in more detail in the following pages. So if we turn to Page #9. We sold in total 263 net units in the first quarter, bringing our backlog of sales to 2,248 units in total. The sales figure were strong in January and February. I think I mentioned in a previous call that I was cautiously optimistic. However, the week of March, we already started seeing the impact of COVID-19. Nevertheless, the 2,200 and almost 50 units of presales represents EUR 630 million of future revenues, a growing proportion of the total portfolio in commercialization. I would also like to mention that out of these 2,250 units, more than 70% are now contracts and so reservations are around 27%, 28%.Moving to the next Page #10. In terms of residential active units, we now have 8,000 units in total active, which with an average selling price of EUR 307,000 per unit, which is a figure that is slowly growing due to 2 factors: one of them is the mix of products that we're launching; and secondly, some HPA that we are seeing in some of the developments that we have. Out of those 134 active developments, 93 are under commercialization, representing 5,500 units in total, and this includes the 2,250 units that are already sold. And almost 60 projects are under construction, representing 3,750 units. We launched 238 units in Q1, which is a smaller figure than we had in the previous year. And this is, again, due to the more conservative approach until we have more visibility on what is going on in terms of net commercial activity as well as construction impact after COVID. Moving on to Page #11. As I mentioned, we have 59 projects under construction with 3,750 units. The total volume of contracted works is EUR 528 million with 27 construction companies. We have a good diversification of construction companies, and we also have a good number of strong national companies with a strong balance sheet. In the first quarter, we had 394 -- almost 400 units, 9 projects receiving a building permit. And we also requested an additional 5 projects representing 270 -- sorry, 87 (sic) [ 287 ] units of new licenses. In total, we have 2,240 units under licensing process with an average of 6 months into the process already. The deliveries in the first quarter, moving on to Page #12, were 146 units. These are mainly tails from the deliveries of 2019. However, we were unable to deliver all of them due to the fact that COVID-19 actually closed our offices and closed the notary's offices, except in cases of emergency. It's still early, as I mentioned, to evaluate the impact of COVID-19 on the agenda of the deliveries for the full year, and therefore, what impact it may have on the cash flow guidance for the year. Hopefully, we will be able to give you more detail on that in the next quarter. The first quarter deliveries were split as follows: 40% in the center; 38% in Easter Andalucia; 18% in Catalonia; and 4% in Levante with an average selling price of EUR 255,000 and a gross margin of 16%, which is lower than our low 20s guidance that we will approach mostly towards the end of the year as we deliver more units. Land sales, moving to Page #13, were EUR 49 million in Q1 2020, mainly due to signing the sale of 34,800 square meters of a land plot or part of a land plot that we own in Valdebebas with a selling price of almost EUR 1,400 per billable square meter. This is a very significant operation in terms of cash flow generation, although it has limited impact on earnings as the book value was in line with the GAV from what we signed. We also made a small transaction residential plot for EUR 1 million. Moving on to land management. We converted an additional 306 units into fully permitted land. Very important, the Arpo district in Madrid, a very well sought after district by many developers, was finally transformed into fully permitted. And in fact, the urbanization works for this land have already started. And we also had some additional units in Castellar del Vallés, which is district just outside of Barcelona. We now have, in total, 81% of our GAV after the deliveries of the first quarter represents fully permitted land. In terms of commercial assets, we now have 61% -- or let me put it the other way around, 39% of our portfolio is already sold or derisked. And our main development, the Puerto de Somport office, in which we own, as you may remember, 24% stake, the other part belonging to Tishman Speyer, the construction site is operating normally as well in a similar way to the residential construction site. And we are under commercialization and pre-letting right now. The other project, Monteburgos II, which is a turnkey building of 11,250 square meters, we are in the process of obtaining the building permit right now. And with that review of our operations, let me hand the floor now to Borja Tejada, our CFO, which will run you through the financial overview.

[Borja Tejada Rendón-Luna]

Thank you, Jorge, and good morning. This quarter, I will go through our highlights of our financial accounts, net debt position and free cash flow for shareholders. In terms of our financial accounts, total revenues of EUR 81.4 million, out of which circa EUR 33 million from development and EUR 49 million from land sales, equivalent to 46% of the full year sales of 2019. In terms of gross margin, as already mentioned by Jorge, plots has been sold at GAV in line with our book value. And in residential development, 16% to be increased by the year end once we deliver more units. EUR 2.7 million negative earnings before interest, and net results, minus EUR 6.2 million. Concerning our financial situation, low leverage, but increasing quarter-by-quarter. EUR 90 million of net debt, due to our strong unrestricted cash position of EUR 209 million. Let's check now our net debt positions. Low LTV of 3%, small changes versus fiscal year 2019, no significant debt maturities in the near term. I mean, that means EUR 7 million just in December, and corporate financing maturity in December 2022. About measures recently taken, full withdrawal of our corporate financing, more than EUR 135 million, EUR 30 million loans signed in April and another EUR 40 million already committed for next weeks. Keep a very strong cash position with more than EUR 290 million, out of which, EUR 209 million fully available. And additionally, we have another EUR 47 million of deferred cash collections for land sales. Finally, let's check how we understand the concept of free cash flow for shareholders with an example based on our real figures. It's just a simplified definition consistent with our free cash flow guidance. Starting with the EBITDA of minus EUR 2.5 million, we add the book value of the lands sold and residential deliveries. It assumes with a need to replenish our land bank, then we adjusted with corporate financial expenses paid, corporate taxes, repayment of corporate debt equivalent to 15% of our land sales revenue and other working capital changes. It mainly includes EUR 34.2 million in deferred collection of Q1 land sales to be collected this year, getting an adjusted free cash flow for this quarter of more than EUR 25 million. Now I will hand over to Jorge with the closing remarks.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Thank. You, Borja. So moving to Page #21. I would like to close highlighting that Metrovacesa is setting the ground for a solid post-COVID performance, and this is backed by 3 -- sorry, 4 different pillars. The first one, very important, is a prudent management approach during the pandemia (sic) [ pandemic ] period, which is focused on preserving liquidity, liquidity that will allow us to become stronger as things get normal. This means the containment of some of the operational risks, as I mentioned before, for example, being more prudent on launches, being more strict on when we start the construction, meaning having not just reservations, but private contracts signed and having the loan already in place to be disbursed, and also additional cash preservation policies like looking one by one on the land CapEx for our non-fully permitted portfolio as well as some overhead structure general expenses that are under review. This means that we will preserve and strengthen our strong financial situation. We have a low LTV ratio of 3% and EUR 292 million of cash. As I mentioned before, no significant debt maturities this year. Positive cash flow generation and good access to financing because we are seeing that the banks in Spain, in terms of development, are still acting business as usual. And as you know, we have no need to finance any land purchases to secure our projects for the following years. I know that some of you may think that we have maybe a too strong cash position. But believe me, we think that liquidity is the name of the game right now, and we will be able, as soon as we get back into normal, to come back fully and use that cash appropriately. I think right now, we feel more comfortable if we sleep every day with EUR 100,000 more instead of EUR 100,000 less euro available. Also, our large and high-quality land bank, which adds greater flexibility with a good geographical presence, multiple buyer profiles, exposure to commercial office segment, which already now already -- sorry, may -- a lot of the operations are now on a standby mode. There is still a lot of activity and a lot of equity flying around, and we continue our active land management, transforming our key strategic land into fully permitted. Our current stock price values our land portfolio at EUR 140 per square meter, which is approximately 7% of the gross development value compared to 23% in the appraised value. And we believe this is a great opportunity to buy land with a good best-in-class platform in the country. And let me add, additionally, what I think is important is that the Spanish housing market has more solid fundamentals this time than in any other crisis. There are no apparent imbalances in the housing market, not only in terms of house prices, but also in terms of new construction volume. And I think in the next few months, we will see some constructions that are stopped mainly by smaller developers that may not have the liquidity needed to continue or projects that have not reached 30% presales and therefore, are not able to continue with equity. And I think this will mean in the post COVID or when we start reaching normalization that we will be at a volume of output that becomes much more attractive to those that remain, because it will be a smaller output. And also, the banks are in much better shape, and we see that the banking sector, as I mentioned before, is still on business as usual mode and lending not only to developers, but also to our final customers. So this puts us, again, in a position that I think we should be ready to restart as business normalizes. And with this, I finish my presentation. Thank you very much.

[Juan Carlos Calvo]

Okay. Thank you, Jorge. Thank you, Borja. We are ready now to take questions. We will start with the audio conference call, and then we will read some from the webcast. So operator, can we please go ahead?

[Operator]

[Operator Instructions] So our first question today comes from [ Flora Trevede ] from Scotiabank.

[Unknown Analyst]

First question is on land sales. Considering that this is a relevant part of your cash flow expectations, can you comment on how you see the market evolving for the remainder of the year? Are you currently holding negotiations on specific land plots? And then secondly, I was just trying to understand the drivers behind the 16% gross margin that you reported. From what I understood from your comments, you could stand below 20% this year. Is that right? And then just finally, on the level of cash you are holding, does this reflect your view on the sector revolution in the coming quarters and the difficulties you will in rate? Can you just help us reconcile this on your view for the coming quarters?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Okay. Let me take your questions one by one. I think on land sales, as I mentioned before, it's hard for us. I mean I wish I had more visibility, but it's hard for us to give anything close to even have precise on what the market will look like. But I would like to highlight that the market is not dead. And I would separate between commercial land and residential to give you an explanation. I think commercial land, we are looking at buyers that are more, I would say, institutional buyers or funds and larger transactions like the one we've seen in Valdebebas, I mean, the commercial land that we have right now left are big tickets. And in there, we do have interested parties looking at them and doing right numbers. But however, all the investment committees of these funds are now closed. And so this interest does not go -- that's not materialized as of today into anything more than that. Interest, high interest, running numbers, and so I think it's good news in the sense that the market is not dead. What is not so good news is that we still don't know when the IC committees will reopen. And then if there will be any material changes in the assumptions that the buyers are using, which right now, they are not changing. I mean we are still seeing that the numbers that are run are very similar to our pre-COVID state. In terms of residential land, which is smaller pieces of land, therefore smaller tickets and mainly being bought by local developers. I would say that the activity there is more limited, but I don't -- I would not say that we may close something in the following months but small transactions. So therefore, meaning like the EUR 1 million that we sold in the first quarter that I think represents that there is activity, but it will not change dramatically our cash flow situation. Moving on to the question #2 on the gross margin. I think the 16% gross margin is mainly due to the mix of product. And I think by the end of the year on the deliveries of the year, we should be closer to lower 20s. And I think going forward, as more projects come into the -- in the years '21 and '22, I think we will be, as we mentioned before, on our prior calls, something between 20% to 25% assuming that there are no material changes in the market in the post-COVID era, which we do not see any big changes in prices of new construction in the market. Moving on to the question #3 about cash. And I think here, you mentioned 2 questions. The first one is our cash position and it's not too much. I mean our cash position right now would definitely allow us to pay a dividend. But I think the Board and the management is taking a prudent approach to make sure that our liquidity situation and our liquidity generation stays in place. I think waiting a few months is worth -- is worth it to make sure that the company remains solid and again, ready to, of course, remunerate our shareholders but also ready for new opportunities that the market will bring in terms of investment of our land in our land portfolio and speeding up some of our developments as the time comes through. Difficulties, the second part of the question that you mentioned, is difficulties that we may experience. I think -- I mean the difficulties are those related to cash flow generation. The first one would be if the land market slows down dramatically, that's a possibility that can happen. I mean, as I mentioned, we do see activity going on, but we do not have -- in a non-COVID environment, we'll probably have already some binding offers on the table in order to reach our EUR 150 million to EUR 200 million of free cash flow guidance that we gave. We don't have that as of today. We need to see those interest and those people working on the [ XO ] to transform -- to be transformed into LOIs and then to be transformed into binding offers in order to feel more secure about our liquidity generation. I would say the same with our deliveries. And I would say that the main concern there, I think, is not construction. I think we will see some delays in construction, obviously, due to the -- mainly not the 2-week stoppage, because that at the end can be recovered, but mainly due to the less productive, meaning around 70% -- 70%, 75% productivity that we are seeing on the sites and that we remain like that for a few months. I mean we cannot expect everything to recover to 100% because the health and safety measures just do not allow it. And we're not going to risk the health and safety on our sites just to recover 1, 2, 3 months of delays that may appear on the sites. And we'll give you more detail on that as soon as we have it. However, sales is something that, as of today, for us, remains probably the biggest uncertainty, which is what will be the commercial activity, gross and net, coming forward. And when I say gross, it's new opportunities. And what we have seen, it's still very early to say. But in the month of April is that we have seen quite an interesting movement in terms of leads. And so even in the month of May, we're probably almost back to normal in what leads mean. We're also seeing good level of interest in what we call pre-reservations, reservations that where we charge EUR 300, for example, and then the client is able to cancel. However, we are not considering those as presales. We just consider them as qualified leads, but we would never account for those as gross sales. And cancellations are not yet something meaningful, but it's something that we're watching very closely and that we believe will grow. And so therefore, that is an uncertainty right now that we have to watch closely and manage appropriately. And we really don't have enough, let's say, days of this uncertainty that is going on to give you a more detailed view. I'm sorry that I took a long answer, but I think the questions deserved quite a bit of detailed answer.

[Operator]

The next question from the line is from Manuel Giménez Hoare from JB Capital Markets.

[Manuel Giménez Hoare]

Great. I have 2 questions. Maybe it's best if I ask them one at a time, if that's okay. So first question with regards to the 2 months deferral of client payments to incentivize sales. I was hoping you could help us understand how this could impact the working capital variation and whether you're also showing leniency towards supplier payments and if this could have a further impact.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Yes. Yes, the 2 months referral, how that works is that basically, the clients for 2 months, they're able to not pay those 2 months and then starting, I believe, in October, they have to repay those 2 months in different installments. So in terms of impacting our cash flow, it's very little, in our working capital is very, very little because at the end, what happens is that we use the development loan for actually payment for the construction instead of the clients -- those 2 months of clients' money. So really, it's not a big impact, if any. And just to keep in mind, I think about less than 20% of our clients actually opted for this possibility. So again, you don't have to take 100% of the contracts that we have and apply that logic. It's only, in fact, less than 18% even the clients that took that option, which I think represents -- tells us that more than 80% of our contracts are not, as of today, has affected by the situation of COVID.

[Manuel Giménez Hoare]

Okay. And the second question, I get the feeling there's been less of a focus on house price appreciation and construction cost inflation lately. I guess there's an assumption that HPA trend will be flat or slightly negative in the short to midterm. But could you give us an outlook on construction cost inflation trends in the construction sector as a whole? It'd be interesting to understand whether -- well, if numerous construction companies were to file for bankruptcy, for example, whether there could be an unexpected pressure on construction cost inflation?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Yes. I think on the first one, HPA, yes, absolutely. I mean I don't -- we don't see any growth in HPA. And I think on the opposite, we don't see -- I don't see on the market any of the new developments right now dropping prices. Will some of the developers drop prices in some specific projects because they need to get to 30% or because they have a tail or something? Yes, but I think this will be punctual, but most of the big developers, the sense that I get in the market is that we're going to hold tight with our prices, because I think, again, offer in the market is going to be limited, and we will see how it goes. But I think we have the muscle power to really give up a little bit on rhythms against margins. So I think no big drop price is expected as of today. In terms of construction inflation, it's an interesting question. I mean, I think, what we have seen in the market is some smaller -- very small local developers in the recent weeks, which, by the way, we don't have any right now those, but that are experiencing some cash tightness. So I think there may be some additional bankruptcies of smaller companies going forward, which may put some tension in the market. But I don't think that regional or larger companies are in that situation at all. We took the decision a year ago to give up a little bit -- 1 percentage point of margin and go for larger companies, and I think in that sense, we are better protected. But of course, nothing is 100% bullet proof. What I do see as interesting nevertheless, is what will be the dynamics in the medium term, 6 months from now after we see that I think, in general, the bigger developers and the smaller ones, obviously, the same. We're being more prudent, as I mentioned. So we are launching less and we're putting less in construction, because now we're, as I mentioned, more conservative with a more conservative approach in liquidity. And I think nobody will start any construction with equity right now. So this means that the construction -- new construction is coming to the market in the next 6 months will be significantly lower to what they were last year, and we have to see what this means in terms of pricing. I think there may be an interesting dynamic. So for sure, I don't see a cost increase in the coming months.

[Manuel Giménez Hoare]

Okay. And then just the last question. There's a general perception that urban development is easier to achieve or tend to accelerate during economic downturns as top developers are eager to increase revenue sources. I don't know if you agree with this, and I was wondering whether you see any upside risk to your land management division in terms of timings in light of this.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

That's an interesting question. And again, I think I'm going to go for a little bit of a long answer, because I think it deserves it. I think, first of all, we have been quite active and not just Metrovacesa but I think the top developers in the market are channeling our efforts through the -- or are lobbying through the Association of Developers -- National Association of Developers as well as through the different regional associations of developers, targeting both the state as well as the regional governments. And then on a bilateral basis, and I'll talk that about at the end, Metrovacesa directly talking to top people in the municipalities. Apart from measures in terms of incentivizing the demand of the clients, which have been on the press, I think there is also measures that are related to speeding up the administrative processes. And this is not just in licenses, meaning construction license or the final occupancy license, but also in terms of speeding up the processes of urbanistic land management for basically approvals related to non-fully permitted land. And I think in -- on the first part, you may have already seen that in governments -- regional governments like in Andalusia or in Madrid, recently, what is called declaración responsable, which means responsible or sworn declaration would be a bad translation into English. That basically means that you stayed in front of the regional government or the municipality, that you are complying with the different urbanistic parameters or that your building is built according to the building permit and therefore, you can go ahead and deliver the units or start the construction. And this saves some time, absolutely. It does save some time, so I think it's good news. And I think other regional governments may follow, because at the end, politicians also like to, I would say, to copy the good practices of each other. So hopefully, this will become more widespread as months come along. On the urbanistic management, and I think there has also been a more bilateral approach from Metrovacesa. We -- what we say to the regional government is that, look, you have a company here that has a very solid financial position, which is ready to invest in our strategic land, strategic land like Plaza which is in Barcelona, Benimaclet in Valencia, [ Benival ] in Valencia, Tarifa, Palmas Altas in Sevilla. I mean we're talking about millions of euros that are coming from this solid and maybe some of you may think conservative cash position. Well, we did that cash position to actually really go ahead fully with this land management as it transforms and the municipalities make the approvals. And what we see is a much more proactive approach from the municipalities and regional governments in this sense. So it hasn't translated into -- can we say now that something that was going to take 5 years or 3 years or 2 years, is it going to take half? We don't know right now, but I think we are moving in the right direction. And I think we will have more exterior decisions because at the end, we generate employment, and we generate construction. We generate -- I mean it's something that even if demand weakens due to COVID in the next 6 months or 12 months, we don't care. We're talking about putting money, putting millions into movement for the month of 2 years from now or 3 years from now. So I think that sounds like a very attractive proposition for the municipalities or the regional governments.

[Operator]

The next question on the line is from Jose Cravo from Banco Santander.

[Jose Francisco Cravo]

A couple of questions, if I may. The first one will be on deliveries for 2020. I'm trying to think, well, if we assume that land sales during the second quarter could be very low, and if we take from your details of 2019, which, if I'm not wrong, were 220 units, right now, you have delivered 146 of those. And if I understood correctly, you said that you haven't delivered them all because of COVID. So I'm assuming that this -- the remaining 70 something are already presold. Could you also give us an idea whether this 74 will be delivered and notarized during the second quarter? And whether year-to-date, you have finished other construction site that you could also deliver still during the first half of the year? That would be my first question.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Thanks, Jose. I think on this one, I'm going to be less precise than on my prior answers because, as I mentioned before, I think we -- it's still early to say -- I mean on the tail that you mentioned, yes, we will deliver those. I mean, those are the ones that less work or the ones that worry me less because those should have been delivered before the confinement. However, on the remaining deliveries, I think we need to assess what is the delay in construction, which I mentioned before, there is going to be some delay, whether we want it or not. And depending on whether that is on a project-by-project basis is 1, 2 or 3 months. Some units may still be delivered this year and some may skip into the first quarter of next year. I'm not seeing 6 months delay or 12 months delay on anything. So let's not worry here. We're talking more about the months that are, I don't know, between 1, 2, 3, 4 months. And then again, may mean some skippage into next year. And then what we need to see is what we sell of the unsold portion of those units that are to be delivered in 2020. I think it's worth -- since your -- I may tie your question into something important, which is something that should worry us all, which is cancellations. I think cancellations should not, however, impact 2020 deliveries in a meaningful way because I think the cancellations may come mainly from reservations that are turned into contracts rather than contract. I mean people that have already paid most -- close to 20% or to 30% in the case of second residents, which are units to be delivered in 2020 are unlikely to be canceled because it would mean a big loss for the client. So I think cancellations would not have meaningful impact in 2020 deliveries, and so should impact more those that are reservations turning into contract, which is mainly deliveries of late 2021 and then 2022 projects, which probably we have some time later on to catch up on those if they are meaningful.

[Jose Francisco Cravo]

Okay. But with regards to what you have finished this year, I can interpret or I can understand from what you're saying that year-to-date, you haven't finished the construction on any site. Is that correct?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Can you ask the question again? Sorry?

[Jose Francisco Cravo]

So my question was more about the second quarter delivery. So I wanted to first to check about the 74 units that were pending from 2019. And you said, yes. But then what I want to know is whether year-to-date you finished construction on any other sites, and that I could add some units for the second quarter of this year on top of the 74.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

We have finished the construction in 2 sites, but we don't have final occupancy license, and we don't know how long that will take, because some of the municipalities are not visiting. The technical people are just staying at home, getting their full salary but not visiting sites.

[Jose Francisco Cravo]

Okay. Very clear. Then my second question is on cash flow. From what I get, your adjusted cash flow was EUR 25 million, and from what I see on the footnote, you had EUR 51 million cash outflow with regards to urbanization and construction CapEx. So that would take us roughly to minus EUR 26 million, but your net cash flow was EUR 12 million. So I mean, my question is, can I assume that your financing cash flow was only EUR 14 million out of EUR 51 million that you spent in terms of construction? So my question here is, why are you financing so low for the construction CapEx? Why are not we seeing more positive financing cash flow?

[Borja Tejada Rendón-Luna]

Borja speaking. Those EUR 14 million are concerning to those expenses to be incurred before the construction starts. And on the other hand, there are some costs not financed by banks. At the end, we are getting financing for costs and some costs and licenses like ECO, construction taxes, architect, project management, et cetera. But at least, Spanish banks are not financing interest, debt service costs and commercial costs. Take into account that with more than 5,000 units under commercialization, out of which, close to 4,000 units are under construction, EUR 14 million of equity invested in those projects, it's not a meaningful amount.

[Jose Francisco Cravo]

Okay. And then just my last question would be on the units that you have requested the license but still hasn't received. So you have 2,200 units, if I'm not wrong. You've told that you -- right now, you would not go ahead on new projects with equity. But I mean, can you give us a bit more detail on these 2,200 units? What will you do when you receive the building permit for this?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

So I think on that, Jose, we are on that, as we mentioned, on average, we are 6 months into the process. And I think on average, we are now between 8 and 9 months in obtaining a license. So it means that, again, on average, so we're talking averages here, that within 3 months, we should have a license for both of those projects. And then I think we will, as I mentioned at the start, the ones that have 30% contracts, which means it takes a little bit longer than reservations, and then where we have the loan in place, and that will be taken on a case-by-case basis. There are projects where we will not have that 30%. That's clear. However, I cannot tell you right now how many coming with this, I think the next months will be critical. And what I cannot have a view right now is on how the number of leads and the number of -- I don't want to call them presales because they're not presales. The number of reservations that we have with EUR 300 will actually -- which are not insignificant will transform into new contracts. So I think it's early to say. But we will take the prudent approach and some projects will just not be started or take a little bit longer. I think also going the additional uncertainties that you may have here is that banks require, in some cases, more than 30% of presales, and that will be the case for sure in second homes in Costa del Sol. No doubt about that. And we are not seeing it in first homes as of today, but it's something that may happen. So again, I think I prefer to be prudent and give you a more accurate answer, if possible, next quarter. We'll see how much visibility we have next quarter.

[Operator]

We have no further questions from the phone lines, so I'll hand back to Juan Carlos.

[Juan Carlos Calvo]

Thank you. We have a few questions from the webcast written. So I will go through -- we will read all of them. We have one first question coming from an investor. He is asking can you comment anything about the business update in April and early May, if there is any commentary of the business in terms of revenue, sales, et cetera.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Well, as I mentioned before, in terms of land sales, we are not seeing -- we are seeing activity, but nothing -- well, let me back up a little bit. I think the second quarter is going to be a flat line quarter for everybody, and that's a reality. I mean whether we want it or not, there's a lot of uncertainty. IC committees are closed. We've had our sales offices closed et cetera, et cetera. So I think it's going to be an exceptionally bad quarter. And then what the question is, is how much will it take into getting back to normal. Now going into more detail, I think land sales, as I mentioned before, we may close a small transaction, whatever. But big transactions that have a meaningful impact in our cash flow are not happening and will not happen until the investment committees of the funds are reopened for the institutional buyers. And then I think in terms of presales activity, again, I think it's going to be quite flat line. There is gross commercial activity. There is what we call qualified leads that we don't -- we would not qualify them as presales. But I think there will be cancellations. So I think cancellations is something that -- and this will be -- this may change on a quarter-by-quarter basis, because when you see -- and perhaps, let me spend a couple of minutes on how we see cancellations. I think people that have a reservation are not really -- they're not thinking about canceling right now. They've paid EUR 3,000 or EUR 5,000. I mean some of our more luxury development is a much larger amount. But on average, it's that amount. And there is a kind of an option that the people have and they will not -- they've already spent that EUR 3,000 probably will not cancel. When it comes -- when the -- you come to the time that you need to transform that reservation into a private contract, there is where you see the truth. And so if you don't have any of those reservations transforming into private contracts during the quarter, you will not see cancellations. If you do have some of those, it's where we will see what happens. And that right now, I think we have not -- we are not seeing any big cancellations. But as we transform more reservations into private contracts, I don't know what will happen, it's what we have to see. As we see people that are temporarily unemployed, that are permanently unemployed, we don't see what will happen, it's what we have to see. So again, I think that, that will mean that in terms of net sales activity, net, because I think what's important here is net sales activity, we will see a quarter that is quite flat lined. As we see our offices, sales offices reopening, and as we see people getting more into normal life and so are less scared to go to the offices, and as we see how many -- what is the impact in the economy at the end, we will have a better view on the net commercial activity. As of today, I would say that the second quarter is going to be a bad quarter.

[Juan Carlos Calvo]

Okay. We have the next question coming from another investor, actually, several questions from him. Can you give us more detail in terms of the buyback? In what extent are you making it more flexible? Separately, have you seen any competitor change in prices, prices of apartments? Thirdly, are you planning any -- or any movement on this front, on the prices? Separately, with an LTV ratio of 3%, is it really needed to be so conservative in terms of dividend? Do you think that the company balance sheet is already optimized?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Okay. Hold on a second. So in terms of the buyback, as you know, right now, we had a limitation in the nominal value. I think going forward, what we have submitted for the shareholders to approve is that we are able to be more flexible on the buyback program. And that means that we shall be able, if approved, to buy on a lower limit of 30% below the trading price and on an upper limit 10% above the trading price. So I think that will give us enough flexibility in order to fully implement the program. And believe me that we are very willing to start buying the shares because I think, as I mentioned before, EUR 5 is EUR 140 per square meter of land. And I think it's a bargain to buy at those prices. On your second question about moving -- competitors moving prices. I mean, this is one of the main activities that we're doing right now, which is monitoring what competition is doing. And no, we're not seeing any big price movements at all right now. What we do see is that there are some -- the same way that we have more flexibility in the reservations. And we have 2 different -- and I think we mentioned this, 2 different more flexible reservations, 1 of them, which is EUR 300 nonrefundable, and you have to confirm in 1 month, or we also have a EUR 3,000 refundable reservation within a 1-month or 2-month program -- sorry, period. We also see some developers that are taking, and I don't know if they consider them reservations or commercial activity or not, but are taking free reservations. We're not there yet, but we do see that this is a widespread movement from the developers. But in terms of pricing going down right now, no. And we are not planning any movement on that front. The 3% LTV, is this really needed. And I think there's another question related to that. I think that the cash position that we have right now due to the taking additional cash position, taking or fully withdrawing the corporate loan, that corporate loan is mainly to be used in -- and I would say, 60%, 70% is mainly used -- will be mainly used for urbanization CapEx. And therefore, it wasn't meant for a dividend. We're not -- I've always said it. This company is never going to take leverage to pay a dividend. No way. So that is to be used for urbanization, and we have to keep it for that. And then additionally, the remaining 30%, 40% is to finance operating expenses in the cases where the cash flow does not cover the operating expenses. And additionally, to fund, in some cases, the start of construction of projects with less than 30% presales. As I mentioned before, right now, as a prudent approach, we are not starting any projects with less than 30% presales. So you may say, are you being conservative? And I say, yes, I mentioned it at the beginning. I think we are being prudent. But I think the name of the game right now is liquidity. And I think delaying our business plan a few months, but just making sure that we are alive. We don't have any debt coverage problem, and we can face a slower getting-back-to-normal market, I think is a privilege that not many others have, and I think we need to keep that privilege and our shareholders deserve that privilege. And believe me, when we get back normal, I think the balance sheet can be optimized, absolutely. One way to optimize it is through the share buyback that will be restarted as soon as possible. But then obviously, through the dividend, which is a key way for us to remunerate our shareholders as we have proved until today. But I mean, I see -- if I see the market around us, there are hundreds of companies that have put the dividend decision on hold, so I think it's not something that I should, in a way at the end, [Foreign Language], I can't find the English word right now, should make somebody uncomfortable or surprised.

[Juan Carlos Calvo]

Okay. Moving to the next question. It's from an analyst, Mariano Miguel from Kepler. Actually, several questions here again. You mentioned that we have 100 interviews scheduled at the sales point. How does this compare to a normal week pre-COVID? Secondly, do you think that banks will require a higher level of presales for future project financing? Then launches, any guess about potential figure for the next few quarters on launches? And finally, out of the active projects, what percentage of them have you started with equity?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Okay. So I would say the -- on the first question, 100 interviews at the sales point, is this compare -- how does it compare? I think we're not comparing apples to apples, because these 100 interviews are coming from several weeks of commercial activity. So I would not say -- I mean, if they were generated in 1 week, I would say, it's a very good figure. But they've been generating -- generated in the last few weeks. So I think, again, it's not completely -- what is important, though, is that, for example, in the last week, we monitor the leads on a weekly basis, obviously. And we are -- in terms of leads generated at the end, they have to be transformed in the interviews, et cetera, et cetera. But we are at 70% of pre-COVID figure in terms of lead generation. I think it will be slower to transform them into visits and slower to transform them into contracts. But if I look at the first couple of weeks of confinement, we were down to 20%. So I think that is good news. On your second question, which is the banks will require having -- I think I mentioned this already. I think in second homes, absolutely. And I think small developers will not finance -- will not -- simply will not finance second homes projects. So I think -- that's why I think the offer, even though we are -- obviously, we are going to suffer in the second -- in the coast market. I'll get that into that in a second. But I think the offer will diminish not only in projects that are under commercialization right now that will stop or even some that are under construction that will stop as we are seeing it already. But I think new projects will just not be launched, because the requirement will be higher, probably something like 40%. On first homes, I think we don't see new requirements right now, but it may change as we go forward. And I think there will be -- what I see from the bank is that there is no set rule right now. It will be on a case-by-case basis depending on the balance sheet strength of each developer. And again, I think that reinforces our more prudent approach just to make sure that we have a strong balance sheet in order to be able to finance new projects. Your next question, which is launches, yes. I think it's difficult, and I'm not -- I'm really not able to give you a figure right now. I think the second and third quarter will be more prudent. We -- obviously, as you've already seen in the first quarter, with only [ 200 ] launches, we're not even going to be close to what was last year the number of launches of close to 3,000 or 3,000 units. Unfortunately, not. And I cannot be more precise, because it is true that you can turn -- the important thing here is to be ready to just turn the machine on and start launching when you feel that the risk is over. And the last question, which is out of the active projects, which were signed. We have 4 projects that we're financing with equity. So I would say, it's not something -- 4, 5 projects is something not meaningful. But the number of projects -- or I mean financing with equity right now. If you talk about how many projects we launch and then we finance a month or 2 or 3 months after starting with equity, the number is obviously higher, okay? And that is where we have the flexibility that we have been using on the corporate loan to bridge that gap of financing and then turning into projects being financed with equity. So the risk right now is very low. It's less than a handful of projects. However, what we are not taking any more for now is the decision to start financing with equity on the corporate loan for 2, 3 months and then recapping with the developer financing. What I think is a more prudent approach as of today is to actually have not reservation but private contracts, even if the banks don't require it, and then secondly, to have the loan signed and ready for disbursement.

[Juan Carlos Calvo]

Okay. Thank you. Moving to another question from another investor. Can you elaborate on the figures about cash flow for shareholders from Slide 19? It will be good to have the breakdown of the cash flow of the period before debt and new CapEx, cash flow from debt, cash flow new with CapEx and cash flow from contracted and clients financing. Any comments on that, Borja?

[Borja Tejada Rendón-Luna]

Yes. Well, as you know, in December, we already changed our method of how to present our free cash flow for shareholders in order to be consistent with our guidance. But nevertheless, I give you some figures. In terms of operating cash flow for this quarter, minus EUR 4 million; change in inventory, EUR 13 million; receivables, minus EUR 22 million due to deferred cash collections for land sales; in payable, EUR 20 million due to higher construction activity; and other operating expenses and investing expenses, investing cash flow, close to 0. That results in an adjusted operating activities of EUR 5 million prefinancing.

[Juan Carlos Calvo]

Okay. Thank you. Moving to the next question from an international investor. Can you help us understand why you need the cash balance? I thought you could fund construction cost from a mix of deposits and construction loans. So if you're not starting new projects until you have secured some presales and secured construction loans, what do you need the extra EUR 150 million in cash that you have raised in Q1 to pay for?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

I think I already mentioned this. The corporate loan is mainly used for financing the CapEx of non-fully permitted land. And then secondly, yes, we're being conservative and prudent in case that we are in a -- we face a scenario where we take not 2 to 3 quarters to get back into normality but much longer than that. So I think it's a mix of investment in non-fully permitted land, which is strategic and which we would not stop, and then just to -- I think it's just better to have it earlier and be safe. I mean that's -- it's a prudent approach.

[Juan Carlos Calvo]

Okay. We have one more question, again, from an investor in Spain. The discount of Metrovacesa surprise to its asset value has become really wide. We agree. However, this market -- I would agree is my word. However, the market doesn't seem to care about this, because it feels long term and day-to-day operating expenses may be reducing that discount over time. Can you give us an idea on numbers of how much cash do you use per year? Do you just stop developing short term or medium term? And what flexibility do you have to reduce that figure if you choose to do so? And is this an idea that you are considering at all to put a floor on the discount to NAV? Thank you.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Okay. So I think -- let me see if I understood correctly the question. This is mainly -- I mean, if we did no development activity, what would have left is the overhead expenses. I think we are -- right now, you can see the figures in our recent 2018 -- '19, sorry, accounts. I think our running overhead expenses are around EUR 30 million right now, of which, 20% are employee -- sorry, 20% -- EUR 20 million are workforce or employee related and the remaining EUR 10 million are related to other operating expenses like valuation, office rents, et cetera, et cetera, so daily activities. Obviously, if -- I mean right now, I think we have the team in place in order to deliver -- to manage 10,000, 12,000 units, active units, and we are at 8,000 and growing to that figure and to deliver north of 3,000 units per year. Obviously, if we saw that the activity decreased, we would take action on those EUR 20 million, obviously, I mean it doesn't -- if you're going to deliver 1,000 units per year, you need less. And if you're going to have 5,000 active units, you obviously need less people. But we don't see that as a situation right now. I mean, what we have right now is 8,000 units, and we think that we should preserve our good team in place in order to go back into normality. Obviously, if we don't go into normality in a reasonable period of time, we will definitely take actions to reduce that. On the other 10%, I think we are already -- as I mentioned before, we are already taking actions to reduce and to contain that amount during 2020. And obviously, sorry, of the -- on the EUR 20 million related to employee costs, there is also a variable amount, which is based on results of the year, and that amount will suffer obviously, because the results of the year will not be what they were planned to be.

[Juan Carlos Calvo]

Okay. One final question from the webcast. Do you -- again, this is from an investor. And do you expect consolidation in the sector in this context? Or is it too early to think about this?

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

I think it's too early. I mean we are now more worried about selling and delivering than to looking at any opportunities. I mean we have -- a few more months are needed for that, and I think also the currency for any corporate operations is now in its lowest possible position. So it's not easy to envision any consolidation in the short or medium term.

[Juan Carlos Calvo]

Okay. That was all the questions from the website. Operator, any last-minute questions from the conference call?

[Operator]

We have no further questions from the phone line.

[Juan Carlos Calvo]

Okay. Thank you. If so, then thank you, everyone, for listening to the webcast of the first quarter results of Metrovacesa. Thank you for your participation. And please, any follow-up questions, the Investor Relations team and the management team will be available to take them. So thank you, all of you, and hope to speak with you next quarter, if not before. Thank you. Goodbye.

[Jorge Perez de Leza Eguiguren, CEO & Executive Director]

Thank you.

[Borja Tejada Rendón-Luna]

Thank you. Bye-bye.