Even Construtora e Incorporadora S.A. (EVEN3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for holding. Welcome to Even's webinar concerning the results for the fourth quarter. Present with us today are Mr. Leandro Melnick, Mr. Carlos Wollenweber and Mr. Tiago Krall. We would like to inform you that this event is being recorded, and we'll have a simultaneous translation into English. [Operator Instructions] Before we proceed, we would like to clarify that any statements that might be made during this teleconference regarding business prospects of the company as well as its operating financial projections and goals are based on the beliefs and assumptions held by Even's management and all the information currently available to the company. Forward-looking considerations are not guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events that depend on circumstances that may or may not happen. Investors should understand that general economic conditions, industry conditions and other operating factors may affect future outcomes for the company and may lead to results that materially differ from those expressed in these considerations. I would like now to give the floor to Mr. Carlos Wollenweber, CFO and Investor Relations Director. Mr. Wollenweber, you have the floor.

Good morning, everyone. It is with great satisfaction that we present Even's results for the year 2021 and its fourth quarter. I would like to begin this presentation by showing you some highlights of the year in Slide 3. In 2021, Even launched 18 new projects, which total PSV of BRL 2.4 billion Even share, and which represented a 75% growth in relation to 2020, as you can see in the graph on the upper left-hand side of the page. Net sales in the year totaled BRL 2.3 billion, which is a 36% growth in relation to the previous year. In the year, we delivered a net income of BRL 231 million, representing a consolidated return on equity of 13%. Due to the uncertain economic scenario we are going through, we decided to keep a robust capital structure and closed the year with BRL 628 million in net cash, representing 24% of our consolidated equity. We closed the year with a robust cash position of approximately BRL 1 billion. And in 2021, we paid BRL 196 million between dividends and stock buybacks. Along the year, we purchased 18 plots of land, representing a PSV of approximately BRL 2 billion Even share for the development of future projects, essentially in the operating income segment. We break down our launches in Slide 4. We launched in the fourth quarter 3 projects in Sao Paulo, with a total PSV of BRL 712 million and 2 in Rio Grande do Sul, totaling BRL 213 million. Considering Even's share, total PSV launched in the quarter was BRL 809 million. In the year, the upper income -- upper middle income and middle income segments accounted for 2/3 of the total volume of launches. In the next slide, we show you the pictures of the projects we launched in Sao Paulo in the year. And of those, Portugal 587 in Brooklin neighborhood, Go Balkon in Campo Belo, and the 2nd phase of Monumento in Morumbi were launched now in the fourth quarter. In the next slide, we show you the deliveries of the year. We delivered in 2021 6 projects. 3 of them in Sao Paulo: Vistta Alto da Lapa, Altto Vila Madalena and E Hub Vila Madalena, and 3 projects in Rio Grande do Sul. In total, delivered PSV was BRL 542 million, Even's share. We would like to point out that all of these projects were delivered on time for the customer and within budget, and that the hired construction and labor costs are already properly accounted for in our budget. In Slide 7, we break down our net sales performance, which totaled BRL 1.6 billion in the year, representing a supply over sales of 40%, as you can see in the graph on the left-hand side. In the fourth quarter, our launch SOS was 25% and the consolidated one was 13%. I want to draw your attention to an 18% decrease in cancellations in the year, as you see in the graph on the right-hand side. In 2021, many of our customers have advanced their flow of payments in relation to our sales tables. And right now, we are at one of the lowest default levels in our receivables. In the next slide, we break down our inventory. Our company's total inventory is 2.6 billion, and roughly half of this inventory is to be delivered only in 2024 and later, which gives us ample time to try to gain the best possible prices per square meter for our projects. Deliveries that will be made in 2022, 79%is already sold, as you can see in the bar graph at the bottom of the page. It is worth noting that our finished units inventory represents, at the moment, only 12% of total inventory. You can see this in the graph on the upper right-hand side. Moving on to land bank, on Slide 9, represents currently BRL 6 billion Even's share, comprising 58% plus and mostly located in prime neighborhoods in the cities of Sao Paulo and Porto Alegre. In the fourth quarter, we purchased 5 plots of land, amounting to a PSV of BRL 349 million. Out of Sao Paulo's land bank, we are developing 2 products in the high luxury segment likely to become landmarks in the city, as you can see in the next 2 slides. The first one, a project on Diogo Moreira Street in Pinheiros neighborhood purchased from the Malzoni Group. It is where 2 luxury residential towers will be developed to represent a PSV Even's share of roughly BRL 800 million. In the next slide, we bring you Real Parque project, where Even will develop high-end residential towers that will be integrated with a shopping mall and a club to be developed by JHSF. In Slide 12, we show you our capital structure. We closed the quarter with a gross debt of only BRL 314 million and a cash position of BRL 942 million, which represents a net cash of BRL 628 million or 24% of our consolidated equity. It can be seen in the chart on the left-hand side of the slide. In the year, we generated BRL 36 million in operating cash. And in the fourth quarter, we burned BRL 119 million of operating cash, basically as a consequence of paying cash for the purchase of these new plots of land. Finally, Slide 13, we show you our results. Net revenues in 2021 amounted to BRL 2.3 billion, meaning an increase of 36% in relation to the previous year, shown in the graph in the upper left-hand side on the page. Our gross profit increased proportionally to revenues, amounting to BRL 632 million in the year. Our net income was BRL 231 million, with a net margin of 12.6%, which translated into an ROE of 15% for Sao Paulo's operation and 13% for the company's consolidated operation. I now give the floor to Leandro, Even's CEO.

Good morning. In 2021, we closed a very difficult year due to the impacts of COVID, and the increase in the hike in inflation, increase in our costs. In this moment, our strategies are tested, and we are very satisfied with our low-risk strategy due to its high profitability of our equity. This year, we had a net income of BRL 231 million, one of the highest in recent years. And an ROE, excluding Melnick of 15%, our SOS was 10% in the year in a very healthy inventory and a very healthy cash position. We closed the year with a land bank of BRL 5.9 billion and BRL 4.1 billion in Sao Paulo, with excellent land in the best locations in Sao Paulo. Launches in the last 3 years shows the company's entrepreneurial capacity. And the projects launched in this year, we increased 35% our PSV in relation to previous year where we had great performance. And our internal culture of net cash, BRL 620 million, and an excellent land bank, makes us very confident to face a moment of uncertainty and also prepared to develop, taking advantage of the opportunities in the market. We had a good year. And now we are ready for your questions. Thank you.

[Operator Instructions] Our first question from Pedro Hajnal from Credit Suisse.

can you hear me?

Yes, we can hear.

Two questions here. Can you put some color on the launches, the projects in partnership with JHSF? I would like to see on a bigger picture in 2022 where the company's head is at in terms of launches, if you compare it with 2021? And the second question, I would like to know if you can talk a little more how you can see the increasing prices in your inventory? Both finished units and under construction, if you are able to transfer this inflation to the end or if the competition is making this a little more difficult?

Well, Pedro, Leandro here. Thank you for your questions. First, regarding launches, it's very interesting because it has to do with the company's strategy. We are at a moment that our land bank is very -- expressed in terms of quality. And a way of purchasing this land, which is mainly through swaps without any obligations. We call this a clean swap. So it allows us to work in a way that in a moment of instability as we are going through now, makes us ready for the launches. The projects are still performing very well. We had the first launch this year. It was performing well, and we have a market that's very unstable. And we are ready to have a positive year in terms of launches with maximum attention to how the market is responding. The instability will continue. And our capital structure, in the way we buy our land, in the way we segment this land bank, and this makes us very comfortable to navigate through this uncertain moment -- this macroeconomic uncertainty scenario. So I'll leave the question -- the answer a little open, but we see it as a very positive, if the prices continue in the Rio market, reacting in a way to absorb the kind of financing we are prepared to offer. And understanding that it's necessary to be a little more conservative in terms of volume, but our land bank makes us very safe for this. It's very [ comfortable ] for the company in terms of carryover costs. And as I just said, we have, in the consolidated of the year, very good year, even in terms of price. It was a positive result in the pricing of these increase in the INCC inflation index in the last quarter. The market is showing greater difficulty to absorb this increase in INCC, and we understand that this year, we're going to have the inflation indicators, INCC and IPCA, which affects us more closely. And the INCC will be higher than the IPCA. So it's impossible to transfer this difference in price, but we're going to look into this. And we see a difficulty nowadays that increasing to transfer these prices because of the higher INCC relationships. But we understand this is going to happen this year. Again, we see some instability of the prices in inventory.

Our next question is from [indiscernible] from XP.

Can you hear me?

Yes, we can hear you.

First, I'd like to thank you for your presentation. My question, I would like to know if you can comment on how sales have been performed in these past few weeks? If you expect a decrease in SOS? But more to give you an idea, of how you're performing in terms of sales and launches, how it's doing in this beginning of the year?

Leandro here. Sales in the first quarter -- also our -- so for the influence of the seasonality, January is usually a month that's lower in terms of speed of sales and the market is unstable. In terms of consolidated market, we have seen a decrease in SOS in relation to previous period. But we also have the characteristics of each product. So -- but the companies have specific products. So without creating information, we see that the performance of the market is reasonable. Our first launch performed well both in inventory. It's meeting our expectations considering the moment we're going through. So it's even a little above what we expected.

Our next question, Marcelo Motta. You may proceed.

My question is about margins. You talked about inventory. You have been able to transfer INCC. It's important to try to defend from the inflation, but your margin has decreased somewhat year-over-year and quarter-over-quarter. So I'd like to know how this dynamic regarding margins will play out in 2022. If you think it will be a little easier to transfer these prices and maintain the margin. And the next one, if you can comment on what you can expect in terms of margin for specific projects like [ Ozon ] and Real Parque. If you see this is a question of market. If you -- how you see approval, these projects if the market is reacting, how you see the returns on these 2 projects.

Motta, Carlos here. I will begin answering, and then Leandro will continue. We have 2 separate margins from Sao Paulo, from the margins we have in Porto Alegre. When you look at our results in Sao Paulo's operation, our gross margin was in line with previous quarters. So yes, we haven't been able to transfer the increase in costs, both from launches and inventory. So we are maintaining our gross margin. When we look in the quarter, Melnick reported a gross margin that was slightly lower, 2 percentage points below, which was due to a quarter of all-time high quarter in terms of volume of sales, especially finished units inventory. So because of this mix and because of the volume, so of course, the company had to give a little more discount. So we had a loss in margins that was very specific. So we do not see gross margin deteriorating. We have been able to transfer the increase in costs. It's becoming more difficult, of course, because inflation is not reducing as fast as we would hope, but in the fourth quarter, we were able to maintain Sao Paulo's margin. And it was a little lower because of Melnick. And regarding 2022, we see our probable macroeconomic scenario and the real scenario. So Carlos -- as Carlos said, the performance has been very reasonable. During the year, we have to see the effects that the increase in tax rates and the Selic tax rates will have along the year. And also the situation that we have in preelections, we will monitor this very quick -- very closely, week -- on week, day after day. And this can impact notably positively or negatively our margins. And these same points are true to answer your question regarding new launches. This 2 launch, these 2 projects. And because we have a very huge land bank, with very good -- with a diversified mix of products aiming at middle income and upper income, it will make us comfortable to measure the volume of launches in the year. In terms of approvals in bureaucracy, we have some projects that are well advanced in the approval process in the launch of these projects. The main issue here will be monitoring the market because these are products that have a higher PSV, so they are more concentrated in some areas, as was ARBO's launch, for example. They were huge, but they were not so concentrated. So we will analyze the performance of a similar project in the market to make our choices regarding launches. This special projects -- or these projects, particularly that can show a great performance, even in moment of crisis, they have certainly a potential elasticity in terms of price, but these are projects. We have other projects like these; Fasano, which was highly analyzed and commented on. These are projects which show characteristics that the land permits fantastic products, products that have shown great elasticity in terms of price. Our work, our job is to make sure we are able to obtain gains in price and margins for these projects.

Our next question Mr. Antonio Castrucci from Santander.

I'd like to understand how you see the different launches and different regions of Sao Paulo. If you expect a diversification in terms of launches, or if it will be in line with what we saw in 2020 and 2021, if this can have some impact in your pricing strategy.

Thank you, Antonio. I have already commented on this question in a way. But I think it's very strategic. We are more concentrated in the downtown area and around in Sao Paulo City. The land bank is highly concentrated in this area. This is where we have been launching in these previous years, and we have been having great performance in terms of speed of sales and price. This year is a year of instability. I'm using stability, not to say crisis, but this is a year of high volatility. And the Rio coming back -- the market come back after the impact of COVID. And now the war, the macroeconomics. So we are in a position that puts us in a condition to implement a high volume of launches, but we do not need it because we have a position that is highly entrepreneurial, but also conservative. We have a high cash position, and this is exactly done for these moments. This is not a rare moment in Brazil. So we have this strategy of buying land through clean swaps without any kind of -- that doesn't mean we have to follow certain price or speed. So we follow a strategy that gives us comfort, exactly to face this kind of situation. So we can use these launches if we believe the market can absorb them and in our -- the launches have shown this. Or we can manage these launches for next year after elections without harming the company because of the strategy we use for launches. So it's not by chance that the company is structured this way. We could have made other choices in the past. We would have put us in a different situation in terms of cash exposure. But we have been doing this in the years that we are growing, that we have to have the best average return for our stockholders, our investor. And also understand how to play the game of the macroeconomic scenario and be prepared. So because we built the company under these conditions intentionally, we are prepared for this moment.

Our next question, from Elvis Credendio from BTG Pactual.

Leandro, Carlos, two questions here. First, regarding construction costs. Because we have seen in the press that some companies will increase the price of steel. How this increases will affect you, considering what you're paying today for steel? And any general construction costs, how this scenario of the higher inflation in all the macro events that happened? How do you see this inflation? Talk to this scenario you are working with. If you think you are going to have to adjust something or if it's already included in your estimates. And a second question that I'd like to explore is regarding the land bank. If you see some opportunities to buy some land, considering the market is weaker than we have seen in previous years. So both in terms of the number of opportunities and also in terms of price. So that probably -- the sellers are giving more discounts. And it's a chance to buy this for more attractive prices.

Carlos here, thank you for your question. Regarding costs, we have seen the market of -- construction material more stable in relation to cost. The cost of steel changes quite a lot. So at the beginning of the year, we had a decrease in cost, and now, potentially a new increase in the price of steel. But I think it's important to highlight that what we are predicting, in terms of inflation of material and labor is already reflected 100% on our budgets. We do not expect to have to make any revision in the budgets of the companies we have already -- in the products we have already [ launched ]. And after launch -- 3 or 4 months after the launch, we are able to lock 80% on average of the cost of our services and materials that we're going to use during the construction. So it gives us safety that we're going to be able to execute the work, even if there's some volatility in price along this period. The second question regarding the feasibility. We have a land bank to be launched this year. We have a pipeline of projects. This is land that were bought 1.5, 2 years ago. So all the attributes of the product, we work on these attributes in a way that we can recover all the inflation of costs along these years in the price of the square meter of the projects, we are launching. And so far, we have been able to recover these costs, especially focusing on the segments that have more aggregate -- added value that have -- are more desired. We have been successful in choosing these projects. And this allows us to maintain our profitability, which is very close to the feasibility that this land was acquired. This question is related -- it's related to the other one. The costs have increased a lot, but our engineering team is a highly experienced team, and we are very confident that these launches are -- but of course, these impacts indirectly regarding new businesses because the market, yes, it's less hot. It has cooled off a little if you consider the last 3 years. But when you do the feasibility study to buy the land, the parts of this feasibility study, the price of land is lower, yes, but the cost of construction has increased a lot, and this reflects on the speed. So yes, we have good opportunities to buy land. It's an interesting moment. We know land does not have the same speed as the number of launches in crisis, but it will have some impact. So it will be a little slower. But yes, we do see some good opportunities to buy land. But equating this with cost is making the market, on the near term, way [indiscernible]. We do not see great opportunities because the market -- there is competition, but the cost of future work is also more -- is heavier, leaving the market heavier, too. So the market is not overall more inclined to offer great opportunities by lending than previous moments. In this negative macroeconomic scenario, this makes it help.

Our next question is from Carlos Herrera from Condor Insider.

How are you doing in view of the current scenario, how do you see losing cash? With many companies negotiating below, do you see an M&A in the future to take advantage of this moment in the market?

Thank you for your question. First of all, the bit regarding cash. On purpose, we keep high cash position in the company with a net cash in our capital structure exactly because we see an uncertain macroeconomic scenario. But in spite of that, 2021 was a year we were able, between dividends and stock buyback, to distribute BRL 196 million. So it was a very good payout of dividends. And we think that was appropriate. And to make any future decision, we have to see more clearly how the macroeconomic scenario is doing. This is a year we have, by the end of the year, elections. So we prefer to keep the company in a very solid position. Regarding possible M&As, our segment is -- our industry is a really difficult one. We do not have many consolidations in this industry. Of course, we are always looking at opportunities, but we are not actively studying or looking concretely into any possibility regarding M&As. I think it will be difficult to see great M&As, just look at the history of the last 10 years.

[Operator Instructions] We now close our Q&A session. I would like to give the floor to Mr. Carlos Wollenweber for his final remarks.

I would like to thank you all for your participation in this earnings call. We are very excited about the results Even has been delivering. The improvement in these results in terms of profitability. And I would like to point out that we are highly prepared for this year of 2022. And thank you all for your participation.

Even's webinar is now closed. Thank you all for your participation. Have a good day.