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

[Foreign Language] [Operator Instructions] We would like to inform you that this event is being recorded and will be made available on the company's website ri.even.com.br, where the complete material concerning this earnings call will be available. It is also possible to download this presentation. [Operator Instructions] We would like to clarify that any statements that might be made during this teleconference regarding Even's business prospects as well as its operating financial projections and goals are based on the beliefs and assumptions held by the company's management and information currently available. Forward-looking considerations are not guarantee of performance and involve risks, uncertainties and assumptions since they refer to future events and therefore, depend on circumstances that may or may not happen. Investors should understand that general economic conditions, industry conditions and other operating factors may affect Even's future outcomes and may lead to results that materially differ from those expressed in this future consideration. Here with us today are the Chief Executives of the company, Mr. Leandro Melnick, CEO; and Mr. Marcelo Dzik, CFO; and Tiago Krall, Strategic Planning Director and Relations Investor Director. I now give the floor to Mr. Dzik, Even's CFO.

Good morning, everyone. I have been part of this company for over 20 years and have worked in different departments, mainly in development and new businesses. In 2023, I took over as CFO and Investor Relations Director for Even. It is with great satisfaction that I present Even's results for 2022 and the fourth quarter with the goal of adding more transparency to Even's and Melnick's separate operations. The following figures refer to Even São Paulo, excluding Melnick's participation. In our release, you will find the details for the consolidated figures, excluding Melnick. I'd like to begin with the highlights in Slide 4. In 2022, in São Paulo, we launched 6 projects, totaling BRL 827 million of PSV. Net sales in the year totaled BRL 1 billion and BRL 729 million of which concerns inventory. We delivered 9 projects totaling BRL 1.2 billion of PSV which is a significant volume when compared with the previous year. Even remains very well capitalized with a solid cash position of BRL 624 million and net cash flow representing 1% of our equity. In 2022, S&P maintained the company's rating in Brazil's national scale at brAA+ with a stable outlook. Moving on to launches in Slide 5. We launched in the quarter, 1 project in São Paulo, totaling BRL 43 million of PSV. Accumulated in the year, we reached BRL 827 million of PSV, 53% of which is already sold. In the next slide, we show you the pictures of the projects launched in 2022. It is worth noting the launch of 799 compact units of which 87% were sold within the year, a strategy significantly reduced our exposure in this segment, meaning products aimed at investors. In Slide 7, we present our sales performance. SOS of launches in the quarter was strong at 53%, attesting to the efficient strategy behind the products we offer to the market. We point out that net sales of inventory were BRL 729 million in the year, 11% higher than last year. Concerning cancellations, the graph on the right-hand side of the page, we ended the quarter with BRL 43 million, a lower level than in previous quarters, despite the significant increase of deliveries in the last few months. It is important to note we are at one of our lowest percentage of default in our client portfolio. In the next slide, we present our deliveries. We delivered in the quarter in São Paulo, 2 projects. Stella Campo Belo and Go Campo Belo, with a PSV of BRL 316 million. In the year, we delivered 9 projects with a PSV of BRL 1.2 billion, considering Even's share. The photos evidence the high quality of the projects delivered by the company. On Slide 9, we break down our inventory. We have total inventory worth BRL 2 billion in São Paulo, only 13% of it corresponds to finish the units' inventory. From the inventory of units under construction, 75% will be delivered in 2024 onwards. And therefore, we have plenty of time to try to see the best possible prices for our products. From the deliveries we will have in 2023, 75% is already sold, as you can see in the bar graph at the bottom right in this slide. Moving on to land bank in Slide 10. As of now, we have BRL 5 billion in land bank, that is Even's share, comprising 24 plots located in prime neighborhoods in the city of São Paulo. In 2022, we bought 5 plots with a PSV of BRL 1.6 billion. Also in prime locations, strengthening Even's strategy of operating in its area of expertise. In Slide 11, as a relevant part of our strategy, we present our solid capital structure. We ended the quarter with a gross debt of BRL 614 million and a cash position of BRL 624 million, representing a net cash flow to equity of 1%. In the year, we spent BRL 230 million in operating cash, mainly as a result of the payment in cash for the purchase of land and the increased volume of construction work from previous years. In Slide 12, we present a consolidated financial indicator. Net revenue in the year totaled BRL 2.3 billion, on par with last year's figures, we delivered a gross profit of BRL 522 million with adjusted gross margin of 25%, net margin of 8.4% and accumulated net income of BRL 104 million in the year of 2022. I would now like to give the floor to Leandro Melnick, Even's CEO.

Good morning. Because of the volatility, it's very difficult to present prospects for the future of this [ kind ]. Under this scenario, we keep our long-term vision of being a company that's solid and profitable. We have decided to be more conservative even with a high cash position and relevant land bank, we launched 60% less in São Paulo than the previous years. We increased 11% our sales of inventory. We launched then sold almost 800 compact units. And because of this, we kept a very important cash position, and we are not a leveraged company. This strategy of taking -- of having less exposure. We focused our efforts in strengthening and developing our land bank. We have today BRL 5 billion of PSV in [ 20 plots ] with 5,000 square meters of average area in one of the prime and most liquid neighborhoods in São Paulo. With this place -- with this area in this location, we have differentiated products. Even's nowadays is a lean, efficient and solid company with the operating capacity that has been [indiscernible] the test of time and we have a land bank qualified. With the political scenario, we feel safe to launch excellent projects one by one analyzing the SOS and the absorption by the market. Thank you. We will now move on to Q&A.

[Operator Instructions] Our first question comes from Hugo Grassi, sell-side analyst from Citibank.

I would like to understand how you see the dynamic with the competition looking at levels of inventory in the city of São Paulo, especially the high-end inventory. It seems to me it advanced very well, very much in terms of volume of the inventory, specifically the publicly traded companies. How are you seeing this, especially in the places where you have your main launches for this year of 2023. I would like to understand what are the scenarios that you see especially regarding the bigger, more important launches. In which scenarios we would prefer to hold back?

Thank you for the question. First, contextualizing your question, we concentrated in the last few quarters and years. We focused in the middle and high income in São Paulo as well as in the whole country knowing that this would probably happen because of the interest rates. Even has a strategy of trying to protect itself from an excessive number of launches, a concentration of inventory, which is what we did in this neighborhood. We're paying a lot of attention. The location of the plot, but focusing on land of larger areas which allows us to develop high qualified projects. The buyer in this is in condition to choose the features that are most convenient to him when they decide for a purchase. So the quality of the product makes a big difference because Even works with a great knowledge and competence in this segment, we were able to build in very large area plots and our projects have a very interesting infrastructure characteristics that's a differentiating factor in this primary place. For example, tennis courts, lap pools, [indiscernible], this differentiates our product from the competition. So if we cannot increase the price, we can have a better liquidity. So we notice and we understand that this concentration was predictable because of the dynamic, as I said, of the high interest rates and concentration in this segment. So we created products that are not advanced for our land banks but also that when you put together the excellent locations, the excellent areas enabled us to provide a special project. So we have been having a good performance in terms of SOS of launches for this project that is reasonable. This is the strategy we've designed for this possible concentration in this segment.

Our next question comes from [ Huan ], sell side analyst from XP.

On my side, I have 2 questions. I would like to go into this level of launches. How much do you expect in terms of volume of launches for 2023? What is going to be the differentiation among the segments that you would imagine that you think for this year. The second question, I would like to understand the gross margin situation. You commented that a little bit of this gross margin comes from transferring price below the evolution of the cost of construction. So I'd like to understand how you see this situation decision in terms of construction costs and how you have been dealing with the discounts in the sales of [indiscernible] and how this will affect the gross margin coming -- next month.

So let's begin with the question of launches. We see in talking about 2022, the previous year, we see a condition of a political economic scenario that has been stable. We are not doing any kind of -- passing any kind of judgment, but 2022 was a year of huge uncertainty if the country, the world after our elections and the consequences of those elections. So we were very conservative in 2022 because of this. In 2 groups of work, we launched less than the average that Even has been doing even with cash in land bank, at a high level and high quality, which -- and we also sped up the sales of inventory in compact units. What is the consequence, to answer your question. We understand that this year, we are in condition to launch a higher volume in relation to the previous year because of the land bank we have and the knowledge we have of the market and how it's performing, the first quarter showed a recovery in sales in relation to the fourth quarter. In the fourth quarter, it was -- there was no -- not a lot of movement, and now we are seeing a recovery. So we understand we are in condition to launch now a volume that's very similar to the history of that Even has different from last year that was more conservative. Of course, we need to consider this on a launch-by-launch case analyzing the absorption, try to understand the market and follow this criteria. So we focus on the mid and high-end income, more high end than middle and on products that present a very large area. The lot has a very large area. So it gives us the possibility of developing great features, leisure features that you normally don't find in these kinds of products. Regarding the margin, I will comment and then I will give the floor to Dzik. Because we concentrated in 2022, on purpose, we concentrate the sales on our more difficult inventory. So the compact -- it's more difficult because in terms of margin and price. Even if the margin in the previous year, we decreased the number of launches and concentrated our efforts in the sales of finished unit inventories of compact units. This year, because of this of having already sold a significant part of our inventory where the concentrated margin was smaller. We understand now this year, we'll be able to go back to our level of margins that we have been presenting -- that we presented at the beginning of last year. So Dzik now.

And adding to what we understand regarding margins, we sold a significant part of our inventory that was more exposed to investors. So we now have in our portfolio, a very -- a highly qualified inventory and we have a high volume of finished units' inventory. So we have a deadline to work with this product. And we can extract the most potential from this. So we have 25% of inventory of this kind of product. So it's a very young and qualified inventory. And this is -- most of our -- we sold most of our exposure to products [ saying that ] investors and also to the lower income clients that suffered more with the increase in interest rates. To complement on the other hand, we have a very efficient control. We are very conservative here in our management and right now, we have a positive prospect. We have been in control. So those increase in construction costs that we saw they are behind us. So what we see now it's a positive outlook. We don't believe we're going to have any big surprise in the macro scenario. So looking forward in terms of cost, it will be under control and positive.

Our next question comes from Elvis Credendio, sell-side analyst from BTG Pactual.

Two questions here. First, regarding sales. You have already mentioned that sales have recovered in this first quarter. I would like to understand a little bit more of what you see in terms of -- what is the driver for this improvement in sales and considering if you see that we are being forced to provide more discounts -- to give more discounts to support this increase in sales. And the second question, going back to the question of costs. You said that the costs are more under control, but I would like to understand from you, what you can comment in terms of price, if this is already included in your prospects, in your analysis.

Elvis, thank you for your question. Regarding the sales part, the commercial part, what we have seen, we can talk about the reasons. But what we have noticed is that beginning January, we see a return, a more intense return to a high volume of sales and significant improvement. And the reason for that, as we see it, our concentration in the medium to high-end income segment. It's a segment that has coming to a mood, a state of wait, of standby waiting for definitions of the political economic future of the country. And this has reflected in the high-end income segment of the market, clients waiting for a definition. When we go back to the everyday life of families and people after January, any other states, maybe this changes a little bit in terms of date. But for São Paulo, everything continues as business as usual. And this paralysis is -- and then people are making decision. So customers started falling behind and the consumption has resumed. So our analysis is that in the first quarter -- the first quarter has been showing a good recovery of consumption in relation to the fourth quarter. Regarding discounts, we haven't changed anything in relation -- in the first quarter in relation to the fourth quarter regarding being forced to give more discounts. We have been creating -- we have been seeing a kind of normalcy in relation to what happened when the interest rate went up very drastically, our client has understood this is a mid and long-term prospect of going down. So the prices that we see in this first quarter in relation to the end of last year. We don't see a need to give discounts to keep the SOS. In relation to costs, of course, our industry is formed by a supply chain of materials and workforce and labor. So analyzing all these components, Even has a very solid structure in terms of engineering team. Going back to the past, those who follow our company, we had a great increase in the cost and construction costs, we were able to control the impact of that increase, mitigating the impact in the [ capacity store ] our costs using technology, using business intelligence we were able to keep the costs and all its components, putting inflationary pressure, interest rates, decreasing the operation segments of the economy. We believe -- we estimate that the costs are under control. We are in a moment of non-stabilized. We come from a non-stabilized [ norm ] where the construction costs increased drastically and that didn't give us a balance among all these factors. So now the price of some material can offer some pressure in the supply chain, but we understand that the supply chain itself is under control.

Our next question comes from Pedro Lobato, sell side analyst from Bradesco BBI.

You commented that the default is slow and we see in terms of that, in absolute terms, we see that it's under control. But going deeper in terms of cancellation and especially in -- as a percentage of sales, what percentage of deliveries has been going up in this past few quarters. I would like to understand how you see the situation and what level you would start getting worried.

Pedro, Dzik here. We highlighted in our presentation that our portfolio is at a very low level of default. We're positioning ourselves in the higher-end income. In terms of absolute cancellations, it's been level when we divided the number of cancellations by the deliveries. We can see some higher decrease, but because of the lower sales we had in the last quarter, not because of the portfolio or deliveries or anything. All the signs are positive. The cancellations we have had are at our -- at the level on par with our projections, and our portfolio situation is very comfortable. Of course, when we see relatively in absolute levels, our portfolio is at a very healthy level.

[Operator Instructions] The Q&A session is now concluded. I would now like to give the floor to Mr. Marcelo Dzik for his final remarks. Mr. Dzik, you may proceed.

Thank you for your presence. Our channels are all open. In case you have any questions, or you need anything, please get in touch. Thank you.

Even's earnings call regarding the fourth quarter for Even is concluded. The Investor Relations department at your disposal for any questions you might have. Thank the participants and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]