Lavvi Empreendimentos Imobiliários S.A. (LAVV3) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. Welcome to Lavvi conference call to discuss the results for the fourth quarter of 2024. [Operator Instructions] mode made during the presentation will be addressed by Ralph Horn, CEO; Sandra Esthy Petzenbaum, CFO; and Maria Luiz Oliveira, IR Manager. This call a represented in English with simultaneous interpretation into Portuguese. [Operator Instructions]. Before proceeding, we would like to say that forward-looking statements are based on the beliefs and assumptions of Lavvi's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors analysts and journalists should understand the general economic conditions related to macroeconomic scenario and also the industry may lead results to be materially different from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Ralph Horn. Please, Mr. Horn, you may start.

Good morning, everyone. I would like to thank you all for being here. It's an honor to have you here in our conference call to address the results of the fourth quarter of 2024 for Lavvi. Once again, we are very happy with the company's performance. Despite a challenging scenario, this has been the best quarter and year ever in terms of launches and sales. We increased launches more than 90% and sales above 100% in our share. We had records in the the main 3 lines of accounting results in revenue, gross profit and net income this quarter having was very successful launch in an excellent region. We have two buildings, one with smaller apartments that sold out very quickly and another one with bigger apartments that also to cost very well. Gross margin was flat, and net margin was very healthy. We also paid out dividends to our shareholders, both in Q4 and now in the beginning of the year, we were beyond the minimum mandatory and paid an extra amount accounting to $0.98 per share, referring to 2024. We also raised our corporate CRI amounting to BRL 202 million in order to purchase real estate properties and to keep a robust cash position. Thank you all very much. And now I'll give the floor over to Sandra to address the operational results.

Good morning, Ralph. Good morning, everyone. Thank you once again for being here. This has been really an exceptional quarter, the best ever in terms of launches and sales and SOS, we launched BRL 1.6 billion and 100% on 900 in Lavvi's percentage. We had 867 in our percentage closing 12 months with 60% our inventory in Landbank -- our inventory went down and land bank increase. So we have this launch in a very good location in Brazil in a region that didn't have so many launches. This is 1.2 potential PSV project. Two buildings, one with smaller flats and studios and another one with bigger apartments, 260 square meters. On the launch, we had 65% sales almost selling out the building was smaller flats. Another launch with Cyrela's managed by them. We are minority shareholders here. It was launched in the district of [indiscernible] in the city of Sao Paulo, only the residential building with apartments of almost 360 square meters. It's 70% sold out in Q4. The studio building was launched in the following quarter, also very successful. And this is the second launch of the Novo brand. We have 397 unit, My Home, My Life, Range 3, and we have 75% sold out. very successful, and we are excited to continue selling in My home, My life, the low-income segment. And now we open the second phase of this investment. On Slide #8, you can see the significant growth of launches and sales in the last quarter and also if you compare year-on-year. In the year, we almost doubled the and the PSV and we more than double the DSOS, 115% growth in sales year-on-year. Our specs trajectory in the last few months has been high quarter-on-quarter. In this manner, on Slide 10, you can see our inventory growing just 10% or 5% of Lavvi's percentage or share despite the strong rate of launches. So the ready-to-sell inventory is less than 80% and 50% of our inventory is related to projects that were launched in 2024. At the top on the right-hand side, you can see the sales index delivery year. They are almost 80% sold for '25, '26 and '27. Now on the next slide, talking about deliveries. We had the delivery of Grand Vitrali, a studio building in Sao Paulo, with different sizes units. And then we have already solved 98% of the units that needed settlement. We still have 13 units inventory and another 8 units in transfer. Customers were surprised with the investment and they approved the quality with 48% acceptance in the first inspection. On Slide 12, you can see our land bank. We have acquired an area of 40,000 square meters in partnership with Cyrela with 35 potential sales. So it's the -- but with cash diluted in 7 years, we have a land bank of BRL 5.1 billion in terms of Lavvi's share. Note that we have no property for the pure medium segment that we believe is the segment that today is unassisted in terms of credit and affordability considering that they do not yet have access to the subsidized rate of Minha Casa, Minha Vida, and they don't have so much income to pay very high interest rates. Now I would like to give the floor to [indiscernible] to talk about the financial results.

Good morning, Sandra, thank you so much, Sandra. On Slide 14, you can see that the great operational results are reflected in our financials with a highlight to the net revenue that grew 125% compared to the quarter before and 72% year-on-year. And we have reached the revenue of 1.5 billion, a record level of the company. Gross margin adjusted by interest was 37.6 in the quarter and 35.5 for the whole year, 1.5 percentage points increase as compared to the same period year before. Net income reached 120 million in Q4 '24, and 343 million in the year with a net margin of 22.1. and this led to an ROE of 25%. Now looking at the future revenues we already have a backlog of BRL 2.4 billion, with a margin very close to that of 2024. We have generated BRL 115 million cash in the quarter a BRL 100 million in the year, and we closed the period with a net cash of BRL 129 million. Now going to Slide 15, you can see that our revenue has been growing in 2024, reaching BRL 1.5 billion. And in the same period, the adjusted gross profit reached BRL 449 million with a slight increase in the margin compared to 2023. In terms of our investment income still positive. The drop is a result of the impact of the booking of interest rates resulting from the two issuances of corporate CRI raised by the company. SG&A despite an increase in percentage in terms of share compare year-to-year they are stable. Lastly, our net income was 343 million in the year with a net margin of 22.1%. On Slide 16, you can see the comparison with 2023 and since our IPO. So revenue, profit and margin have grown consistently over the last 5 years. Now on Slide 17, you can see a growth of 2 percentage points in ROE versus the previous quarter and 6 points growth compared to Q4 '23. On Slide 18, on the last column, you can see the backlog revenue totaling BRL 2.4 billion, a result of actual sales that will be booked in our bottom line along the future years as the construction progresses, considering a 35.1% margin that will generate for the company approximately BRL 800 million gross profit in the future. And now on Slide 19, we closed the period, 129 million net cash with a net debt over equity ratio of minus 4.7% in reflect that the company has more cash than debt, even despite our CRI operation in 2024, the company has generated BRL 100 million cash in 2024 despite paying land using the amount of BRL 272 million cash generation, very much in Q4, especially because of a higher OS and a shorter receivable schedule, especially in Q4 for the Heaven Project. And in closing now on our last slide, we are talking about the BRL 80 million dividends paid by the company in 2025. During the year of 2024. We have paid out the equivalent of 59% of the adjusted net income. The company always seeks to pay out the minimum that is mandatory every quarter. In closing, we already have BRL 705 million in better generation that have been paid out to shareholders since 2021. Thank you very much for your attention, and now we are open for your questions and answers.

[Operator Instructions]. Our first question comes from Anna Julie from UPS.

Good morning. Thank you very much. We would like to understand more about the competition in Sao Paulo, and as you can see, there is a competition in the beginning of this year. And if you could share with us how much you have in cash, thinking of 2026 and the purchase process more cash, more swaps. And the second swap and the second question is related to funding. And then we have the corporate plans. Do you have any funding? What were the discussions and what is the average rate?

Good morning. Thank you so much. Anna Julia, this is Ralph. So this year, we are ending a few negotiations of mid- and high level properties that started last year. It's not easy to find these properties. It's always difficult in my opinion and 70% of the market. So in My home, My life, and we are dedicating more than mid and high. This might be an opportunity for us with less competition. And it's not easy to find. And then -- this is something that has been going on and we'll keep looking. Anything else about funding? Is there anything else that I did not answer?

Hello, Anna Julia. This is Sandra on funding. We are almost closing the corporate plan for our two launches, we have limited in the banks being more selective, choosing the company's that are more sound with a sounder balance. And this year, we are seeing that the rates have gone way up, and that rates are way up, and they are close to the CDI, but we will continue closing with these banks, but we still believe in the flexibility of those lines. But probably we're still going to have more increases in the future, and then we are going to decide where it's a corporate plan or we are going to have access to the capital market that today it's favorable for more debt and to then supply the funding deficiency in terms of SBPE.

Our next question comes from Rafael Rehder from Safra.

Good morning, everyone. Thank you very much. for taking my questions. So what is your launches mix for the year? And what will be the share of Nova of the overall numbers? And then just an update on Q1, could you share something with us in terms of customers visiting your sales [ boosts]. Has anything changed considering the macroeconomic scenario? Or is it the same as last year?

I am going to start answering your question, then Ralph is going to complement about launches in the year, we have 2.5 billion launches planned. 2.5 billion and 4 million high and 520% in My home, My life. Of the BRL 2 billion, now we have, in Q1, Klabin. And then in Q2, we have Cubatao, in Q2, in the second half, we have half of the [ Hipica]. As to customers in terms of inventory, we had two good months as a result of launches of last year, but we feel that with interest rates so high, high standards, they they're not buying in a hurry. Of course, interest rates are going to be a problem for us this year. They're going to affect us. We need to negotiate intensely with customers. This is our feeling in the beginning of the year.

Our next question comes from Herman Lee from Bradesco BBI. Please, Mr. Lee, you may ask your question.

I have two questions. Can you share us a little bit about your deliveries this year? I think that there will be a significant amount. How is this going to impact cash. Can you give us an update on [ Elisa ] project in terms of sales?

Herman, about deliveries. We have 5 projects, almost 200 units to give Ipiranga Villa higher than green and green is right at the end of the year. It might be just next year because it's December, January, but almost 2,000 units. We still have about BRL 500 million to receive from those projects in terms of outstanding balance in SFA, the debt that we need to pay when we see, but all of this is already reflected in the cash generation that we are projecting. So last year, just recently, we said that we generated BRL 100 million cash. And this year, we are practically flat. And last year, 2 years in '24, '25, we were going to burn 150. So it's much better. But this year, it's almost flat. And about Saffire, Raffy is going to say.

Well, Saffire, I think last year, we sold about 7 units. It's 70% sold. This is very good. It's still demand, but there is intense negotiation. Sometimes it takes 2 -- up to 4 months with proposals and negotiations. The product is very good. And now 360 units are almost sold out, but now we are only left with the 500, the bigger units.

[Operator Instructions]. Our next question comes from Elvis Credendio from BTG Pactual.

Thank you, Ralph, and Sandra. We have two questions here. The first one is about credit conditions. So you have just said and they are very careful. And there is something about cash generation and then you have the cash generation in 2025. I would like to understand from you what you're thinking in terms of dividends and payout of dividends if maybe you should think of an increase in payout, whether you're more careful considering the Selic. What do you think about the allocation of capital?

Thank you for the questions. About customer credit. So the last delivery that we have had Grand Vitrali, it was a previous wave interest rates, 11%, and it was very okay in terms of transfer. Now in my understand this year, this is really a turning point in terms of interest rates for individuals have gone way up. Some banks are talking about 13.6% depending on the kind of customer. But we are not so worried. We are going to feel the first problem in Ipiranga that we are going to transfer now. Now as we have a very healthy portfolio with an RPV of 40%. We believe that despite the higher interest rates we are going to sell. Ipiranga is going to start now, but actually already have. It's well advanced, and there is a fraction. And what is left, there is 1/3 of the units that have already gone through credit and they're solved, and we are going to work on the other ones in order to be able to solve and transfer everything as we have been doing. As to cash generation, the BRL 100 million last year that we generated. This year it's going -- the generation is going to be flat. In terms of generation and about payout? So last year, so we want to pay out 25%, which is the mandatory minimum every quarter. Last year, we had more than that. We paid out 59%. Since the IPO, we have paid out per share. So this demonstrates our likelihood to pay out dividends. We want to do it, of course. But we are looking at the cash surplus in terms of the cash flow. So it's like a movie that we see looking into the future to see how we are going to allocate the surplus. But the company likes to pay out dividends, but we need to analyze cash flow to make the decisions.

Our next question comes from Ruan Argenton from XP. Mr. Argenton, you may ask your question.

I have two questions to ask. The first question is about gross margin. There has been a significant growth this quarter and there is a little bit of the effect. The reduction of the accounting effect. But the margins from having have helped to. What about your margins in the launches? How much margin are you seeing in the products that you're launching. And how do you expect the gross margin to behave looking into the future? And question number 2 is about the short schedule. This has helped in terms of cash generation. What do you see? How much can you add the percentage of sales in that schedule? And how much has this changed the percentage of your LTV. Has this helped you?

Okay. I'm going to first answer about gross margin and Sandra is going to -- what we see in terms of gross margin is really. This is slightly above our REF margin, which is 35 and then with 37 in the quarter. So 26 is going to be a mix between RF, that is 35 a little bit of inventory sales of REF margin and the launches margin. So deep down, we believe the backlog margin is going to be very close to 2025 because we need to consider all the factors. And this is going to depend very much on our sales mix. We have products driving the backlog margin up and some products are slightly below. It depends very much on the mix. About the short table, well, it's not just an effect of RF. So since '21, '22 that Selic and INCC was really exploding that we had to buy on the short term. So there's still the hedge from the construction inflation but they are going to buy in advance. The normal is 37.3% after KIs. We have 38%, 40% LTV because of a shorter flow. So when they buy, we give them a greater discount when they purchase, which is bigger than discount after they are already with us and they want to advance one installment. This helps in sales because they had the perception that they are buying a lower price per footage and it's a much healthier portfolio. And this portfolio will bear the transfers with these rates at very, very high rates. With the Selic with the interest rate as high as it is, we are going to have fewer proposals with advanced cash. So they prefer to leave the money in SELIC yielding. So we are going to reduce slightly the advanced rate. So it used to be 6, but we are thinking of 7.5, but they are thinking very much of Selic. Of course, interest rate is always a problem for everything. It really affects us.

[Operator Instructions]. Our next question comes from [ Luisa Cruz from Stoxos ].

I have two questions. The first one is about INCC or the inflation, construction inflation. How do you see the price increases? Can you tell us a little bit which region in the city of Sao Paulo breakdown if there is any region that is slightly better considering the products that you launched that are different depending on the region. And congratulations on your results.

Good morning. Hello, this is Sandra. About the construction inflation? There is some pressure, cost pressure for concrete, cement, bricks, but the construction inflation is taking this increase still has gone down a little bit. But the most important is that we are not -- the gap with the construction equation is not too big. So if the INCC identifies all the price fluctuations, so this is going to be aligned with the INCC and so will our portfolio, and we will be hedged. And then this is very much in line with INCC, and there is a difference between the real cost and the index the ICC. In some distance, the most high-end parts of the city of Sao Paulo, we can offer good prices and good quality leisure. And we've been seeing a good SOS. So the mid and high. So like Moema, Vila Mariana, Klabin, these are the regions of the city. And then we bought another plot of land in the district of Brooklyn in Sao Paulo. So any good neighborhood where you can offer a product that has good quality Sao Paulo is a very, very big city. Each district is different. So 90% are different people. So there are different neighborhoods. This is -- our market in Sao Paulo is very regionalized. So from My Home, My Life, so they are good locations. So people analyze everything. There are many options. Today, we launched the product. in a certain region, a very good property and then compared to considering security and everything. So My Home, My Life market is not people who buy whatever. Now they are analyzing the product to choose. Thank you so much.

[Operator Instructions]. The questions-and-answer session has now ended. We would like to turn the floor to Mr. Ralph Horn for his closing remarks.

Thank you very much to everyone. This year, we find it's going to be challenged because of the interest rate, but we are excited, especially in medium and high because most of the market is the low income and operations require less money are less money-intensive and there is much less working capital. So we are very excited with last year's results. They were really great. There is a motivation. We are very excited in terms of pursuing and keeping the results last year. Thank you all very much.

Lavvi's conference call has now ended. Thank you very much for your participation, and have a good day.