Melnick Desenvolvimento Imobiliário S.A. (MELK3) Earnings Call Transcript & Summary

Good morning and thank you for holding. Welcome to Melnick's earnings call concerning the results of the fourth quarter of 2024. [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.melnick.com.br, where the complete material concerning this earnings call will be available. It is also possible to download this presentation by way of the chat icon in both Portuguese and in English. [Operator Instructions] We would like to clarify that any statements that might be made during this teleconference regarding Melnick's business prospects, as well as its operating and financial projections and goals, are based on the beliefs and assumptions held by the company's management and on information currently available. Forward-looking considerations are not a 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 Melnick's future outcomes and may lead to results that materially differ from those expressed in these future considerations. Here with us today are the chief executives of the company: Mr. Leandro Melnick, CEO; Mr. Juliano Melnick, CFO and Investor Relations Director; and Mr. Joelson Boeira, Administrative and Investor Relations Director. I will now give the floor to Mr. Juliano Melnick.

Good morning. I would like to thank everyone for attending Melnick's earnings call concerning the fourth quarter of 2024. Let me start by going over the highlights of 2024 in Slide 3. In the column on the left side of the slide, you can see some information about the launches of the year and of the fourth quarter. We reached roughly BRL 1.1 billion of net PSV from launches in the year, which is a 49% increase when compared with the previous year. In the quarter, the net PSV from launches was BRL 251 million, corresponding to a 340% increase when compared with the fourth quarter of 2023. The column in the middle shows the BRL 837 million in net sales for 2024, which, even when considering the floods that affected the state in the second quarter and that hurt our performance in sales and launches, was slightly higher than the year of 2023 by 3%. Net sales in the quarter reached BRL 236 million, highlighting the great performance of our launches with an SoS of launches of 61% in the quarter. In the column on the right-hand side, we show you the gross margin in the year of around 25%, which means a 9% increase when compared with the previous year. The net income in the year was BRL 71 million, a result that was affected by the losses in the second quarter due to the floods that happened in May, in part by the damage caused by the weather event itself and part by the interruption of work in the construction sites. In the quarter, the net income was BRL 34 million and a gross margin of around 26.5%, slightly above the year's average. Lastly, we point out the cash generation of BRL 71 million in the year, 37% higher than the cash generation of the previous year. Moving on to Slide 4. We break down the launches in the quarter and in the whole of last year. We had BRL 520 million in gross PSV launched in the quarter, of which BRL 251 million corresponds to net PSV, consisting of 2 projects launched through Urbanizadora, both with great sales performance, one from our Open unit within the Minha Casa Minha Vida! program, and one from our developer unit. The launches in the whole year reached BRL 1.52 billion of gross PSV and approximately BRL 1.1 billion of net PSV. In the next slide, #5. In the graph on the right-hand side, we see the 49% growth when annualized of the company's net PSV and 28% of gross PSV. While the participation in the company's total PSV in 2023 was close to 61%, it rose to 72% in 2024. The graph on the left-hand side shows a 340% increase of the company's net launch PSV when comparing the fourth quarter of 2024 with the same quarter of 2023. In Slide 6, we can see some of the images regarding the launches of the year, which are on average 66% sold, and demonstrated excellent acceptance of our products by the various market segments. We highlighted the 2 launches by Urbanizadora that surprised us again, selling 93% of their units on average. Moving on to Slide 7 where we discuss the company's net sales. We can see in the graph on the left-hand side that the launch SoS in the quarter was 61% while the inventory SoS was, which translates into an average SoS of 15% in the quarter. This means BRL 236 million in net sales, of which BRL 84 million corresponds to inventory sales and BRL 152 million in sales of launches. Net sales in the year reached BRL 837 million, against BRL 809 million in the previous year, which means a 3% growth, even in the face of the difficulties caused by the floods that happened in the second quarter of the year. The net sales of launches went from BRL 265 million to BRL 492 million, whereas the sales of inventory dropped from BRL 544 million, down to BRL 345 million. The pie chart on the top right-hand corner shows the breakdown of sales by business unit. Approximately 58% of sales happened in the developer unit, 35% in the Urbanizadora unit and the remaining 7% in the affordable housing segment through our Open unit. Lastly, in the bar chart on the bottom right-hand corner, when we look at the projects to be delivered this year, we see that 88% of all units have already been sold, which leaves us the rest of the year to sell the remaining 12%. In the next slide, #8. The graph on the left-hand side shows the company's deliveries. In 2024, they amounted to BRL 627 million of delivered PSV. The right-hand side of this slide displays some information about our operational capacity. Currently, we have 20 active construction sites, 16 of them refer to our developer unit and 4 our Urbanizadora unit. And together, they are producing 4,200 units in over 1 million square meters under construction. In Slide #9, we break down the 4 deliveries in the last quarter of 2024, which are 91% sold on average and do not add virtually anything else to the company's finished inventory. We highlighted the delivery of Carlos Gomes complex, comprising 2 corporate towers, one residential tower with an open mall at its base, with a PSV of BRL 291 million and 94% sold. On Slide 10, we break down the company's inventory by year of conclusion. Here on the graph on the left-hand side, we can see we have BRL 1.34 billion in inventory and only BRL 61 million of which refer to projects to be finished this year. The graph on the upper right-hand corner shows the breakdown of the finished inventory worth BRL 295 million. Only BRL 7 million of it concerns Urbanizadora. BRL 117 million refers to residential units, of which BRL 24 million comprises leased units. And out of the least liquid inventory, the commercial units, amounting to BRL 171 million, BRL 68 million are leased or are hotel units. It's important to highlight our reversible lease policy by which our tenants have the opportunity to purchase their units using the rent paid partially or in total as down payment. We have been able to convert around 1/3 of these leases into sales. Finally, the graph at the bottom of the screen shows the duration of our inventory currently at 19 months. In the next slide, #11, we discuss the company's extensive land bank. We currently have BRL 4.5 billion in total PSV and BRL 2.9 billion of which is Melnick's share comprising 30 plots or phases. And around 14% of this land bank is already approved, enabling us to launch the best project on the market at the right moment instead of just the next one in line to be approved. In the quarter, we added BRL 242 million (sic) [ BRL 342 million ] of PSV to our land bank. Moving on to Slide 12, where we show the company's financial indicators. We can see in the graph on the upper left-hand corner that the net revenue in the quarter was BRL 397 million, 3% higher than in the fourth quarter of 2023. In the year, net revenue reached BRL 1.029 billion, a 13% decrease when compared with the previous year. And that's due to the loss in revenues in the second quarter of 2024 caused by the floods. The graph on the right-hand side shows the gross profit in the quarter, BRL 97 million, with the gross margin excluding financing to production of 26.5%. The annualized gross profit was BRL 223 million, with a gross margin of 24.9%, representing a 9% increase when compared with 2023. You can see at the bottom of the slide that our net income was BRL 34 million in the quarter and our net margin before minority interest of 16.6%. In the year, net income was BRL 71 million, negatively impacted in the second quarter by the floods, with a net margin of 13.3%. In Slide 13, where we demonstrate our capital structure. The chart on the left-hand side of the slide shows that we ended the quarter with a net cash position of BRL 104 million, which is a gross debt of BRL 360 million and mainly designated for financing the construction of ongoing projects. And a total cash position of BRL 465 million. At present, our shareholders' equity is worth BRL 1.2 billion, and our capital structure represents a net cash to equity ratio of 8.6%. In the quarter, we had a cash burn of BRL 31.2 million and we generated around BRL 71 million of operating cash in the year. I'd like to point out that this cash burn in the quarter happened because of the purchase of a large piece of land in Bela Vista neighborhood for about BRL 42 million. We also paid out BRL 40 million in dividends in the quarter and BRL 81 million in the year. In Slide #14 we show our track record of dividend payout. From our partnership with Even in 2008 until our IPO in 2020, we had an average payout of 90%. Since the IPO, we have already paid out to the equivalent of approximately 26% of the company's shareholders' equity. And in 2024, the dividend yield was 11.16%. In the last slide of this presentation, #15. In a subsequent event after the closing of the quarter, I'd like to point out that in an Extraordinary General Meeting held on January 15, 2025, a reduction in the company's share capital to the amount of BRL 150 million was approved under Article 173 of Brazilian Corporate Law, without canceling shares and by reimbursing the money to shareholders proportionally to their holdings. This capital reduction is in line with our strategy of creating value for all the company's shareholders and stakeholders without hindering its capacity for growth and investment. The reimbursement to shareholders will amount to BRL 0.73431451688 per share and will be paid in full on March 28, 2025. Thank you for your attention. I'd like now to give the floor to Leandro, the company's CEO, for his final remarks. And then we'll open for the Q&A.

Good morning. We disclosed our results of a year that was very different, in the main region we operate in, Rio Grande do Sul. The results of the company that was demonstrated through our figures in the third and fourth quarter make it very clear that the [ Lucio economy in Meln ] very quickly came back to our standard of economic activity that was -- that happened before the floods that happened in our state. We grew 49% in the launches when compared to 2023, 3% higher in sales, 37% of increase in cash generation. And our gross margin grows when compared with the previous year. These operating results are even more relevant when we understand that, in the second quarter of 2024, we had all of our activities stopped because of the great floods that hit the state. The company's revenue decreased 30%, but it's important to highlight that this happens because of the accounting loss of BRL 29 million in the second quarter because of the floods. And most of this loss was not an economic loss, but just a postponement of profit because of the stoppage of the ongoing construction, which will happen in 2025. And also the continuity of our consistent policy of paying out the dividends. In '24, we paid BRL 8 million to the shareholders. We are very glad with our results in 2024 because the second quarter showed the company's capacity to recover after the weather events and the results in this period makes us very confident for this year. Thank you. We will now move on to the questions.

[Operator Instructions] Our first question comes from Ruan Argenton from XP.

I have 2 questions here. The first one, what's your plan for launches, if you could talk a little bit about it, for 2025? And more specifically, if you can talk about partnerships. I think you have several partnerships that have been helped with your geographic expansion. I would like to understand what this scenario looks like. And the second quarter -- the second question is Minha Casa Minha Vida! program. We have had several news that we can have an expansion of this project -- of this program, and current news say that the ceiling will be raised to BRL 500,000, and how this will affect you if this is effectively approved?

Thank you for your question. The first -- the launch planning, because of the scenario that we are going through of high interest rates, Melnick is in a peculiar situation because of the way we operate, where we are concentrated in a region, but we operate in all segments. And this characteristic allows us to concentrate the launches in the markets that are least affected by this economic situation. So we are planning a volume that's very similar to the ones we have been doing in previous years. And we'll focus on the segments we think there will be more absorption. Of course, each launch is done by observing these results, so we can plan our next launch. And we have been working through swaps, which gives us the possibility of managing the launches. And we see that, in some segments, we still have a good absorption. We had a decrease of launches by other companies that, on the one hand, helps, and it compensates for this market that's a little weaker. And regarding partnerships, we are highly motivated. We were able to build some very solid partnerships very quickly, which is Santa Catarina in Sao Paulo. And this is the reverse situation that -- in this -- and the interest rate being high facilitates these partnerships with companies that are owners of land, that have very good land bank. And we know that very good land bank is more relevant to our industry and, oftentimes, companies want to expose themselves less. And because Melnick's balance sheet show the company's financial solidity in this environment of high interest rates, and not being in debt, it's a very strong appeal which adds to our proven competence. And this can be a very interesting factor of growth. We still haven't quantified clearly, and we don't like to give objective guidance, but because of this -- besides this, this is an area that we are paying a closer attention to. And we see a great potential for prosperity here. And we have to size it correctly. But today, we have several plots of land through partnerships in Santa Catarina and also in Sao Paulo. And the last point regarding Minha Casa Minha Vida!, Melnick is not widely recognized, but we have already been operating this segment for 4 years. And we do it through our Open units. So in these 4 years, we have delivered a few projects. And we understand that this is a very interesting market in Rio Grande do Sul, differently from the rest of the country as a whole. Rio Grande do Sul had a decrease of the number of players operating in this segment. And the market is still strong. And because of the floods that happened, a lot of the government plans helped decrease in the inventory, which was already small in this segment. So by raising the ceiling, we foresee this year an -- increasing the number of projects in this segment. And Open has given us a learning curve in these past years, and we expect this will help us understand this clear. And this increases our opportunities because we can include a higher bracket -- a higher number of clients within this bracket.

[Operator Instructions] Our next question is from Antonio Pascale, BTG Pactual. It's a question by text. We have 2 questions. Number one, can you comment on the opportunities of purchasing land in this macro scenario that's more challenging and there are lesser competition? Second, can you explain in more detail the partnership model you closed in Santa Catarina? Do you believe you can close other partnerships following the same model in a recurring way?

Thank you for your questions. Yes. And then regarding the land, we had an increase in our opportunities and we have been looking for other. And in Sao Paulo, the environment is much more competitive. But here in Rio Grande do Sul, the company's purchasing capacity is smaller and the high levels of indebtedness of these companies make it that the use of the resources are directed to other ends and not purchasing land. So we see this as a great opportunity because we can use the strategy of swaps. Melnick is recognized as a very solid company. Even if we do not have to enter directly in this competition by using cash, the company's solidity makes it very important in this moment of uncertainties for the investor or the land owner to sign a swap contract with our company. So this is the model. And regarding company -- purchasing of land in cash, we see that's not the best month. And I highlighted Minha Casa Minha Vida!, our Open unit. We had a very clear opportunity. The performance of these products in the middle and upper-middle and the higher -- the immediately -- the segment is immediately above the affordable. We haven't had any launches in these past few years, so the land before this segment, which is above Minha Casa Minha Vida!, we were able to lower the price of purchasing of land already acquired through swaps and frame it within amounts in which the projects can be enabled through a Minha Casa Minha Vida! program through Open. And this makes us -- enables us to build a land bank that's very qualified, in a city that has never had good launches in this segment, so we can increase our performance here. And regarding your last question, the launches using Open unit. It's possible. So generally speaking, we see clearly in a positive way that this is a good moment for purchasing this land. Regarding Santa Catarina, we operate there with 2 models, different from other partnerships with different companies. One region in which we operate, it is the northern coast of Santa Catarina: Praia Brava, Balneario Camboriu, which is a very important region. And the other region is Florianopolis, where beaches like Jurere in downtown Florianopolis. So in these 2 regions, we have already built an important land bank, using models that operate in 2 different ways. The first one, the first model, in the Northern Coast, it begins by way of consulting partnership, we are contributing with the launches of some high-scope projects there, and we are helping these companies through a consulting firm where our revenue is a fraction of PSV and we can contribute, we can have a good revenue and with very little risk in these operations. We see this a way of operating in the market at the first moment without incurring huge risks. And the continuity of this partnership is already established by contract. It allows us to participate in future SPEs if we so want in these places. So we begin with a consulting service, aggregating value, adding value, and we can continue if we want on a second phase as participating SPEs. Now in the Florianopolis region, we closed a partnership that since the beginning we began as partners of these SPEs. And in some land, we first purchased the land and then we brought in companies to develop the land together with us in this project. So it's 2 different models. And we are very excited because we have been able to build a very qualified, a highly qualified land bank. And we think this will help us balance the growth of the enterprise of developing with being conservative in the risk.

Next question comes from [ Dennis Ramos ], an investor, by text. The trend of Selic of going high is an obstacle for coming months?

Yes. There's no question that this trend of the Selic interest rate increasing, it has been affecting our industry highly, both in the cost of financing as well and mainly in our -- in the capacity of the buyer to finance. And also not just his capacity of financing, but also his mood for -- his desire for buying. On the other hand, we are Brazilians, we are businessmen, we have gone through several transition periods that were difficult, and the company has a long-term view. And we are structurally protected against moments like this that gives us opportunities actually. Melnick works with a structure that is deleveraged. We do not have corporate debt. Some analysts have even mentioned that maybe we have an excess cash. But we understand this as being very important because, in moments of growth, it may be that we are a suboptimal capital structure because we are not leveraged. But because the cycles change very high and very frequently and very intensely, in moments like this in which interest rate remains high for longer, the company is protected against this because we don't operate in a way that leaves us exposed in our land purchasing structure, by swaps, is a very important point because we do not have a carryover cost that's heavy. So our long-term strategy is structured in a way to give us reasonable performance in moments of high interest rate. But for the everyday consumption, of course, this is an obstacle.

Our next question comes from [ Joam Antonio Fernandes ], AF Invest, a text question. Can you talk about how we can expect the company's payout after the reduction of share capital?

It's Juliano here. Even after our reduction of share capital, we will remain with our consistent policy of paying out dividends. This is part of the company's strategy. Of course, that sometimes may come along -- some important piece of land may come along and we don't use the money to purchase this launch, so we're not going to stop taking -- we're not going to not take advantage of the opportunities the market offers. But as a goal, our policy is to continue paying these recurring dividends. And exactly which percentage, if it will be 100% or less, it will depend on the cash and all the opportunities that come along. This is how we think.

Moving on, our next question comes from [ Claudio Nor ], investor. Is it in the company's horizon to rebuy stock?

Juliano here. For now, we prefer to follow our policy of paying out dividends instead of a stock buyback. So every stockholder, when they receive the dividend, he can -- the investor can themselves buy more stock. And we preserve the free float of the company. So in our horizon nowadays, we are -- we have been following this policy of paying out the dividends and not stock buyback. Of course, this can change. But for now, we'll keep our policy of paying dividends.

Our next question comes from [ Carlos Felipe ], investor.

Congratulations on the results and the quick recovery from the floods. I have 2 questions. What are the plans to reduce the finished units inventory, especially the commercial ones in 2025? And question number two, how do you see the constant increase in the INCC and the impact in the cost of these prices?

Carlos, thank you for your question. First, regarding finished inventory. The moment the company is going through nowadays, with a deeper analysis, we have a very important part of this finished inventory that is commercial units and hotels, and we understood it was not the best moment in the past. So these hotels are operating. They are leased. And this scenario of high interest rates usually is not conducive to opportunities for acquiring this inventory. We do not segregate this in terms of revenue, but a big part of our finished inventory is from units that are already leased or hotels that are working. The finished inventory that's not leased has been decreasing. And this is some commercial units that, in the last 2 quarters of last year, we think this will continue. We have got the price right. And I think this year, these remaining commercial units, this old inventory will start being sold. We understand that we have a chance this year to do some work. We are trying to understand the right moment to do this, to work these hotels that now we'll see as a revenue generation. So it's a recurring functional structure in the industry. We are used to working under this scenario. Interest rates are part of our -- in our cost structure, our system captures this, and we can forecast this cost into the future. People are familiar with our system of contracts and revenues. So we are managing these extra costs regarding this INCC and the cost of construction. So I thank you again for your questions.

The Q&A session is now concluded and Melnick's earnings call regarding the fourth quarter of 2024 is now closed. The Investor Relations department is at your disposal for further questions. Thank you all for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]