MRV Engenharia e Participações S.A. (MRVE3) Earnings Call Transcript & Summary

[Interpreted] [Audio Gap] And from now on, many things have changed since then. First, I would -- we have created MRVCo, which is a housing platform that has requested a lot of investment and time. This platform has brought a new challenge to the company. Obviously, the business became more complex in this recent past. But I am absolutely sure when I say that the choice we made in 2019 by the Board of Directors of the company, despite adding such complexity, will bring dividends in the future and benefits with -- brought from building the platform. So today, we're going to talk about MRV, the company that started all that, and Urba, Luggo, and Resia as well. And as any company that goes through such a big transformation, it's only natural that we face challenges in the short term. The cycle has not been the usual cycle. We had a pandemic that happened once in a lifetime, and several factors that caused this period that would be complex by itself and challenging by nature had external challenges added to them. So in 3 years, when we look at the financial results, they are below the historical average of MRV&Co. We post -- we disclosed our earnings since 2007, and our first year was 2004. So there have been -- we've been posting our results for 14, 15 years now with external auditors, and our earnings have always been different from the market. The company has always worked perfectly, and we've always been able to present different and differentiated results better than average. So in this last year, this additional complexity we faced, the challenges imposed by COVID and inflation of 35%, the lack of products in the supply chain, but we also have to learn from our mistakes and to understand what we did wrong and we should have done better. And everything we've done in this last year, it's an amazing background. It's a company that builds 40,000 units per year every year. It's the only Brazilian company that has reached such a high volume. This is not new to us. We've been having this volume of units since 2003. So this is a result of everything we've been able to launch. We've launched more than 500,000 units, and now we are operating in 2 countries. So there's a lot we have built in lately. And of course, we are disappointed when we look at the financial results of the last 2 or 3 years. I am optimistic, however, because 2023 is a good -- will be a good year. We have planted good seeds, and I'm absolutely sure that MRV&Co will have a better performance in coming years. So just to wrap up this introduction, today's event will be a guide, like serve as a guidance for the future what are our main metrics, our main goals. And I would like to say before anything that what's really bothering us today is leverage and cash. So we'll talk about these indicators in this last hour. I always tell my team that leverage and cash generation is our KPI #1, 2, 3, 5 and 6. This is what we look at every day. And we are making this huge effort to place the company at a different profitability level as quickly as possible with a different leverage ratio. We've been a very conservative company, very low leverage rate. And this loss of operational quality caused us to have leverage ratio that is different from our historical background. And so this is our priority indicator, and we'll make all possible efforts and look for the best strategies to go back to the good figures we have always had, comfortable figures, always based on the foundations of MRV&Co. So now I'll turn the floor over to Kaka. He will talk more about -- in detail about our figures and our background in this recent past and what we aim for the future. Then Rodrigo will talk about Luggo, will talk about Urba. And finally, Ernesto and Caixeta will talk about Resia. And then we get back to give you some context about MRV&Co for the near future. And then we'll have a Q&A session. It's always good to have a discussion. So I hope that by the end of the event, we'll be able to answer all your questions and make everyone comfortable and assured that MRV will certainly get back to being a company with the best metrics in the industry. Kaka, the floor is yours.

Okay. Good morning, everyone. So Rafael just made the introduction. I'll talk about MRV, and then we'll talk about the strategy of MRV&Co and then Q&A and our final remarks. So starting with MRV development, real estate development, which is our development business in Brazil with Class and Sensia lines. And we also have the MRV brand in the housing and FGT funded housing plans in Brazil. So let me go over quickly about the -- go over the business cycle. We went public in 2007 starting with the company selling 6,000 units per year with a gross margin of 37%, very high in this first year. The profit was BRL 36 million, and the cash burn of BRL 36 million. It was a starting year as a listed company. Then after that, from 2008 until 2013, we had a significant growth of the operation. On average, we sold 31,000 units per year. So there was a growth and geographic expansion cycle in which we were able to have a national footprint. During this growth cycle, we were able to have a gross margin of 30.4% and net income of almost BRL 3 million (sic) [ BRL 3 billion ] and the cash generation, BRL 1.72 billion. And from 2014 to 2019, 38,000 units on average per year and a cycle of consolidation and gain of efficiency. It was a single company with a single product, a single funding source. So a gross margin of 31.5%, net income, BRL 3.8 billion and cash generation of BRL 2.4 million (sic) [ BRL 2.4 billion ]. So this is the expansion of MRV&Co, the next cycle from 2020 to 2022. So we had the expansion of Urba, Luggo and Sensia brand and Resia. This cycle from 2022 was a very tough one. The average gross margin was 25.5% with a net income of BRL 831 million and a cash burn of BRL 835 million. Now looking to the future, 2023 to 2025, we call it a recovery of profitability and cash generation cycle. 40,000 units per year, we plan to move sideways in this coming years to recover profitability and cash generation. Now looking at the details in the years from '20 to 2022, we had the evolution of the reported gross margin in green. We went from 28% in the first quarter 2020, and then in the third quarter '22, 19%. And we have to consider important things. In 2020, there was the start of the pandemic. The first thing we did was trying to survive. So let's give some discount. We had a margin above 30% in 2019. So we decided to give discounts and to have a gross margin of 27%, 28% and to be more aggressive in our sales strategy. However, we did not expect the orange curve, which is the accumulated inflation rate, INCC. So as of 2020, we started seeing acceleration of the inflation rate, INCC, almost 35%, reaching 35% in almost 3 years. There was supply chain shortages and ruptures in the delivery of materials and construction cycles, difficulty in finding materials, and teams were waiting for the materials to come. And inflations were very high, materials inflation given either by the pandemic or due to the war that started in the beginning of 2022. So 2020 and '21 and the first half of 2022 had high inflation rates, in '21 high materials inflation, and '22 we had an inflation in labor rates. So inflation is going down, but labor costs are very high. So 2020 was the year and nobody expected such a high inflation. Our business model is associated credit. We sell the units, and then I turn over to Caixa Econômica the apartment, and we have a frozen value of that. So we built units, sold a lot, and we were short on inflation because the amounts were frozen with Caixa Econômica. In 2021 was the year in which prices were going up, but inflation was much higher than our raise in prices. So 2021 is the year in which we should have raised our prices more. We didn't because we raised prices, the volume went down, and we decided to keep our policies. So if we could go back in time, we would certainly would have focused on gaining profitability and price increases in 2021. But -- so we raised prices, but inflation was higher than our price increase in '21. And 2022, we're able to have a healthy gap between price increases and inflation rates. So now we have a more complex operation, not only residential and housing developments in Brazil but all the other initiatives that used our energy and capital. And now in this slide, I want to show you that -- our gross margin of new sales. The importance of the sales crop of 2020-'22 versus what we're able to resume in terms of new sales, that will provide us better structure for '22. On the left pie chart, we see the season of 2020 and 2021 with a gross margin of new sales of 19% with 80,000 units sold and 19% of new sales. In light green, we see 24.4%, 16,000 units. That's the first half of '22 when we start to turn the game. And in the second half of '22, 28.5% with another 14,000 units. So today, we may say that in 2021, operation performance was bad, was poor, we started with high inflation. '22, the second half of '22, the season and the crop was much healthier. But until we're able to have these healthier crops to gain representativeness in the whole number of sales, it takes some time. So on the chart on the right, we show some indicators that's also very important. That's the gross margin for new sales. That's the gross profit, BRL 30,000 per unit; BRL 62,000 in December '22. And now this is a new phase, BRL 76,000 gross profits of December 2023. That's our target. And that changes everything. If you take December '20, 40,000, 30,000 of unit contribution, we have BRL 1.2 billion of gross profit, 40,000 units, 60,000, give or take, of gross margin for new sales. December '22, it's BRL 2.4 billion. So that was a huge increase as far as gross profit. That will become net income after financial expenses, SG&A, taxes, et cetera. In December '23, gross profit will be BRL 3 billion. We are way more robust with gross unit contribution that is higher. And then we're going to be on the profit side, just like we had in previous cycles. As you can see, this number, 33, that's new sales. That was only reached during the IPO year that is above those seasons in which we had our best years after we went public. All right, on to the next slide. These are just the numerical representation of the story I have just told you. We had an increase in the average ticket. On the left, you see the average ticket evolution. From Q4 of '19 all the way to Q4 '22, we had a 32.7% price increase. That is significant. It's a little below than the inflation rates we had, which was 35%, but that was an expressive growth. The mistake was from the Q4 '19. In 2 years, we just increased our prices by 8%. That was a gap of almost 24% for price increases. So when we did that, we ended up losing the volumes as well. The leads we were having did not fit these different prices. And on your right -- I'm sorry, coming back, in Q4 of '23, our budget forecast, BRL 230,000, what does that mean? We've had gross price increases, very aggressive price increases, almost 24% here in a year when you have Q4 '21 to '22. Price increase would be 10%, INCC will be 4.5%. So there will be significant price gains above inflation rates for 2023. So our goal is to reach about BRL 230,000 per unit. So as far as gross margins for new sales, we moved on from 19% in December '21, 29% year's end last year, 10 percentage points of recovery. And based on our expectations, when you have higher prices, year's end will get us to 33% of gross margin for new sales. All right. Let's now talk about strategy. Over to you now, Rafael.

Thank you. All right. 40,000 units a year. That is our operation. You've heard me saying that we had the project of reaching 70,000 units a year. That was indeed our project when the company was a single-product company. Our budget or our balance sheet had room to do it. We could look at that higher number. We may go back to that strategy in the future but not in the near future. So we're now keeping at 40,000 units. We'll be able to reach that volume comfortably with a smaller geographical footprint, which means focusing on São Paulo region and the metropolitan areas where we are already operating. There will be no major changes. We're not moving away, selling land. It's an organic exit, so to speak. In a matter of 1 or 2 years, our operations would be simpler, smaller, and we'll be able to reach 40,000 units a year comfortably operating in a smaller footprint. It's simpler. It's cheaper. You can be more efficient. Each one of our executives will have more time to take more care of each region. So that provides us with efficiency gains and productivity gains as well. So the portfolio, we came up with sublines of products, if I may, especially because we had a very large geographical footprint. And Brazil is not a homogeneous country. So that forced us to adapt, to adjust. So that's why we have been trying to reduce the portfolio. Let's keep whatever is essential, the Minha Casa Minha Vida product. Within that subcategory of product, we'll have a simpler portfolio. So this is indeed very important. We've always concentrated in introducing or launching complete projects unlike the market. The market shows metrics by module. So we have been paying closer attention to modular construction that uses VCO, capital allocation or burning cash. Anyway, so starting mid-last year, costs are more predictable, more stable. And the government has made some decisions last year that helped customers' affordability. Earlier this year, back in January, the ceiling was increased by about BRL 10,000. So there may be an increase of that 10% ceiling. So it's not aligned with the purchasing power of the population. So that rule has been in existence for many years. Inflation rates, just like Kaka showed us, is at 34%. So the program did not address the needs of as many customers. That is the case that in 2017, the program, we had 400,000 units a year, and last year, that went down to 270,000 apartments. It's a significant 30% decrease. And workers' compensation fund has had a record high in '21, '22, and the program was dwindling. So that impacted the subsidies budget. So it is not aligned with the cost matrix and the purchasing power population. Something was done in the second half of last year. But the new government or the new administration is bringing back the Minha Casa Minha Vida program. So these are new strategies to help us deliver that goal of 400,000 units a year. And within that time frame, competition is not as fierce. The industry was hurt. Small and midsized companies were hurt the most with all of these changes. So we have a large volume with the certification. We'll be able to be very assertive to introduce or to launch new projects in the right places. So we'll be able to reach 40,000 units a year in operation. So that gives us belief that our profitability standards will be higher and as well as the generation of cash per unit. Moving on to the next slide. Just like I said, looking at or focusing on operational efficiency, the company is way more mature to operate with this product line that is more comprehensive than that of 2018. Optimization of capital employed is under disciplined strategy, just like we -- I'm not trying to say that we didn't have discipline back in 2018, but now we are able to generate cash consecutively for 5 to 6 years. So we were able to be bold enough to create new companies. We acquired Resia, we focused on Urba, we founded Luggo and then Sensia. So there have been several initiatives in that time frame. As of now, we'll be focusing on the medium potatoes and do it right. This is a very entrepreneurial group. We are always willing to do something new, but we have to be very careful with our capital in the next 3 years, completely focusing on deleveraging the company. As far as land, we purchased a lot of land, about 60,000, 70,000, 80,000. We purchased over 80,000 fractions a year. Last year was smaller. With the new cycle, we'll be able to -- or given our land bank, we would have to buy as much land. So we'll be able to do that. As of '24, '25, that volume will be a lot smaller. That will help us deleverage the company. And we have been able to sell our portfolio. We started doing it last year. Costs are slightly higher given the capital markets scenario. However, we have been able to be successful there. It's a unique technology we have. You've seen how sophisticated and how deep we have in that portfolio. This is unparalleled in the industry. We were able to recycle our portfolio very successfully. All right. This is what we call soft guidance. We're trying to give markets direction as far as our metrics go, our net revenue, gross margin, cash generation and the deleveraging strategy in the years to come. We feel very comfortable to introduce these numbers to you, and we'll be working as hard as we can to reach those goals. Our net revenue will be between BRL 6.6 billion to BRL 7.2 billion. Gross margin from 22% to 24%, it's not gross margin from new sales, just like Kaka showed us, for 2023, reaching 33% for the year. This, of course, will be shown in our reports. Cash generation is a very important indicator. We cannot burn cash this year at all. So we want to be cash flow of 0 cash flow. Our net debt will be between -- net debt/equity ratio will be between 54% to 58%. Net revenue will go up for '24. These higher-priced units will be sold, so gross margin will be between 26% to 28%. Cash generation will be bigger next year, between BRL 300 million and BRL 500 million. And net debt equity will be between 39% to 47%, which remains troublesome. And now on to 2025, we are at a more comfortable level, from BRL 8 billion to BRL 8.5 billion net revenue, gross margin 30% to 33%. Net income, we're going back to those levels we've always had. Good. So the average BRL 850 million. Cash generation between BRL 600 million and BRL 800 million The net debt/equity ratio will be between 20% to 30%. That's not ideal, yet we'll be working hard in 2025, 2026 to bring that below 20%. Now on to Erika. She is Urba's CEO, a company that's been very successful. [ Casa Iloti ], that is a dream product for the Brazilian consumer. Erika and Diniz will be talking about that project, what we have done and what we are aiming to achieve in the years to come.

Urba has been picking up speed in recent 3 years. We strategically refurbished the company, and that's very important to say that when we have these new developments. Have over 15.2 -- or 15,200 units, most of that in recent -- in the past 3 years. This is a very scattered market, very few structured competitors, in other words, few players. And when we come in with that structure in place, Urba will be able to reach excellent levels and will be able to reach that audience. So we are in a unique position. We have the synergy. The MRV lends its credibility to Urba that opens doors to cities and states. We have worth 40 years of data in MRV. That helps us deciding where we should go. That's very important. Despite being part of the group, our company is at a unique position. We have the technology, the platforms, and Urba benefits from all those developments in terms of knowledge and leads. So Urba is very professional in a somewhat unprofessional industry. So we're bringing that experience of MRV, which is very helpful. Back to the numbers, over 15,200 units have been launched, BRL 1.8 billion gross margin that is still below what we would like to reach. But 36% by -- up until September of last year, that is a somewhat low average for the industry. We have over 4 billion of PSV in land bank. That's important. We have been working to expand our land bank. SOS slots, 59%. That is our SOS in 2022. This is a desirable product. More than 60% or 70% of Brazilians want to live in a house. So that's the proposition of Urba, which is to provide the market its dream. So where do we operate? Where do we focus? You can see on the pyramid on the left over 41 million people earning between 2 to 10 minimum wages. Our ticket is a little above. So again, we can use the MRV platform to reach that audience that is at a better financial position, and they can dream about building their house. So we are at the top of the pyramid. Most of the structured development companies are there. That's the market where we operate. That's our focus. So Urba is the only structured company that operates in that bracket. We are now operating 7 states, 30 cities. Our focus has been more regional. We want to focus on the state of São Paulo. We are now operating in the state of Minas. We launched a first and then now on to second and third projects in Minas and the Brazilian Midwest. The agri business is where it's at. So we have been focusing in Southeastern Brazil, focus in the state of São Paulo. Our land bank is mostly concentrated there. And now on to the Brazilian Midwest, we have new project in Cuiabá. A very nice project will be launched in Goiás, the state of Goiás in the city of Goiânia. So we are now in that resilient market, a very rich market, which is very important to our strategy. We'll be talking about portfolio. We have to have good payers in our portfolio. Nice projects, nice spaces, so we remain focused in these 2 regions. Well, what type of product do you offer? This for me is the main differentiation of Urba. We got the award from GRI recognizing our project as the best in urban development because we bring quality of life for this audience. All the wishes for this public, I mean this is a district. It's not a housing complex. We provide safety. We bring the safety to them. We have guards that go through, go around. We have an association place where -- like the house where people can gather and have a sense of community. Our customers buy the plots of land, and they already are able to access the platform. So there is a series of amenities that we want to create, a sense of belonging. So we provide quality of living for an audience that's not used to having that. We had leisure. We have a WiFi access in common areas. Obviously, there's environmental aspects such as conservations of the local fauna and flora. All of that, that we deliver is very unique. So bringing these developments with the quality of product, only Urba is able to provide that. In addition to being a very democratic product and at a high quality, yes, rendering quality of life, more democratic, a higher ticket for a higher-ticketed customer that would only go to a condominium. Our customers cannot afford to buy a plot of land in a closed condominium. So we bring this quality of living to these customers.

Good morning, everyone. I would like to talk about the business model of Urba. It's a different model. It's very unique. It's linked to a very good profitability. In terms of gross margin, for example, we're able to reduce the financial cycle. And that's very important. When we look at the market that have the payback of 7 to 8 years at Urba, we're talking about a 6 months payback. That will allow us an organic growth that's very significant. We were able to do that. Why can't we do that in 6 months instead of 7 or 8 years? Because we have structured recurring sales of our portfolio, and they are very different from what the market usually does. Usually, the market sells its portfolio as a guarantee for a housing financing. We are doing a full sale that will give us guaranteed cash flow and provide a significant shortening of the financial cycle, both cash exposure and the financial cycle. So with this project launched, 6 months later, we can start generating cash and fund other projects. So we're talking about 6 months for payback and a cash exposure of BRL 7 million that is attained 6 months after it's launched and that's the period we start having cash return. So this business model linked to a slower growth with Urba will provide an organic growth for the company. We'll continue to grow. We have decelerated when compared to our plan from 3 years ago, but now we're having an organic and healthy growth. So we reached 2025 with 5,000 to 6,000 units sold and net revenue of slightly above BRL 0.5 billion. Gross margin of BRL 37 million to BRL 40 million. And a net income from BRL 80 million to BRL 100 million. I would like to highlight that we're talking about organic growth. So we'll be ready to grow even further, but we'll grow in a way that we don't burn cash and focusing on the rational allocation of capital considering the high interest rates we currently have. These are the highlights. Just to reinforce that these subdivision markets and development, people who wish to live at a house, so MRV positions itself expanding our platform to provide these products to our customers. In the coming years, the projects we have are already projects that are in our land bank. So these are plots of land we have in-house. So we're getting ready -- and it's important that this is a very long-term project. We're being able to reduce the financial cycle of Urba very much. So that makes it a very good investment for our investors. So from 8 to 9, 10 years from now, we'll be able to address this issue that's very important for the market. Rodrigo, your turn.

Good morning, everyone. I will talk about Luggo. Before, I would like to give you some context about the market in Brazil, so we can identify the size of the opportunity we have in our hands. This is the market that grows twice as fast as the purchase and sale market. It is already present in Brazil, and it's growing at a very high rate. And this industry has become much more professional, this class of assets. We see a movement in the United States as strongly in that direction, we'll talk about that later. And we see major asset managers throughout the United States. And in Brazil, this is only starting. Luggo is a pioneer company in this industry and is already a leading player in this segment. We are in our fourth year of operation, and we are present in many cities. Why this rental market is growing at these higher rates? First, because the affordability of these customers has decreased in lately. So we see the increase in interest rates and its impact, especially at the ticket that is above the housing projects from the government. We'll talk about our income strategy in terms of market positioning. But we see an increase in interest rates from '21 to '22, which leads to a need to disburse lots of money for these customers. And also, they need to have an average income that's much higher in order to get funding. So the rental market becomes the best option for this audience. And we're also talking about a new generation of people. They are used to new consumption ways. Home is seen as a consumption as access, not owning a home. These are digital natives. These young people want to have fluid lives, they want to rent an apartment quickly with very little friction. They also demand an integration between software and hardware. We always say that hardware is the apartment and software is the entire digital experience we provide. So at Luggo, we provide a digital experience from beginning to end, the entire process, we take care of the entire rental process, which is fully digital. And we see this need for these new housing way that also is home leisure and work. So it's home as a hub. We're now changing our assets to provide this option of working from home and entertainment options. So co-working areas are a good example of that. So we provide rooms for people to have their businesses inside the developments. And this has been very successful and people are demanding this model more and more. So this is a trend that we believe is here to stay. It can even accelerate in terms of coverage. The Luggo model has been widely adopted by the public. And as I said before, this income bracket is above that allowed for housing programs from the government and their subsidies. So it's a B class which has a large amount of people for -- in the Brazilian market. So we make these products for B class, sometimes for A class. But we're highly focused on B class. Our rental ticket is around BRL 2,500. We also have a strategy to position ourselves that takes into account all the capabilities of MRV. MRV is a source of technology, and we adapt this chassis to a different business model. We are present in all capitals in which Luggo operates. And the idea is to be positioned close to the urban centers. MRV though is a bit further away from the center of downtown areas, and Luggo is closer and also closer in the main capitals where the highest demand for rental units is placed close to hospital, universities, businesses, public services. So we will position ourselves in the main urban centers. These are the cities and towns we decided to operate in. They have a higher profitability level in terms of rental. And here, at the cities, we are already operating either in operation or we have works under development. And the others are towns in which we'll shortly have products available. As I told you before, the capabilities of MRV. We used the MRV base or structure -- basic structure. The plans for the apartments are used based on the MRV structure. And we adapt the finishing and the common areas. We can improve the gym, we create a remote structure with access control. It's important to -- safety is a very important issue in security as well. So based on the MRV structure, we create new features without adding complexity. In terms of hardware and software integration, so the digital journey is very fluid. We have APIs with the top insurers in the marketplace. We can give credit very quickly. They can rent an apartment using a cellphone app. Of course, we have face-to-face service, and we believe that by building a community. It has to do with what Erika said. That's key so that people can feel welcome, make sure they feel at home, so we have that face-to-face service for minor repairs, giving them that ease of access, so we can capture that rent more quickly. We're also a start-up platform. We offer services on demand, shared cards, supermarkets, laundry services. Major companies are paying attention now. Unilever, purchased or acquired a laundry room that operates our Luggo projects. And once again, security, single access gateway. And we can monitor security remotely with a virtual gate, reducing maintenance costs and of course, boost our capability in having more customers. That's a picture of our concierge. Showing you the picture of our boxes at Luggo, we can make a profit out of every space. We can rent an additional space within their apartments. They will rent one or many boxes, a parking space on demand. This is an Internet-native facility. The model we have in Brazil is individual Internet access and you lose efficiency. So when you offer broadband fiber services for the entire community, you can provide more quality at a lower price that, of course, is a benefit on our part to offer more. Because at the end of the day, customers are paying more attention to the package itself. So we can capture that benefit and transfer that over to our investors. Leisure activities. We adapt that depending on the region. So we can leverage from that know-how, and we can also provide new characteristics from that rental market, giving us more capabilities in getting more profitability. These are the numbers of our current portfolio, 884 facilities that are being managed. 2 other projects that are in the ramp-up phase, this has been very quick. We are paying close attention to rent prices to adjust the pace. We don't want to jump the gun. We want to extract as much as we can. Anyway, the ramp-up has been varied quickly, and the turnover is above or below averages. All right. This is a comparison chart of our rent prices. That's the entire mass of stabilized rents. In the past 3 years, we have been able to capture that profitability variations above inflation rates. By providing professional management, adding technology, services and ease of use. We can, of course, capture value, and in a nutshell, offer a differentiated product. We're going to have that nationwide network. We want to provide this social bracket with that possibility to live in a different "way." All right. In conclusion, just like Rafael, [ Kaka ], Erika said Luggo once again will slow down its growth pace despite the fact we have already detected opportunities to speed things up involving banks and investors as well. If that's not the case, we'll be growing more slowly using as little cash as possible, almost 0. And of course, we're going to advance some projects as the opportunities arise. These are numbers for '23, '24 and '25. Down the road in '25 the goal is to sell 1,300 units generating sales of BRL 370 million to BRL 400 million; net income between BRL 60 million and BRL 90 million.

All right, Rodrigo, excellent. I think it's over to Ernesto. Ernesto is Resia's, CEO; and then Cacheta, our CFO.

All right. I'd like to start by talking about deadline that Rodrigo mentioned. Multifamily is a very mature industry, something that has existed in the U.S. The U.S. has created that commercial real estate class. So this industry has processes, KPIs, again, a very mature industry. Tools to manage the business, so Resia was founded in a mature industry. And what makes us different? We are verticalized. We control all the value creation cycle, all its steps, and we can provide gains at every step of the way from the development, all the way to the sale of that asset with internal skills that are unique. It's a segmented industry. We have companies that specialize in buying or licensing land. There are companies that build and they do that only. Those that work on the development, bringing in investors and charging a fee for that service. And just like Rodrigo said, we have management companies. These are very large corporations. But the largest has over 250,000 apartment units under management, they own less than 1% of the market. Again, it's very atomized, it's very scattered. Over 40 million families live in a multifamily project. it's a huge industry, therefore. When we compare families that own a home when compared to those that rent, that ratio is about 50%. By late 2025, we're reaching that ratio. So there's a social behavioral shift, which is significant. The country is going through that shift today. 10,000 people are turning 65 years of age every day, and 14,000 people turning 21 years of age every day. So that generates more demand for that multifamily product. So let me give you some context. The economic outlook, and let me put Resia within that context. The U.S., just like the rest of the world is going through some higher inflation rates as a result of COVID and the war, disruption in the supply chain. This country was not used to having inflation rates or high inflation rates. Those that are 40 years have never seen inflation rates reach 7%. It's coming down, so we have therefore higher interest rates, much higher than the average for the country. That impacts Resia, of course, in some different ways. Some are positive, some are negative. Our business can be broken down into 2 parts. We have the generation of apartments of billings and new customers that join our base to pay rent. That part of the business is under very strong demand. There's an imbalance between supply and demand there. We have very strong fundamentals to back it up. We don't see any major shift in behavior, people that cannot be into an apartment, but rental prices have gone through the roof to keep up that price increases. They keep on increasing, but more gradually now. Our construction costs are up because of inflation again. That impacted our margins. Higher interest rates impact us negatively because the buyer, that's the second customer we have, number one is the renter for those, and there are those that buy our assets. When you have higher interest rates and they have to finance 60% of the total price, that is more expensive. So return rates are more favorable, that's why you have higher rates. You have the yield curve getting close to the cap rates. That reduces our margins when it comes to selling. The federal reserve has the goal of reaching 2%, current interest rates are 5%. We've seen a change in inflation rates, but the federal reserve has been adopting a very aggressive high interest rate policy. As a consequence, at least the first half of this year even all the way to Q3 will be waiting for a better outlook. There's a lot of available capital, but we're still waiting to see how far interest rates can go and what will be future inflation rates. So we're expecting those lower interest rates. We've seen another 25 bps increase in interest rates, we'll see yet another. We may see 1 or 2 interest rates increases before we come to some stable conditions. So internally here, we don't believe that these interest rates will come down in 2023. So there are several products in our competition, which is the value ad product. These products were purchased 2, 3 years ago at a very low caps. So in other words they paid a lot for it. When you have higher cap rates or older products, those will stress out a few of the other products. In other words, we have a lot of opportunistic capital available. Our sales last year, we were able to sell even before we have that permit. That's not the case. That's no longer the case. We have to rent our units before we sell them. And we expect to sell them with smaller margins based on our track record. The way I see it, it's only temporary. For the year, it will improve and will improve dramatically as of 2024 as we see it. The industry fundamentals remain very strong. Resia has an almost unique product in the marketplace. The demand is there, and there's no supply. These higher interest rates get in the way of those homeowners, those that want to be homeowners, and bring them back to the rental market. And that shift over 14,000 people are turning 21 years of age every day. That brings in even more demand for the product we have. So as soon as we have a clear state of affairs and things will pick up again. We have a very robust track record just like the other companies of the group in the following years. We want to use our land bank, and we want to grow, let me say, more organically we are not going to require capital allocations. We operate in 3 states, 5 cities. All these fast-growing metropolitan areas, states that get a lot of internal migration. Their economies are very strong. That gives us that very positive outlook despite this year that will be challenging, more stressed out gear than what we hoped for. But I remain optimistic because what we do is what the country needs. Affordability is a major social problem in the U.S., and Resia has a solution to that problem. Despite having higher rental prices, we're going to increase our margins through efficiencies by bringing in technology. Our products are standardized, and we want to standardize them even more to generate even more efficiencies. Offsite construction will reduce over 10% in our costs. And management efficiencies in operating the assets will be helpful too. We want to reduce operational expenses. By doing so, we have higher NOIs. We have to reduce production costs, and at the same time, improve operational efficiency. I can, therefore, improve my yield on cost to site or to offset these temporary IR caps. So keeping the spread at least 200 basis points, 200 to 300 basis points is the historical levels in the last 30 years. So Thiago will talk about the figures now. And then if you have questions, I can come back to answer them.

Good morning, everyone. I'm going to talk about the figures, along with Ernesto's message and present what you can expect from Resia's operation in coming years. Let's start with the standard project. As Ernesto said, we expect a spread of 2 percentage points and a yield cap rate would give us a gross margin of 29% and EBITDA margin rise of 19% and ROE of 115% and a levered IRR of 60%. On the right, we have the sensitivity analysis to understand the gross margin area with the cap variance and yield on cost and the yield efficiency as Ernesto mentioned where our margin can be. At the bottom of the chart, you can see the capital structure of a Resia project and its cash flow. We have a 65% construction funding with the preferred equity with another 20% equity, and Resia adds 20% (sic) [ 15% ] of its own capital to the project. Moving to the right, Resia places its capital in the beginning by purchasing the land. So soft cost, and then we start construction, then we access preferred equity. And when contributions add up to 35%, we start -- until we start to withdraw. And then until the end of the construction and when it's become stable, we sell it after 8 months approximately. That's the cycle. And here, we see the growth of the business in coming years. As Ernesto said, we have built up a robust land bank. And now we're going to use it according to the current scenario of the company. And in units built, we expect a growth of around 25% per year up until 2025. And when the project gets stable, we'll sell the property. And that generates a PSV in the next 3 years added of BRL 1 billion -- BRL 1.5 billion. This is an important slide for us. So we can talk a bit more about cash burn and debt, indebtedness and the Resia cash position because sometimes people have questions, and it's important to clarify them. Resia's operation and Resia's business model during growth moment, it is an operation that will burn cash. So we can see in the cash generation and cash over cash burn for coming years in that line. That does not mean, however, that our cash position will decrease or that will need institutional equity from holding. If I look at my net cash flow, this cash burn will be funded by a loan or preferred equity. So the effect of that is twofold. If we look at the gross debt over value of assets, there is a 60% difference. This indicator should be lower than 60%. And Resia will be at a comfortable level without the need to add capital. At the cost of debt, that is low for the United States. The second effect of the funding, I'll try to show it more in detail at the lower part of the chart. Let's start with the cash position of Resia. You see that we're moving sideways in the future years. So on the left, I have listed all the cash outlays: land cost, soft cost, hard cost, debt service, OpEx, CapEx, G&A and taxes for Resia. So all these be funded by construction loan, partners' debt and Resia equity and LP equity. The net proceeds from sales we make. So this is divided in percentage. And the variations that you see from one period to the other are based on the time of construction. When we start more constructions, these are being funded by equity Resia or LP equity. And if I'm more towards the middle or end of the construction, then it's funded by construction loan on a higher proportion. Just to comment, Caixeta, something that Caixeta said, I would like to reinforce. So we're talking about the leverage of Resia comes from debt of funding of projects that constantly do not affect the covenant position of MRV. Just to highlight that detail for you. Yes, and this is an overview for 2025, an outlook. Based on the sales of 2,000 units sold on 2025 at an average price of $340,000 per unit. The net margin consolidated, it's 13% to MRV U.S. at an exchange rate of BRL 5.24 per dollar. So that would provide us a net income to MRV from BRL 440 million to BRL 480 million. The path to 2025, we expect a more stable inflation rate with the appetite for a class of assets to remain strong and gains of efficiency in construction with technology and innovations. That will be the path for Resia from now until 2025.

Thank you. Okay, so going back now talking about MRV&Co, we showed the figures, we built them during the presentation. Let me show you our vision and the results we expect to attain by 2025. Let me start with this chart, the buildup from net income. So when we talk about MRV development unit, MRV Incorporadora, BRL 700 million -- or 700,000 units (sic) [ 40,000 units ]; for Resia, 440,000 (sic) [ BRL 440 million ] or [ 28 ]; Urba, contributing from BRL 85 million to BRL 95 million; Luggo, BRL 60 million to BRL 90 million contribution; and total MRV&Co, we have 48,000 units per year, with an expected income of BRL 1.3 billion to BRL 1.6 billion in the year 2025. In the next slide, we would like to show the financial leverage we separated in 2 types. The Brazil operation contemplates everything but Resia, Luggo, Sensia Incorporation, and it goes from 54% to 45% and ends 2025 from 20% to 30%. As we said, it's not the optimum level we expect, but it's much better than the current level. As for Resia, the leverage as net debt over equity is going up from 2025. It ends from 25% to 30%. Although it's quite conservative, it's half the reference value if we consider the U.S. standards. This is what we wanted to show you. The idea is to go over the figures in the morning session. And now we would like to open for the Q&A session. There are people waiting in line to ask questions.

[Operator Instructions] The first question comes from Gustavo Cambauva.

Okay, I'll ask my question. Actually, it's more of a comment. I would like to understand a bit better, if you could talk more about this decision about reducing the incorporação or development unit operation in Brazil. You're not going to operate in some towns to make the operation more profitable. I would like to understand from the strategic point of view, if you, in fact, came to the conclusion that it's hard to have operations in many towns or hard to attain some scale in so many towns. And what is the target for the markets that you intend to operate in? Do you have a minimum size of town you want to be present? And do you estimate when you will be out of these places? And what is the estimated SG&A reduction? You've talked about gross margin, but I believe you also expect a significant reduction in SG&A. If you could comment on that, I would thank you.

Well, reducing the size of the operation in terms of timing. As I mentioned in the beginning of the operation, the company will not burn assets in the market. It will be an organic movement and will take our time. If that will be completed in the next 3 years, we'll leave about 40 cities. The logic here is the following, Cambauva. As we disclosed for some years ago, we intended to reach 7,000 units per year. And for that, we needed a higher footprint. Since we established that we want to stay at 40,000 units per year at a very high profitability level, we believe we'll have a similar bottom line with 40,000 units per year as compared to the bottom line we would have with 70,000 units per year, provided that we have a high profitability level and better behaving SG&A. This was the decision, and analyzing risk and capital cost, the effort needed to reach 70,000 units. So we understand that it's more prudent now to stay at 40,000 units. And by doing that, we no longer need to be present in 100 some towns in Brazil. We can do that being present in São Paulo and the interior of the state. The logistics in São Paulo is very good, which makes our life much easier. And we'll continue to operate in Curitiba, in Paraná state, also in the interior Baringa, Londrina, now moving on to Rio Grande do Sul and Santa Catarina states' metropolitan areas and the rest of Brazil and the metropolitan areas. So with this geographic map, we'll be able to deliver the 40,000 units per year easily, and that will have effect on our SG&A. But our main concern is on the operational level. As Kaka said, when in our [ valley ], we had the profit coming from the crop of new sales in 2021 of BRL 30,000 per unit. And now we move to BRL 70,000, BRL 75,000 per unit. So the impact on the bottom line and consequently on cash generation is much higher. So our focus now is profitability and cash generation from now on. And let's not forget, Cambauva, that we decided to open room for new initiatives, Urba, Luggo, Sensia and Resia. And with these 4 or 5 new initiatives, we'll be able to reach 2025 with a profit level that has never been provided by a real estate company in Brazil. So we'll have a high profitability with a well-behaved SG&A, profitability, accessing -- having access to multiple funding sources and being in 2 countries. And no one is paying more for that, a mistake that analysts and potential investors are making that we have a diamond that's still being cut. We -- the state of Florida, Georgia and Texas together have a GDP of $3.5 trillion. That is twice the GDP of Brazil and almost the GDP of Germany, taxes alone has an economy that's slightly smaller than the economy of England and France. So we have a very peculiar model -- business model that's being proved to be very successful. So MRV&Co is a company that has a policy of its own, 0 debt. And this asset will generate a giant value for MRV in the long run as Caixeta and Lopes have presented. But looking forward, to 2028 and 2030, I'm certain that this figure will be much higher. So we'll reach 50,000 units by 2025. Maybe by '28, we have more, maybe 50,000 units, but always being concerned about keeping leverage ratios close to 0. So we'll have a net income completely different from any other real estate company in Brazil. How much is it worth today? 0. I understand the concern with the higher debt-to-equity ratio and the income statement that was not pretty lately, and it will be much better this year. So all these seeds that we planted, we are absolutely sure that we'll reap the fruit -- significant fruit in the future. And we have a very good relationship with the market based on our last 42 years of operation. We have a unique performance. And when we look at the IPO window, the first IPO started almost 20 years ago. Ours was in 2017, almost 15 years ago. So if we look at what MRV&Co has done in the last 15 years, Obviously, the operations went -- worsened a bit during the period. But on average, nobody else has done what we have done in 15 years. So we have great strategy, so be able to deliver very unique results when compared to the entire industry.

Ygor Altero, you may now unmute.

I have actually 2 questions. Number one, can you keep on increasing prices to reach that 33% gross margin? And what's your take for this new scenario with higher prices? And my second question is about cash generation. What can be a tool to improve the short term? Are you going to speed the sale of Resia projects? What is your take on that front?

So let me address the first question. And Kaka will view the second one. Price compared to volumes. In last year's dynamics, just like Kaka said, we increased 25% in a very short time frame in a year. Prices went up by 25%. The first one is the -- the first impact is the assessment of Caixa mix. So it takes more time to go up. So that reduces the capacity of customers have to pay up. And when you show that to Caixa, Caixa will adjust their assessments, and then affordability will fit that price range. So it takes time. Customers come to us, and they will end up purchasing a unit in a 90-day time frame. So it's a process that takes time. Whenever prices go up substantially, it's only natural that volumes go down, at least initially. What we have seen in the past 2 months, December and January, now prices are going up at a slower pace. The changes we had in the program from July to January helped us increase prices. We are going to increase by 5% above the consumer price index. And price increases will go back to that pace that will allow us to build 40,000 units a year. 34,000 or 33,000, that was our total volume unlike our track record. So we're now -- I'm confident. We're now confident that we will reach 40,000% (sic) [ 40,000 units ]. The average price will be about BRL 220,000, and we're reaching BRL 230,000 towards year's end. There's a marginal mix change in our portfolio. We cannot attribute that to the higher 10% prices. I'll turn it over to Kaka for generation.

We have several initiatives underway. Selling portfolio is one of them, and profitability coming back is another one. As you build and when you receive from that healthier segment, you can increase cash generation. Purchasing land, using different formats, that can help us in the cash generation. And there's something else that's worth mentioning, and I'm referring to execution. We've always built 360. We had a 5-module project, we would come up with all the infrastructure, asphalt, and we would be doing the 360 for all modules and even including the foundation. And now we're adopting a different strategy. Whatever can be phased out is being phased out. So we're starting on a module-by-module and very disciplined when we start construction. We only start constructing when we have significant sales volume, even when you have to expand that cushion, if I may. There are no several bullets here. We have to resort to several initiatives that will help us to revert that cash generation scenario.

That's very clear. Let me just follow up on the mix, if I may. With the new administration, are you going to pay closer attention to the lower income brackets?

Let me address that. Not in the #1 bracket or bracket 1. We don't believe that that's a sustainable model. But our focus area that accounts for 25%, that may become more important. We have raw material, if I may, for the -- maybe that 25% can go up to 30%, 35%. But the most important thing, Ygor, is there are no other companies as prepared, as present in as many countries or rather in regions than we are. We're not employing new capital. So our growth has to be organic based on our results and selling portfolio. When you look at the Luggo business, rental rates are through the roof. There are no competitors. We're the only company that offers a very democratic product with services, with quality location, very nice product that is digital. Customers can customize their apartments through the app, and they can move the next day. There is no other solution that can be compared to that. Now the demand for Minha Casa Minha Vida is huge. Any changes either in number -- or levels 2 and 3, that will impact us dramatically. We have been -- we chose -- or we picked 15 cities with less competition. We used the [ Caixa ] and [ Essencial ] lines. 40% -- from 30% to 40% of customers that purchase do not resort to bank finance or bank mortgages. So these are very healthy products. The acceptance on the part of the public is much better than that of Minha Casa Minha Vida. In the U.S., we have 2 operations. Number one, selling the real estate to investors, and there is the rental operation. That one is excellent -- is giving the excellent results. Every now and then, there's a story in the press saying that rental prices are not good. Maybe higher income rental markets in Manhattan is not as heated. Maybe in Silicon Valley is not doing that well. But the work for us, market in these 3 states where we operate remains very strong. With high interest rates, new products are now being offered as abundantly. Homeowners would have to use 6%, 7% interest rates when they used to have 3% to 4%. Now they have to rent. They can't buy anymore. So we're not as pleased as short-term results. That hurts us, but I'm certain the decisions we have made will get us back on track, and we'll have a single -- a unique situation in the real estate market.

Bruno Mendonca asks the next question.

My question is about the gross margin guidance. That profitability ramp-up takes place at a time in which you have to have careful with the covenants. We're talking about selling portfolio, sales resorting to barter. Could you please elaborate on how these strategies integrate? Selling assets, selling the portfolio may demand some stronger commercial efforts, and the land, you have to pay for barter purposes. Maybe future projects resorting to barter more than cash, that may impact gross margin projections for the future. But the profitability engine is based on new projects mostly. So that's my first question. The second question is more specific about the average prices of BRL 230,000 that you estimate for year's end. How much of that premise depend upon units that outside the program ceiling? Are you counting on other projects that are above that ceiling?

All right, Bruno. This is Kaka. The first question then. These initiatives are not excluded. We have a land bank that's more than what we need today. Reducing land purchase will impact us. The barter fund just like you said, today, the scenario is somewhat different. These contracts are inflation-adjusted. The land owners are, of course, willing to take some financial losses to advance that flow. That what we have is this to spread as financial investments. So this is small. Purchasing land through barter is just strategy that we'll be using seldomly. We'll be using what we have ready to go. So we're not under that short-term stress. We have been able to sell portfolio at varying interest rates, 2.5% of CDI plus 3%. And we also receive that asset ahead of time. So we have to manage that loss of 2.5% to 3%. Cash will be invested in CDI. As of higher rates, that's not we have seen. Our bonds are very comfortable levels. Delinquency is below expectations. We have several recurring investors. We are not selling portfolio any longer because they don't have any to sell. Again, we take a sample of the portfolio in which there are no delays or -- so this is a line of our balance sheet that is doing very well. We'll be able to keep on selling in the future.

Your question was about the average prices, right? My -- or our budget is as is. So that's outside the Minha Casa Minha Vida project. If there are positive changes, we'll get some tailwinds. We can have more volume or better prices based on the current production in the cities where we operate. We are focusing on metropolitan areas. Rio, São Paulo, Brazil is [ 264 ]. Belo Horizonte and other cities had a BRL 10,000 increase now in January. So we can have that. At this average price, most of it will fall within Minha Casa Minha Vida standards.

All right. Got it. Let me just go back to what Kaka said about selling portfolio. He said, you cannot sell more because you don't have that available. Is there a reason behind it? Is it because that you have a surplus, especially in the first issuing? Have you been able to sell that with fewer collateral or less collateral? Is that the case or not? What's the rationale behind portfolio sales on a yearly basis? Is this what you had in the past quarters, 2 quarters, 3 quarters, whatever you generate, you can sell? BRL 1 billion, ballpark BRL 800 million to BRL 1 billion, that's the ballpark figure.

Our goal is to have whatever we have in credit made available, about BRL 1.2 billion, BRL 1.3 billion a year. We can have about BRL 800 million of BRL 1 billion of sales a year. As far as collateral goes, part of our portfolio is older. So the duration would be very small. It wouldn't be scattered through projects as much. So it would be very cumbersome based on the volume we generate. Unlike the new group's projects, so we have higher receivables concentration per project. So it's worth the effort. So that's why we are advancing it. As to the warranty structure or the collateral structure, we have several in place. We're not reducing the coverage level of our operations. At the end of that operation, it will go back. So the first move we settled in Q2, and all the exceeding receivables will be brought back to our balance sheet.

Ms. Fanny Oreng from Santander is next.

I have 2 questions about Resia. Number one, with less confidence in construction in the U.S., what's your trend -- or what's your take on the yield on cost trend? Prices are coming down, but it's not being backed up by the reality. Can you elaborate on that trend? My second question is about what Ernesto said. He's expecting some price increases in rental prices in the U.S. I've been looking at data. The house burden, the so-called house burden, especially in Florida where you have several projects, that level has been or is already very high. What can we expect as far as rental price increases? And what about the Texas project? It looks somewhat better based on what I have read. And what about new projects? Where are you planning to go? Are you focusing on Georgia, Texas or Florida? So that's my third question. And I'm sorry, I have another one. you're also reducing total volume of units sold. How can you adjust your corporate structure? I'm sorry for asking so many questions.

All right. Let me first address the trend on yield on cost. It's been coming down initially. Our goal has always been 7%. For new projects, our expectation is about 6.5%, but yet that may go back to 7% part -- or in part because of higher rental prices. Well, rental prices have gone up substantially in every market we operate. We don't see that as a trend, not at that level despite the fact that prices will go up. When we do the underwriting, we calculate a 3% increase. In some markets, like in Florida, rental prices will go up above 6%, 7% this year, and we'll go back to 3% next year. In Texas, however, rental prices will not go up as high, mostly because of the current inventory available. So rentals there should increase below 5%. In Georgia, Atlanta is a bit more similar to Florida. It's a market that doesn't have an overbuild as we see in Texas, especially Houston, more than Dallas. Houston is a place where a lot has been built lately. So we see competition a bit stiffer, although these are general statements for multifamily. They are quite dangerous because when we look at it, it seems that the entire market has an overbuild. But it must be qualified according to geographic positions then by class of assets. So in the market that Resia operates, there is no overbuild on the opposite. On the contrary, demand is much higher than supply. There's a need for more products. So I don't see this type of product. As for affordability, there is a lag. Actually, there was an inflation, an increase in the cost of living. Rental prices have gone up and increased rent burn. But now salaries are going up. So what we considered a rent burn is when above 1/3 of average income committed to paying rental, but we see the average income going up a lot in the last 6 months. I think I've answered everything. With regards to competition in Florida, we don't have competition from wood products or lumber because we're much cheaper than that. As for other markets, it has -- the price of lumber has gone up to 400%, but now it has dropped a lot. When we compare, it's gone back to old levels. It's 10%. The concrete prices have not dropped. We expect it to drop in coming months. Everything indicates that it will happen. But the gain from our product is usually cheaper than the lumber products, especially when you look at products above 3 stories, so concrete costs are much more efficient. Lumber can reach efficient levels up to 5 stories, but it's a much more reinforced structure, and that increases costs significantly. Our costs are already prepared for 5-story buildings, and we have projects for up to 12 stories. So that's impossible to build with lumber. So there's things that are specific according to each product, but we are very comfortable with the construction system we have in terms of competitiveness in each market we operate. I don't know if I've answered everything U.S.

Yes, it's very clear. Just one thing about the adjustment of the corporate structure. You've reduced the expectations in terms of sales of projects as compared to the last guidance. How do you deal with the corporate structure because you have grown a lot lately?

Yes, of course. There was a major layoff in the end of last year. We were adjusting the structure for this new scenario. We had a layoff of 100 people approximately at the end of last year, both the corporate and operational positions.

Is that about 1/3 of Resia's headcount?

Yes, a -- less than 1/3, a bit less than 1/3.

Our next question comes from André Mazini from Citibank.

My question is about the plans to simplify the operation. You started the presentation talking about it. I would like to understand the scope of the simplification process. You've mentioned that you're leaving 40 towns. But for example, maybe leaving a certain line of business would make sense or changing some internal procedure, all the initiatives you plan to implement for the simplification.

Well, in terms of simplification, actually leaving 40 towns changes the difficulty level. So it makes management of the company much simpler. We're talking about 1/3, a bit less than the companies, about 25% of the towns we operate in currently. So that provides a brutal simplification in the overall context of the company. Another important initiative is that we migrated from masonry to aluminum modes. We were not able to have the SKUs that we expected in the beginning. We had to buy many modes. And when we started to verticalize products in some towns, we created more types than we should have created, maybe a type to have -- up to 21 stories, then another 1 for up to 14 stores. So that brought a CapEx for investments in modes, and that adds difficulty to our operations. So in this last year, we simplified the number of SKUs, and that helps in the modes as well as with windows, doors. There are several side effects. When you think about a model like ours that's very industrialized, these complexities that seem small, they cost a lot. So in the last 12 months, we did an important simplification work. And so the current portfolio, even including the -- for example, within Minha Casa Minha Vida, My House My Life, we have Essencial an Eco. But there are several Ecos and Essencial products within the company with small differences. We're able to reduce or get rid of many of these differences or small variations. So today, the product is more efficient. There's a lot of detail that I can't really talk about right now. But what's important is that when you started to widen the operation, we have Sensia, Urba, Luggo class, at first, that brings new challenges. Back then 4 years ago, I believe maybe we didn't have the necessary skills to make each product at the state-of-the-art. There's a learning curve, ramp-up. We started the first Luggo project, and then we did several projects at the same time, and it happened with Urba and Resia. And now that growth rate is lower and we have the operational maturity of the project, there is an operational gain as -- and the ramp-up -- during the ramp-up process, that is much difficult to attain. As Kaka explained, after 2013, we reached 40,000 units between 2014 and '19. 5 years -- for 5 years, we were able to do important things that caused the profitability of the company to improve at the end of the day. And we had a cycle of high growth and CapEx from 2008 to 2013. And then the following cycle, we generated BRL 3 billion in cash as compared to the cash burn from the previous period. So there is no silver bullet or nothing that is a major action, but it's the sum of several important actions that will cause us to have a simpler, leaner, more efficient operation with an impact on SG&A, but with the highest impact on the operations line because if we reduce costs and increase sales prices, this year, we're talking about BRL 20,000. So there's inflation. So let's say BRL 10,000, 5% above 200,000. But 15,000 and 40,000 that's BRL 600 million that go to the bottom line -- straight to the bottom line. So that's how we see it. Since we are buying much less plots of land, right now, we're only going to buy fantastic deals with great profitability levels. We're being more selective. So you gain in the purchase of plots. You gain in the simplification of SKUs, increasing markup. So when you add up all these efficiencies, you have extra 15,000 in bottom line per unit. This is how we envisage this.

Next question comes from Jorel Guilloty.

I have 2 questions, 1 about gross margin, another 1 about Resia. Gross margin of MRV Inc., you said that the gross margin and breakeven for cash generation was around 25%. If you look at our -- if we look at your figures, gross margin from 2023 is lower than the breakeven, and you expect the cash generation. So what are the drivers for the cash generation expected for 2023? Is this why you expect to end the year above the 25% of gross margin or maybe considering all the changes, you're considering efficiencies, anything specific in the balance sheet? I would like to understand the delta between the breakeven today and where you want to -- you plan to be. And the next question is about Resia, your sales expectations for 2023 from Resia.

Okay, I'll start here, and then I'll turn it over to Ernesto. What we see, Jorel, is that we start the year with a gross margin around 20%. That's what we have forecast and, we end the year closer to 25% even slightly above that, 25% of gross margin. But the main point is that when -- as we see the sales volume growing this year, the sales volume is expected to be around 40. So when we add more volume to that despite the average gross margin that won't have reached 25%, we have a better breakeven. The breakeven of the gross margin with the highest volume, the breakeven is slightly lower. Is that clear for you? Okay, I'll assume the answer is yes.

Yes, it is clear. As for about Resia, what do you expect?

Now Ernesto will talk about that.

About Resia, we expect to sell one development still in this first half of the year. And this year, there are 5 properties in the lease-up. But the market conditions today, I find it unlikely that we'll be able to sell before the market stabilizes. So we expect to sell 2 developments until the end of this year and the remaining ones would be for 2024. This is something in which we see lots of buyers and sellers in the sideline expecting interest rates to be clear. Until we have a clear idea where interest rates are going, our purchases are opportunistic, and the discount is too high. So this is a strategic decision we'll have to make as soon as we have more clarity about the Fed policy on interest.

Okay, and the expected leverage ratios that you publish are taking into account Resia's sales expectations?

Yes. That considers the overall outlook. Obviously, at the project level, during construction, this leverage ratio is 65% from loan to cost. So it's a higher debt to equity. But when -- as we are finishing lease-up projects and selling them at the corporate level, this is much lower.

Our next question comes from Marcelo Motta.

I have 2 questions. First, could you comment on what you see on inventory levels? You plan to close the year with the BRL 12 billion in inventory value, yet the sales over supply, that didn't keep up with that due to launches at the end of the year. But I would like to understand how you see this line evolving and what is -- what could be the indicator for sales of 40,000 units. And the second question is looking at leverage. You've commented on several leverages to attain that. In terms of asset monetization, do you think of any other position or anything, maybe having some strategic investor in your verticals, maybe you plan to bring in some equity fund? Or what have you thought about in terms of investors?

Okay, Motta. As for inventory, we'll plan to -- when we publish our release, we'll break down -- we have a different breakdown on that. We always posted a number of sales per module and launches per module. And MRV always published per development. If I only have 5 modules launched and 1 for sale, the denominator becomes 5 and not 1. And that distorts the sales over supply. That has never been a concern for us, but everybody that makes projections for MRV looked at the sales over supply that's lower, applied over a higher number of launches. And then when you attain a certain number, the number of sales doesn't change, and it would be launching module per module at a higher sales over supply. So if we had considered only the modules sold last year, our SOS in the fourth quarter would go from 10% to 18%. If we look at the average from the entire period, instead of 11%, it would be 20%. As we notice this concern from analysts, given the highest -- higher leverage ratio we have today, as we are launching, we have the obligation of building and, therefore, that impacts our inventory, we'll start reporting differently from now on, showing the number of modules. We'll continue to build. I will only build the modules that have launched and that have some sales. So that will be good for market concerns. So we don't see at the 40,000 sales. For some reason, we don't expect -- or something we have not mapped internally, sales will be less than 40,000. We won't launch 40,000 but less. But this year has started very well in terms of sales. So we're quite confident about the figures we are talking to you. As for monetization of assets, we are doing that. In terms of investors for the other initiatives, we're always open for conversations. But today, now is not the best moment for that because we know that investors look at the macroeconomic trends, instead of only the company trends. If we were to consider Resia last year, people were highly interested. Many investors reach the advanced stages of getting to know the business and the portfolio and the company. So given a better macroeconomic scenario, I wouldn't be at all surprised that we had these conversations starting again. But for now, we have not advanced in any conversations with anyone.

This concludes the Q&A session. I'll turn the microphone over to the CEO.

Well, first off, thank you ever so much for attending this 2-hour call. This was a very important conference to us. We had a chance to show you our vision, our future plans to take the company to the level of results we have always been able to provide. Our #1 priority is profitability, cash generation and deleveraging. And once again, we want to commit. On behalf of my entire team and myself and the Board, we have to say that we have been working very hard to have a more profitable and less leveraged company. And we'll be able to reach that goal. We'll be able to do even more than the projections presented today. Once again, thank you so much, and we'll keep you up to speed as soon as the events arise. Once again, thank you so much.

This concludes the MRV Day. Thank you for attending. Have a wonderful day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]