Cyrela Brazil Rlty S/Adr

Good morning, ladies and gentlemen, and welcome to Cirela Brazil Realty's Essay's third quarter of 2024 earnings call. Today with us are Mr. Rafael Horn, CEO, and Mr. Miguel Mikkelberg, CFO and IRO. This call is being recorded and simultaneously translated. You can hear the translation by clicking the interpretation button. To those hearing the English translation, you can mute the original audio by clicking Mute Original Audio. Also, you can find the slide deck in English on the company's Investor Relations website at www.ri.terella.com.br. During the company's presentation, all participants will be on a listen-only mode. After the presentation, we will have a question and answer session. To ask a question, please click the Q&A button and enter your name and organization. When your name is called, a request will pop up on your screen to unmute your microphone before asking your question. We would like to inform you that any statements that may be made during the call related to Cirela's business perspectives, operating and financial targets, are projections made by the company's management that may or may not occur. Investors should understand that political, macroeconomic and other operating factors may affect the future of the company and lead to results that differ materially from those expressed in such forward-looking statements. To open Cirella's 3Q24 earnings call, I would like to turn it over to Mr. Rafael Horn, CEO. Mr. Horne, you may proceed. Good morning, everyone. In the third quarter, we continue to observe a dichotomy in the local scenario. On the one hand, activity continues to surprise us positively, which we can see from the frequent upward updates of GDP growth expectations. On the other hand, the Brazilian Central Bank started a new cycle of interest rate hikes in September, and the inflation and interest rate outlook deteriorated in the quarter. In this context, the sector continues on a positive trajectory. According to this scenario, we presented a solid performance. We launched a PSV of 2.5 billion reals in the period and launched 4.7 billion in the year. Our sales came to 2.5 billion reals in the quarter and 5.8 billion reals in 2024, 24% more year on year. And our launches in the quarter had been 62% sold at the end of September. Cirella's consolidated speed of sales reached 55%. It is important to note that even with an increased volume launch, the company's total inventory did not go well. The operating result translated into great financial performance with net revenue reaching 2 billion. Our gross margin remained flat, reaching 33.3%. Although the operations and numbers grew, expenses remained under control and according to the plan, generating net income of 473 million with a net margin of 23.3% and adjusted ROE of 17.6%, which led us to surpass 1 billion in profit in 3Q24. The company also generated cash in the period, reducing its net debt to equity ratio, to 7%. We are paying close attention to changes in the local and global scenario and remain confident in our team's ability to launch unique projects for our clients and present good operating and financial results. Now, I would like to turn it over to Miguel to talk about the operating results. Thank you, Rafa. Good morning, everybody. On slide four, we'll address Cirella's launches. In Q24, we launched 15 new products with a PSV of 3.1 billion reals, 44% more year-on-year and 114 higher quarter-on-quarter. The company's stake in the volume launched in the quarter was 82%. Excluding swaps, it accounted for 2.5 billion reals in the quarter. Slide 5 shows the launch of Casa Gabrielli by Cirella. in the city of Sao Paulo with a PSV of 323 million reals. It was launched in July and it has only two unsold units at the end of July. On slide six, we'll talk about our sales performance. In 3Q24, pre-sales rose to 3.4 billion, 41% higher year on year and 35% higher quarter on quarter. Torello's stake in the volume launched was 79%. Excluding swaps, sales reached 2.5 billion reals in Torello's stake. On slide 7, we'll address sales speed. The company's SOS in the last 12 months was 54.9%. Looking at sales speed by launch vintage, projects launched in 3Q24 have been 62% sold in 3Q24. On slide eight, we'll talk about our inventory. At the end of the quarter, inventory at market value totaled 8.7 billion rials. In the company's stake, it totaled 6.6 billion rials. The change in our inventory can be seen in the chart on the left-hand side. On slide nine, we show our finished units. In 3Q24, we sold 19% of the finished units at the beginning of the period. Adding the inventory of projects delivered along the quarter and pricing of units at market value, finished units remained flat quarter on quarter, reaching 1.3 billion Rios and 1.1 billion Rios in Cirella's stake. On slide 10, we'll talk about the delivered units. Cirella delivered nine projects in the quarter with a PSV of 1.1 billion Rios on their launch date. Year-to-date, 25 projects were delivered, with a PSV of 2.9 billion. On slide 12, we'll present our financial results. Net revenue was 2 billion reals in the quarter, 25% higher year on year, and 9% higher quarter on quarter. Year to date, Cirella posted 5.5 billion reals in revenue, 20% higher year on year. Gross margin in the quarter was 33.3% against 33.5% in 3Q23 and 32.9% in 2Q24. Year-to-date, the gross margin has been 32.6%. Now on slide 13, you can see our net income and profitability. In 3Q24, our net income came to 473 million against 251 million in 3Q23 and 412 million in 2Q24. Year-to-date, our net income came to 1.2 billion, 66% higher year-on-year. In 3Q24, our return on average equity, that is, our last 12 months net income over average shareholder's equity, was 17.6%. On slide 14, you can see our debt. Gross debt at the end of the quarter was 5.4 billion. The cash position was 4.7 billion. Thus, our net debt was 670 million Brazilian reals. 86% of the total gross debt is long-term. Our net debt over equity ratio came to 7.1% in 3Q24. On slide 15, we can see the company's cash generation. In 3Q24, our cash generation was 129 million against a cash generation of 7 million year-on-year and a cash burn of 61 million quarter-on-quarter. Year-to-date cash generation reached 198 million against a cash burn of 7 million in 2023. Now we can go to the Q&A session. Thank you. Thank you. We will now begin the Q&A session. To ask a question, please click the Q&A button and enter your name and organization. When your name is called, A request will pop up on your screen to unmute your microphone before asking your question. The first question comes from Mr. Igor Alteri with XP. Please go ahead. Hello. Good morning. I have two questions. First about the lack of funding of savings accounts affecting both Sorella and the entire sector. What are the main impacts that you are feeling right now? And the second question is about whether or not you envision growth next year, although there's a tightening in funding coming from savings accounts. Thank you. Good morning, Igor, and thank you for your question. Indeed, funding is a structural challenge, and we know that there is a trend for savings accounts in the long term does not look positive, but we have not felt any impact in the short term. This quarter, we saw some slight increases in the rates of about 30 bps, and we also have some restrictive measures coming from Caixa Econômica. Considering the Cirella and Living clients, about 53% of the clients that had their financial solutions this year, they had real estate financing. And about 15% of those clients felt the need to having a financing model with an LTV above 70%. And that is about 8% of our clients being affected by the new measures of Caixa. But other private banks continue to have LTVs above 70%. So we have not seen long-term impacts yet coming from those measures. And even though there's an increase in interest rates, the clients have been able to get funding with good rates and they are getting the financing quickly. And I think it's too early to talk about next year's pipeline and growth perspectives and launches. But what I can tell you to try and address your question is that we don't think that the funding changing scenario will change our strategy for next year. Okay. Thank you, Miguel. Thank you. The next question comes from Mr. Andre Mazzini with Citi. Hello, Rafael and Miguel. Thank you for the presentation. I have a question about land bank. You have 14 new plots with a potential of 5.6 billion. So what is the environment right now for land banks? Do you think there is less competition now since interest rates have gone up and there is a difficulty in terms of access? And considering that you have a very strong land bank, what are you thinking in terms of launches for 2025? Now about cash me. The financial result of cash me was 50 million positive. It increased quarter on quarter. So I would like to know more about this operation since now things are more scarce in terms of SDPE and if that's going to benefit CashMe since it is geared towards traditional funding strategies. Thank you, Mazini. And to follow up on Igor's question and address yours, We don't work thinking about what the volume is going to be next year. We're working the way we've always done it. We assess each plot of land individually. And when we were a four billion company, that's how we worked. And nothing has changed so far. We don't want to go from four to five or five to six billion in launches. We like growth. the plots of land, we buy them if we have cash for it. So I think that we have a very good portfolio and a very good client base. We have some projects in line for next year and we are happy about it. We're not thinking about the growth for next year. We work bottom up all the time, every year. So the projects that we have for next year, they are finished. And we are always concerned about two things, improving the company's ROE. We have been focusing a lot on that. And we have a good ROE right now, finally reaching the level that we had been pursuing for a long time. Maybe we can improve it a little bit, maybe not, but we surpassed a level that we thought was important. And the second concern that we have is to make our clients happy. So we work bottom up. The ROE is moving in the right direction and the clients are happy and positively surprised about our deliveries. That's how we have been working and I hope it will continue. Now about CashMe, you asked about CashMe, Mazini. the SDPE funding does not really interfere with it. We don't provide funding to the clients for acquisition. We do that a little bit, but CashMe's business is not that. We follow the traditional roadmap. They usually have their own financial solution. So the savings account funding is not really related to the growth of CashMe. Okay, thank you. Okay, thank you. The next question comes from Mr. Tainan Costa with UBS. Good morning, Rafa and Miguel. I have two questions. The first one is about the health of the projects to be delivered in 2025. What's the LTV and the percentage? to be delivered in these launches. And also, if you have any perspectives about cash generation and dividend distribution next year. The second part of my question is about the biggest risk for Sorella in 2025. Is it a deterioration in the macro scenario? Is it the competition? Is it the ability to get transfers? So what's keeping you awake at night in terms of 2025? Thank you, Tainan, for your questions. Well, let me address your question about transfers and the percentages sold and paid. Our vintage at the end of the third quarter this year was 89% sold and 45% paid. That number includes Minha Casa Minha Vida, which has a higher paid percentage, but still the average between Sorella and Living is more or less... at that level, 43, 44%. So the vintage is very healthy in terms of sales and also LTV. Now for the macro scenario, I'll turn it over to Rafa. Well, I think that the biggest risk for 2025 is Brazil. It's tax issues and interest rate levels or the economy slowing down. I don't think the sector is going through an easy moment. And working in Brazil is never easy. Brazil is not easy to work in right now. There is competition. Interest rates are high. So it's never easy. And risks are always there. But we've been able to weather the turmoils very well in the past three or four years. But, you know, we are always measuring the risks and our lives are not easy. We are always tossing and turning at night because of those risks. And if you could give us more color on cash generation and dividend distribution for next year. Well, before that, you talked about the risks related to construction and transfers. I don't think those are risks. The risks are always macro risks. And I think that we can work with them. What's your question? Your second question again? About cash generation in 2025 and dividend distribution. Miguel can address that question. Please go ahead. Well, about cash generation for next year, I think that we are still in the early stages. We don't have the sales plan in each project yet. And land bank acquisition can make a big difference in that number. But for 2025, we're envisioning about 300 to 500 million reals in cash generation. And it's still too early to talk about dividends. We're going to discuss towards the end of the year. We're going to have a board meeting in early December to discuss the possibility of a special dividend distribution this year in a relatively low volume. But we want to discuss it since the operation has been performing well in terms of cash generation. For next year, it's too early to tell. We still depend on a number of variables that are uncertain. Okay, thank you. Have a good national holiday and weekend. The next question comes from Pedro Lobato with Bradesco BBI. Please go ahead. Good morning. Thank you for taking my question. I have two questions too. The first one about vivas. What is the margin that you were pursuing and ROE as well? And what is your perspective for those two things, margins and ROE in 2025, considering the challenges that you will have to face in terms of costs? And now about CashMe, I'd like to know your perspective about the evolution of the business and the level of equity exposure that you have in the new originations for payment if it's according to your expectations and also your perspectives going forward. Thank you. Thank you, Pedro. Let me start addressing your question about VVAS. Our performance has been improving in the segment. This year, we had very successful launches. These launches have a gross margin that is closer to the average company gross margin around 32 to 33%. Of course, we still have a long backlog with lower margins. That's why the gross margin for the Vivaz segment is still below 30%, but there's an upward trend. About ROE, we have been efficient in our operations and we believe that Vivaz will have a significant ROE. especially because of the increase in our gross margin that's coming and also the growth that we experienced in this operation this year. We don't break down the ROE per segment, but we believe that Viva's ROE tends to be substantially higher than the company's ROE. Now about cash me. We have about 500 million in our shareholders' equity. It's about 500, sometimes it goes all the way up to 600, and then it comes back down. And our ROE is reaching what we are envisioning, about 16%. I think it can go up a little bit. And this is a nice operation. It's a niche operation, however. It's not easy. There's a lot of competition. So it's not really a business in which we can grow by 30% per year, but it's a business that delivers good results. We know what we're doing there. We have everything in place that we need. It's a good business. We've been in it for seven years, but it's niche. It's not something that will give you 10 billion in portfolio at some point. It's been growing. And it's not easy to grow in this business, so we don't expect huge growths, but we expect to make good money with a nice, with a reasonable ROE. Okay, thank you. Good morning. The next question comes from Elvis Credendio with BTG. I have a few questions on our side, Miguel. First, can you give us more color about the new launches and what was the reception from brokers? What are you expecting in terms of pricing? And also when it comes to demand, what is your perspective about demand right now? And my second question is about your consolidated results. You said in the release that the new launches are driving growth margin up. So what is your perspective about the growth margins in the new projects in comparison with the previous ones? And what is your expectation for growth margin increases in the short term? Thank you, Elvis, for your questions first about the Vista or money project, we usually don't break down the results by project. And this project actually wasn't even launched commercially yet. So it is a very special project. We take a lot of pride in it. We really like it, but I cannot give you too much information specifically about it. It's not really our communication profile to do that now about gross margin. Currently, our 2024 vintage has a gross margin at around 34%. And that is very similar to the 2023 launches gross margin. And those two vintages have larger gross margins than 2022, which was about 32.5%. So the gross margin has been flat across the project. Of course, there's a lot of volatility There are projects with a gross margin below 30% and some exceeding 50%. But the average of the vintages have been at that level that I mentioned before. So the best range for you to use in your estimates from 2025 onwards should be from 32% to 34%. For a few years now, we have been within that range. About the projects. We cannot give you too much color on it, but we are very excited about this project. That's what we live for, to launch projects like that. That's where we can see talent merging with potential. You know, it's pointless to have talent, but you also need the energy, the power to put the talent in place. And we are working hard to make it very successful. But you should know that we are very excited about it. Okay, thank you. Thank you, Miguel and Rafa. Have a good day. The next question comes from Mrs. Fanny Orang with Santander. Good morning. Thank you for taking my question. Congratulations on the great results. I would like to know if you can update us on the market in Rio de Janeiro. I noticed that you increased your land bank there. So I would like to know your thoughts about it. And if you could give us more color on your expectations about the land bank in Rio de Janeiro, the land bank that you bought in 2014. So those are my questions. Hello, Fanny, how's it going? Well, I think that Rio de Janeiro is like the new Switzerland. No, I'm kidding. I'm just kidding. Rio de Janeiro is really tough. Really, really tough. And we're going to buy a land bank there if there is a good opportunity. We are not excited about Brazil or Rio de Janeiro or the future. We are never getting too excited. Everything is very difficult. And Rio de Janeiro is a really tough place. The last year was a little bit better, but it is a difficult place to work at. And you can't really measure things based on the land bank. And when we see good opportunities, we seize them and we buy land bank. So you can see that variation. from time to time, but we are not really excited about Brazil, much less Rio de Janeiro. It is an important region for us. We've been operating there for 25 years, but it doesn't mean that we are excited about the city. Of course, we trust our team. We have confidence in our projects, but that's micro, not macro. Now about the land bank that we bought in 2014. Well, I don't know if we are going to launch projects there. It depends on a number of variables. So I can't really tell you for sure. There are many issues related to the city zoning, the city master plan. So the answer is we don't know yet. Thank you. Thank you very much. The next question comes from Aline Caldera with Bank of America. Good morning, guys. Thank you for taking my question. I'd like to know more about the competition for a land bank and how you are dealing with that inside the company in terms of cash. If you can give us more information about a competition for different types of plots of land. And if there's little competition right now, How do you balance things out? You are outperforming the rest of the market, so maybe you are buying more land. Are you finding good opportunities? Anything you can tell us about that would be very helpful. Thank you. Well, again, we don't get too excited. I think that we are indeed getting some good opportunities because our bar is very high and we say no a lot. So the things that we do buy, it's because we really like those opportunities and competition is always tough. I believe that in the low income segment, The competition is even tougher, but it is difficult across the board. And now about buying more land bank because of the competition. The answer is no. Our budget is fixed. We never exceeded. We never surpassed it. We have covenants and that really keeps us under control, and we have a very high bar in terms of selecting land bank. And because of competition, we are not going to say, oh, there are so many opportunities right now. Let's multiply our budget by 1.3 or 1.4, 1.5. No, we keep a very strict budget. Okay, thank you, Rafał. The next question comes from Mr. Rafael Reder with Safram. Thank you for taking my question. I would like to know about your client mix, the clients that are buying your products, especially the high income ones. Is there any change that you could highlight because many companies are talking about clients coming from other places other than Sao Paulo buying products that are more luxury and high income. What is your perspective about that? I don't really believe that theory. I don't know what company said that. And well, if they said it, that's because it's happening in their client mix. But I'm not going to launch a product, a because 35% of the clients come from outside Sao Paulo. Our client mix has been really the same. We have low income, medium income, high income clients, and we are offering products to all audiences. We have units that are sold for 200,000 BRLs and some that are sold for 15 million BRLs. We have all types of clients. But the theory of selling units to people from other places other than Sao Paulo, we don't think that's really the case. We are not going to buy a plot of land because 35% of the buyers will come from outside Sao Paulo. I don't think that the return would be good in that situation considering how risky it would be. Okay, thank you. The next question comes from Mr. Daniel Gasperetti with IBBA. Mr. Daniel Gasperetti, please go ahead. Hi, thank you for the presentation. I have two questions too. First, I would like to know more about your capital allocation. Rafa talked about working bottom-up always, and you're very correct about that. And how would that compare with buyback? I believe that you can have an interesting IRR in your own stock. So what do you think about capital allocation in terms of... Alocating capital in different projects, considering the risks and also about the cost dynamic. Is there any cost that is putting more pressure on you? We know that workforce is an issue. It's always been so. But what about materials? Is it a risk right now? Thank you. Well, I think that Right now, if there's money left, we are going to distribute dividends, then buying shares back. But it's really circumstantial. I think that in 2014 or 17, we bought some of our shares back. And I think that if there is money left, we would prefer to distribute dividends, but it can change. And again, we are not excited about the country. But we know that we have a good cash generation. So if there's any money left, we're going to pay dividends. We like to do it. I hope we can. But it's not that there's a lot of money right now. There's excess of money that we can discuss whether or not we're going to buy shares back or distribute dividends. We would love to pay high amounts of dividends like We did in 2018 or 2019, 2020. I can't recall precisely, but I would love to have that problem, you know, having so much cash that we don't know we're going to do with so much money. Unfortunately, that is not the case right now. We might pay dividends, but it's going to be a small volume. It's not going to be billions. It would be a great problem to have, but it's not the case right now. Now about workforce, as you said, as you put it very well, it's always a problem in Brazil. The market is heated right now. It is a very serious issue. We don't have contractors. We don't have workers. There is a shortage across the board. Whenever the labor market is good in Brazil, we have that shortage of workforce. But we are addressing it. And we always take that into account, but it is indeed a challenge. And when it comes to materials, because of the inflation and FX rate, that causes problems when it comes to material costs. We don't think it's chaotic, out of control, but the scenario right now is not a great scenario. Workforce shortage combined with high FX rates and inflation that puts pressure on materials for sure. So we are always keeping our eyes peeled for those things and we are working restlessly to address those issues. And you talked about having cash available, but you are also going to speed up your land bank acquisition. So if you can give us more color about that, And you talked about a 500 million cash generation for next year. Does that take into account the acceleration in land bank acquisition? Now, again, I don't think we are accelerating the acquisition of land bank. The volume that we have right now already consumes a lot of money. So we are not speeding things up, but considering the current level of expenses and cash burn in land bank is not really little. That's why we don't have billions in excess to distribute in dividends. But we are keeping the same level. We are flying at cruise speed right now. But of course, we spend a lot of money and therefore we are not considering the disposal of our stake in subsidiaries in that number. And we know that's a lot of money, but it wouldn't be too significant for Cirella's shareholders' equity. And, you know, 100 million here and there, it wouldn't really be enough to move the needle in shareholders' equity of 7 billion. Okay, thank you. That's very clear. The next question comes from Mr. Marcelo Mota with JP Morgan. Please go ahead. I have two questions. First, if you could give us more color about the others line item in your impairment line, I would like to know what that includes. Is it a mix of SPEs? Is it something more specific about the third quarter. And the second question is about the subsequent events. For example, sometimes you sell curry shares and you didn't announce anything of the sort this quarter. So I'm imagining that you didn't sell any curry steak. So if you can give us any information about that, that would be great because it is a sensitive topic for us. Thank you very much, Mata. About impairment, in the others line item, we have SPEs with third parties. We also have other non-listed JVs. We have another JV that is a smaller operation. And we have our own projects in which we have partners, but due to our agreements with the partners we don't have full control therefore we cannot consolidate the the results that that's why it is included in that line item and of course it has some volatility because everything uh depends on the performance of those spe's but it is within a range that we consider to be normal the biggest growth in that line item came from the three uh publicly listed JVs. And about the subsequent events, we didn't have any. We did not sell our shares in any subsidiary since the end of the quarter, since the end of September. So nothing has changed since the financial statements date. Thank you. That concludes the Q&A session for today. I would like to turn it back to Mr. Rafael Horn for his closing remarks. Thank you. Thank you so much for your attention. We will continue to work very hard to keep posting good results. As I said, Brazil is always a difficult country. We can't get too excited. We always try to keep ourselves in check with discipline. And I think that we finally reached an ROE level that shows how hard our team has been working. We've had a very good performance over the past few years, I think our team has been working extremely hard, putting a lot of effort to get to the level that we wanted. And for some reason, it took a long time to get there. But now we can finally disclose an ROE that bears witness to our team's hard work. So I'd like to congratulate all of our employees because a good ROE is always a sign that we're doing something right. We work for pleasure, of course, to make our clients happy, to have meaning in our lives. But it's always good to see that translated into a good ROE. So congratulations for the entire team, for your hard work. We give our sweat and blood and more to make things happen. And you are the ones that made it happen. So congratulations. And I hope God bless us so that we can continue to show our talent. And may Brazil help us as well. Thank you. See you next time. Thank you, Mr. Horn. This concludes Cirella's conference call for today. Should you have any questions, please contact the investor relations team at ri.cirella.com.br. Thank you very much for your participation. Have a good one. Bye-bye.