Cyrela Brazil Rlty S/Adr

Good morning, ladies and gentlemen. Welcome to Cirela Brazil Realty Essay's second quarter 2025 results conference call. With us today, we have Mr. Rafael Horn, CEO, and Mr. Miguel Mikkelberg, CFO and IRO. This call is being recorded and simultaneously translated into English. You can hear the translation by clicking the Interpretation button. To those listening to 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.sirela.com.wr. During the company's presentation, all participants will be in a listen-only mode. And after the presentation, we will hold 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 out, a request will pop up on your screen for you to unmute your microphone and ask your question. We'd like to inform you that any statements that may be made during the call related to Cirella's business perspectives, operating and financial targets are projections and forecasts made by the company's management that may or may not occur. Investors should understand the 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. And to start Cirella's second quarter 2025 earnings call, I'd like to turn it over to Mr. Raphael Horn, our CEO, who will now start the presentation. Mr. Horn, you may proceed, sir. Good morning, everyone. In the second quarter of 2025, Cirella demonstrated operational and financial resilience amid a complex and macroeconomic environment. An environment marked by the geopolitical developments on the global stage and further increases in the sleek base interest rate, which reached its highest level since 2006. We continue to pursue our growth strategy by launching 17 projects during the quarter with a PSV of 2.9 billion. In the first six months of the year, launches total 6.3 billion, a 180% increase year-on-year. Contracted sales or pre-sales reached 2.2 billion in the quarter, 31% up year-on-year. Year-to-date total sales reached 4.4 billion, a 32% growth year-on-year. This performance led to the last 12-month sales oversupply indicator to reach 52.3%, a satisfactory level that shows how solid our operations are, even in a challenging environment. Our strong operational performance translated into positive financial results. Our net revenue was $2.1 billion, gross margin 32.7%, and net income was $388 million. In the first half of the year, our revenue totaled $4.1 billion, our gross margin $32.6 billion, and net income $715 million, all of them higher year on year. Our ROE return on equity in the last 12 months was 19.5, reflecting the continuation of a path towards growth with the profitability and value creation for our shareholders. Our net debt-to-equity ratio remained at a conservative level at 12.7%, reinforcing Serato's solid capital structure and commitment to maintaining healthy financial indicators. We continue to apply strict criteria while selecting projects and adopting a conservative approach in our financial management. As for the remainder of 2025, we remain confident that our strategy of developing premium projects and delivering a unique customer experience while always striving for sustainable long-term results. We thank our shareholders, clients, partners, and employees for their continued support and reaffirm our commitment to operational efficiency, transparent governance, and value creation throughout the economic cycle. We'll now look at our operating results. Thank you, Rafa, and good morning, everyone. Our first slide is slide four. We'll talk about our launches. In the first quarter, or in this quarter, we had 17 new products with 176% growth and a 15% decrease quarter on quarter, so 176 higher year on year. We have 6.2 billion launched annually. which is 180% higher year on year. On slide five, we would like to show the launch of Viva Selection Laguna. It's 800 million real in VGV, or pardon me, in PSV. On slide six, we talk about sales. In the second quarter, we had 2.2 billion in sales, 31% higher year Year-on-year and 6% higher quarter-on-quarter. Year-to-date, sales total 4.4 billion and 32% increase year-on-year. On slide 7, we can see our sales speed. Our company's SOS in the last 12 months was 52.3%. It was 52.6 in the first quarter. And to the right, we can see the performance of the launches in the second quarter, 2023. The launches we had in the second quarter are 38% sold and in the first quarter were 35% sold. Now let's look at inventory on slide eight. We had 13.4 billion inventory. That is thanks to the increase in launches and the total inventory is 10 billion. Slide nine shows our finished units. We had 2 billion at the end of the quarter. It's a 28% rise quarter on quarter, mainly thanks to the deliveries. We had 93 million reels sold. So it grew to 2 billion and in the Seriala shares, we have approximately 1.7 billion. On slide 10, we had 10 projects delivered, a PSVO of 2 billion. Year to date, we have delivered 17 projects with a PSVO of 2.7 billion approximately. Slide 12 shows our financial results. Our net revenue was $2.1 billion, a 13% increase quarter-on-quarter, and 8% quarter-on-quarter. Year-to-date, our revenue was $4.1 billion, an 18% increase year-on-year. Gross income. And gross margin can be seen. They're slightly lower than what we had last quarter or last year and slightly higher than last quarter. 1.3 billion net income year to date. Now, let's look at slide 13, net income and profitability. Our net income was $88 million compared to $412 million. And there was an 18% increase quarter on quarter. To the right, we can see our ROE, our return on equity. It ended a quarter earlier. at 19.5%. That's slightly lower than the 20.9% that we had in the first quarter 2025, but it's higher than the 15% that we had last year. Now let's look at our debt. We had 6.8 billion reals in gross debt and net debt 1.3 billion. That is a 12.7% net debt over equity ratio. 84% of our debt is long-term. And to conclude our brief presentation on slide 15, we talk about cash generation. We had a high cash consumption of $392 million, comparing to... a cash consumption of 61 million in the second quarter of 2024, and a cash generation of 71 million in the first quarter of 2024, or 2025, by the way. So year-to-date, we have 220 million in cash consumption compared to 69 million in the first half of 2024. And this is the end of the presentation. We can start the question and answer session. Thank you very much. Thank you very much. We'll now start the question and answer session. If you'd like to ask a question, please click the Q&A icon. Write your name and your company. When your name is called out, a pop-up will allow you to unmute. You can then unmute and ask your question. Gustavo Cambauva from BDG Pactual will ask the first question. You may ask your question now, Gustavo. Good morning, everyone. I've got two questions. The first has to do with cash generation. We presented this in the last slide. There was nothing that was non-recurring. I'd like to try and understand a bit better How was cash generation just a concentration of expenses? It's just a calendar matter. Or if it has to do with any specific land lot that you've acquired or anything else. And how do you expect the rest of the year to perform? What should cash generation be like in the second half of the year? And the second question has to do with dividends. This higher cash burn and an increased purchase of land lot, would that impact dividend yield? Would we have just the minimum payout? Or do you believe there is room for more dividends to be paid? Thank you for your question, Kabo. Good morning. As for cash generation, the main factor was expenses on land lot, 480 million in the quarter. That's the highest historical figure that we have in recent years. And when you look at the last 12 quarters, the average... is 240 million in the quarter. So this quarter was basically twice as much. So this is the main factor. We had an increase also in expenses on construction works that is expected concerning the growth of the company and land lot. We have some land lots that will have partners and we're going to have some reimbursement. So about 100 million will be paid back. And the cash consumption should change in the second half of the year. Part of it because of the land bank and part of it because of operations. Our cash position at the end of the year should be below what we expected at the end of last year or the start of this year. One of the main reasons is that even though we have had a sales speed that is quite healthy, that is even slightly higher than our average, and in line with what we had last year, the composition has changed a little. So we're selling young inventory faster. and slower sales speed in the finished units. So the conversion of inventory into cash is smaller than we expected. So for the year, it should be negative. Maybe it should break even. But it's going to be below what we expected last year or started this year. As for the dividends, we have an expectation of taxes, and this is a factor we're considering. But we'll always try and optimize our capital structure. And at the end of the year, we will discuss the possibility of an additional dividend payout. So the cash performance in this quarter and the conversion of the inventory in cash will never impact our intention to optimize our capital structure. And our leverage is quite conservative. So we will analyze that carefully. It's too early to talk about 2026. There's uncertainty and not much visibility into that. And the second half of this year, we'll certainly look into the possibility of an additional dividend payout as per our capital structure and future perspectives. Thank you very much, Miguel. Have a good day. Fanny Oren from Santander will ask the next question. Good morning, and thank you for taking my question. I've actually got two. Can you talk about your sales performance in the third quarter? Miguel mentioned the inventory sales. Can you talk about the launch sales? And can you break it down into the different income classes and segments? And can you talk about Technisa, please? Do you have any clarity on when the cash will be paid for that acquisition? And do you expect to have partners in this Technisa project as well? Thank you. Hello, Fanny. Well, about sales, it's... as we expected. Brazil is never easy, but it's as we expected. It's not for the faint-hearted, but if you've got a strong product, a strong brand, then you can do it. And it's as per our expectation. We're not feeling confident about our economy in Brazil. That's not what I'm saying, right? Our GDP has been 1.5 or 2. And while this is sustained, we can continue to fight. And while we're excited and we continue to work, The SOS has been lower, not only for Cerelo, but for the whole market. But in medium class and high class, so mid-end and high-end, we continue excited. So, so far, so good. Thank God. Hello, Fanny. This is Miguel. As for the Technisa land lot, we talked about it at the end of June, right? We'll continue to analyze it. We don't have clear definitions yet. And the payment of this acquisition could take place this year, but we're still going through this analysis. Thank you. Pedro Lobato from Bradesco. You may ask your question, sir. I've got two questions. Good morning. Thank you for taking them. Revenue grew less than expected. And there's the accounting issue that has its impact as well. But why else could the revenue not achieve what we expected? And what can we expect for the second half of the year, considering that the backlog has been growing more than the reported revenue growth in the quarter? My second question has to do with Vivas. What level of gross margin do you expect for the coming projects? And how does that compare to launch periods that are at the end of their construction work? Hello, Pedro. Thank you for your questions. Well, our sales that are going to be acknowledged through consolidation, they're growing faster than our gross revenue, which is a like-for-like comparison or would be a comparison. So in the last 12 months, the $11.2 billion come from consolidation and $8.8 billion for gross revenue. So there's a $2 billion gap. We have almost $4.9 billion in consolidated sales and $450 in gross revenue, so $750 million gap. As you noticed or as I mentioned, this shows a faster growth of the backlog revenue than the balance revenue. So in the year... The Seriala shares grew 32% and revenue 18%. There are a few reasons for that. One of them is that we had a substantial volume of launches in the second quarter that haven't yet been acknowledged in accounting because there are some resolutions in the incorporation that haven't been finished yet. or in the development and in vivas, the revenue is lower because the land lot normally has a lower cost in COGS than the high end. Now the vivas cycle is faster. So it normally takes less time for this to catch up as the construction works start. So this gap that is large right now should be sort of bridged in the coming quarters. It's difficult to talk about the second half because it will really depend on the launch's performance that has a substantial impact on our revenue. But we really do expect this gap to be bridged partially, at least, and we have an increase in revenue. We saw something similar last year, especially in the fourth quarter. But it's difficult to talk about the whole year. But we do see this perspective. As for VVAS margins, gross margins, we've been seeing improvement. Our reported gross margin in the quarter is 33 and a bit percent. And we saw some projects that had 36%. So it's difficult to say if this is going to be a recurring level. It really depends on the macroeconomic situations and the market, the prices of landlords and construction works. But we have been seeing better margins in projects than we expected a year or over a year ago. If this persists, the VVAS gross margin should continue to grow. The projects we're delivering right now have less than 30% gross margin, 26% to 29%. These are projects that were impacted by the higher inflation cycle. These projects account for an ever smaller part of the VIVAS income, and the new projects have margins that are above 33, 34, and they are starting to offset it. So the reported margin grew substantially in the first and second quarters of 2025 for that reason. Thank you, Miguel. Have a good weekend. Rafael Heder from Safra will ask the next question. Thank you. I've got two questions. The first has to do with land bank. In the press release, you mentioned you had nine new land lots for billing in PSV. When do you expect that to be launched? In what year? And in the Rio de Janeiro, Terran, Cantata, and Peninsula, what are your expectations for those launches? And the second question has to do with the PJs and what is the impact that could be in gross margins in the next launches? I don't think there's much to say about the land bank. We buy land lots with resolutive clauses. And in this quarter, we bought a lot of land bank, but this is something that could have happened four months ago or four months into the future. So we're not accelerating or slowing down. Some of this land bank is for launches for this year. And that's why we have the deeds written for this year. But if you look at the state and try and figure out whether we're accelerating or slowing down, you're going to be confused. We launch 70 land banks or land lots a year, so we normally buy 10 to 20 in the quarter. But these are old acquisitions that were confirmed now. Peninsula will launch in Rio this quarter. We're very excited. The Encantada is not yet active. There are some challenges to be overcome. And it's not to be launched this year or next year or not even in two years' time. We're working for it to be addressed. And gross margin and the other point will be addressed by Miguel. We can't give you a detail about the PJ numbers. there will be an impact on the gross margin because of this increase. But this applied for the new hires this year, and it takes some time until this will generate impacts. So you create a project, normally takes 9 to 10, 12 months to start the works, and then you you start clearing out for construction works and only then do you start seeing an impact. So we expect it to be seen in the second half of 2026 and still limited. It's bad for our funding costs. It's increased. But we issued a CRI bond in the second quarter with very good spread rates, lower than the CDI base rate. And as for the PGA, this should impact other competitors more than us. That's right. That's great. Thank you. Tanya Costa from UBS will ask the next question. I've got two questions as well. Good morning. You sold a land lot in Rio de Janeiro. What was the rationale behind it? What segment was that project a part of? Was there a change in the master plan? Was it non-recurring, or could it happen again? And the second question has to do with top line and revenue. Miguel mentioned some points that impacted the quarter. Some clauses that weren't addressed yet, and there was vivas, but looking at the company's performance new situation with the cost of construction works, the land bank delays and contractors? Is this something that you understand will have a greater impact? And in the delivery, do you see major impacts for the second half of the year and for 2026? These are my questions. Thank you. Hello. Again, the question around land bank, right? It's no use to try and understand what's happening to the company. Looking at our land bank, this is a land lot that I'm going to say we bought in 2012. It was a bigger land lot. And if we didn't confirm it, we'd get a smaller land lot. So we ended up getting the smaller land lot because we didn't confirm the bigger land lot. And then we thought the bigger project wouldn't be able to be launched. We thought it made sense to buy the whole thing at the time. and there was some exit clause or something that confirmed that it was going to be the smaller landlord. That's not exactly part of your question, but it was something of the context. Sometime later, we're able to sell it, so it doesn't mean anything. It just means that this is a landlord that we're not going to be using, so we need to sell it. So this is around the Pontal landlord. As for contractors and terms and deadlines, Brazil is difficult. Brazil is not ready to grow. There is not enough labor. But these factors favor us. When it's hard to find contractors, contractors normally go for bigger, more reliable partners where they're sure they're going to get paid. So it's, it's difficult to get to the, um, to the final match, but it's always fun to play it. So it's a chronic pain to work in, in Brazil, but we don't see major delays in construction works. There have been one or two delays, but, um, things have been well organized. So it's chronic, but we're used to that. Nadal, for example, he used to have some pain in his ankle and he played with it always. So we can't delay our deliveries because of that. So you may play in pain, but you have to play nonetheless. Thank you, Rafa. Have a good day. Marcelo Mota from JP Morgan. You may ask your question. Marcelo Mota seems to have technical challenges, and we'll go for the next question then. Piero Trotta from Citi. You may ask your question now. Hello everyone. Thank you for your presentation. I've got two questions. The first one has to do with selling expenses. There was a bit of a bigger increase in sales booths, media, and other commercial expenses. Can you give us more details around this increase? And what is covered by other expenses, right? Other selling expenses so that we can understand that better. My second question has to do with the constraints or limitations for the company size. Is it the amount of launches, the sales team, the number of construction worksites? Regardless of the macro economic scenario, I would like to hear what the CERL perspectives. These are my questions. Thank you. Hello, Pietro. We don't work much based on volume. I don't know if there is a constraint or a limit. The question is always how long a limit will last. So 10 billion to 20 billion in two years is not possible. We don't have the structure for it. But we can grow in time. So I don't know if there are constraints, objectively speaking. Constraints or limits will always be what we can deliver, market size, engineering, I wouldn't say it's a bottleneck, but it's a factor to be considered, market size as well. And our challenges continue to be leaders. So as long as we can sustain that without problems, we will. These are questions that we can't answer and we're not really worried about them. We work on having a good team and buying good land bank. And that's what we do. But this is not a point in case. It's great if we can grow. It's great if we can't grow. ROE will be good and the team will be working hard. Thank you. Hello, this is Miguel. We had an increase in commercial expenses and selling expenses that was higher than the sales increase. The media booths So it's 37, 47%. They're much more associated with launches because our selling expenses with media and booths, they are higher at the start of a project when we have the model apartment, when we have the advertising campaign. So it's natural. And we had a 32% increase in sales, but 180% in the number of launches, which So it's natural that these line items will grow more than sales. And revenue grew only by 18%. So it sort of diluted into our net income. The other line item, two-thirds, is basically recording or registering the ITBI register and VVAS. That was substantially increased there. And that also reflects our growth in volume in VVAS and the acceleration of transfers. So even though that's a high value, a high amount, it grew more than in sales, but it's normal because of the increase in launches too. Going back to your question, we don't really believe in strategic planning. if we're going to be launching 10 billion in 2025, if you asked me that four years ago, I would say no. If we sat together with the executive team and planned 24 and 25, it wouldn't add up to 10 billion. Planning this kind of thing doesn't really help. It's hard to foresee. The answers we find here are, come from the team and how hard the team works. It's a competent team. And then these things add to one another and they sum up. You don't go into a football match or a soccer match saying that you're going to score 12 goals and it's going to be 12 to nil. You train your team and you go into the game. So it doesn't make sense to try and say we're going to launch 14 billion or 8 billion in four years. And the answers come in our day-to-day activities. There will be new opportunities in land bank and we see, yeah, that's how we see it. Igor Mashado from Goldman Sachs. You may ask the next question. Good morning, everyone. Thank you for taking my questions. I've got two questions. The first one has to do with land bank not concerning your acquisitions but what do you see in the market when it comes to pricing and competition and Cirella land bank are going to be focusing on low income in the coming quarters and years and the second question has to do with the changes in mortgages and housing funding If you could give us any more information around that. Hello, Igor. All segments are okay. We don't give guidance on land bank, what we're going to be buying and where. But every segment is performing well. We have a plan for 2026. We're starting to plan 2027. And the team is working, as I said. The results are going to be a consequence of this work. So we're identifying opportunities and what's going to be launched in 2026 is planned for what's going to come in 2027, we'll find out. And we're not focusing on one segment more than another. We're looking at opportunities. When we find an opportunity, we seize it. This is Miguel Liger. Hello. Well, there are changes in SFI, right? But we don't know more around that than was published in the media. This could lead to an increase in housing credit. And this could have a positive impact in pricing with the rates going down. I don't think there's a silver bullet, though. And with high interest rates and in a saving scenario, it's hard to see a substantial decrease there. And any change that is approved in – that has to make sense for the banks because the banks are the ones that are the origins of all of these portfolios, so – It has to be making sense for the banks, for real estate credit, and for the whole segment, but we can't give you much more color than that. Thank you, everyone. Danielle Gasperetti from ETOBBA will ask the next question. Hello, good morning. Rafa, Miguel, thank you for taking my questions. Well, it's clear that the strategy is quite organic. Where have you been finding, however, more opportunities in land bank, more towards the low end or high end when we see the number of launches is growing? Again, you say it's very organic, but Do you think about striking a balance between the different segments, high end, low end or not? And so that's my first question. The second question was around financing and labor. And you mentioned that if it's hard for you, it's even harder for the competition, right? So have you seen the competition reducing their launches or rethinking their strategy? Have you seen anything there? And if you can break it down into low and high end and mid-end. Well, you said two, but there were 18 questions there. But I'll try and answer your 18 questions. Well, we've learned how to work in, in scale and after we've gone public, that's, that's been working our favor. At first it was harder to have more projects ongoing and now, now we can have more projects ongoing and the team is bigger. The team is qualified. we can invest more in our brand and in sales planning, we can buy more land bank, we can tap into more or we can have access to more contractors, I think so there is an advantage to working on scale. If you had asked me this question 10 years ago, I would say no, but I do think there is this advantage now. And so working in scale works in our favor, be it with contractors, land bank, or whatever. The other question was you assumed I... we grow in an organic fashion, right? So we do. We don't know if we're going to philosophically have 10 or 30 billion in brand. And we have a limit in land bank and engineering and sales and market and Every brand will have those in charge. So everyone is working to have the best results they can. While we can find good land bank, we'll work to increase theirs. So it doesn't really matter to us if we're going to launch 10 million and it's going to be 3 billion in one brand and 7 in the other or how the breakdown is going to be. But each leader has their own P&L. So each one of them is going to try and do their best. But again, it's bottom up. Whatever good businesses they present and we have cash to do it, we'll do it. We just need to have the cash, the budget. And the more opportunities we can find, the more we'll do. We don't say, oh, I want 30% per brand. It wouldn't make any sense to plan like that. You could have 80, 20 in one period and then 37 in the other. It doesn't really matter. It's bottom up. We do plan, but we don't see much value in it. We have a script to follow, and we do that to have a challenge, but that's not how we make decisions. So try and answer your question objectively. It doesn't really matter. We can have any volume in any brand without any type of restriction and without any ideal combination. Any combination can be ideal. Thank you. And I apologize for asking 18 questions. I was just joking, of course. You can ask 24 questions next time. If there was a limit, I wouldn't be able to answer them all. Mario Simplicio from Morgan Stanley. You may ask your question. Good morning, Rafa and Miguel. I've got two questions. Transfers and cancellations, how does it stand right now and what do you expect considering higher interest rates? And there was an increase in finished units this quarter. Can you give us more color around the delivered units this year? How sold are they? Thank you for your question. As for transfers and cancellations, the number did go up in January. And then in March, there was some increase as well. So the average for the second quarter was around 12. In the fourth quarter, the financing was 10.27. So 170 pips in four to five months. But we have been able to transfer customers. We even saw a small increase in fiduciary divestment. In some cases, the clients share maybe even smaller than the bank because of these changes in rates. We haven't had any cancellations above our plan. Of course, there could be changes in one product or another. but we are following the budget and we expect to meet the budget for the year. And the transfers may be taking a bit longer, but we're able to do it. What's to be delivered this year was 92% sold and 54% paid. And in 2026, what's going to be delivered in 2026, 87% sold and 39% paid. So these are very healthy indicators for the next 18 months. Very clear. Thank you. This is the end of our question and answer session. We'll now give the floor to Mr. Horn for his final remarks. Well, thank you very much for joining the call. And see you next time. Thank you very much. Best regards. This is the end of Cirella's earnings call. If you have any questions, please email our ri.cirella.com.br team. Thank you very much for joining the call. Have a good day. Have a good one. Bye-bye.