Good morning, ladies and gentlemen, and thank you for standing by, and welcome to Sirela's conference call to discuss the 2nd Quarter of 2021 Results. Today with us, we have Rafael Horne, Chief Executive Officer and Yuri Campos, Investor Relations Senior Manager. We would like to inform that during the company's presentation, all participants would only be able to listen to the call. We will then begin the Q and A session when further instructions will be given. Question.
We would also like to inform that the conference call in Portuguese will be presented by the company's management and the English conference there will be simultaneous translation. This event is also being broadcast simultaneously on the Internet via webcast. This conference call contains forward looking statements that are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those in the forward looking statements. Call. Such statements speak only as of the date they are made, and the company is under no obligation to datum in the light of new information or future developments.
Call. I will now turn the conference over to Mr. Raphael Horn. Please, Mr. Horn, you may proceed.
Quarter. Good morning, everyone. Sidela once again had a positive operational performance, quarter reaching solid volumes in sales and launches. This was driven by the favorable interest rate scenario that remains below historical average rates in Brazil. In addition to the fact that we are better prepared to face issues related to COVID-nineteen, which impacted the beginning of the year with restrictions in the main cities we operate.
Recent advances in vaccination and the gradual economic recovery in the country contributed positively to this quarter's figures and make us optimistic about the remaining of the year. With the reopening of sales stands. Launches in the quarter grew 3 58% when compared to the Q1 of 2021, combined with the resilient performance in sales of the company's inventory, which emphasizes the quality of our products and interest rates that are attractive to our clients. We reported pre sales performance of $1,500,000 in the quarter, 51% higher than the great Q1 we had. The company's net revenue increased by 96% in the 6 months period and there was a growth in margin driven by operational results.
The reported net income amounted to $267,000,000 In addition, we had positive cash generation for 1 more quarter maintaining the debt ratio at a low and healthy level, keeping Sirela ready for future challenges. Looking forward, our challenges are the industry inflation measured by INCC, which is above the last 12 months average and the upward trend in interest rates in Brazil, which is likely to have an impact on the final rates paid by our customers. Nevertheless, we are confident that these adjustments are temporary and necessary to reach an adequate economic balance and that interest rates will remain attractive to our customers and our business environment. The outlook for completing the vaccination of the entire adult population in Brazil in coming months is positive and even if with the first dose, and we continue to have an optimistic view of their industry, seeking to achieve the best results for our stakeholders to create value for shareholders. Let's now hear the operational results from Yuri.
Thanks, Rafa, and good morning, everyone. On Slide 5, let's comment on the launches of Sirela. In the Q2 of this year, we launched 19 new products with a PSV of 1,929,000,000,659 percent higher than the same quarter of last year. Excluding swaps and the percentage Sirela, the launch volume amounted to 6 12 percent higher than 2020. The stake of the company in the launch volume was 84%.
Slide 6 to 8 has the main launches of the company. Now Vila Mariaana, Slide 9. We have the sales performance. In the Q2 2021, pre sales contracted reached $1,560,000,000 205 percent higher than 2Q 'twenty, excluding swaps 1,248,000,000, 180 percent higher than the Q2 2020 in the state of Sao Paulo that accounted for 56% of our sales. Slide 10, let's talk about sales of our supply.
The annual sales of our supply was 55.4%. Looking at the sales that were supplied by season of sales, the projects launched in this quarter are 40% sold. Slide 11, let's talk about the total inventory of Sirela at the end of the quarter. The inventory at market value amounted to $5,500,000,000 a growth of 12% when compared to the previous quarter driven by launches in the period. Movement of inventory could be seen in the chart on the left.
On Slide 12. Let's detail the finished inventory. And this quarter, we sold 19% of finished units inventory in the beginning of the period, adding the inventory of delivered units plus the pricing of units at market value. The finished inventory had a drop of 12% when compared to the same period of last year. On Slide 15, let's talk about financial results.
We had a totaling 13 6 new projects, 13 100 units with a PSC of launch of 392,000,000 with a launch PSC of $791,000,000 Now Slide 15, financial results. The net revenue of the company reached $1,182,000,000 in the quarter, 18% higher than the Q1 of 2021, 102% higher than the same quarter of last year. In the semester revenue of $2,186,000,000 96 Percent Higher Than the 1st 6 Months of 'twenty. Gross income through $432,000,000 or 144 percent higher than 1st Q the previous quarter in 25 percent than 1st Q 2021 in the 1st 6 months. Gross income was $779,000,000 123 percent higher than this semester.
In the quarter net income of $267,000,000 compared to $68,000,000 in the previous quarter and $192,000,000 in the Q1 2021. In the semester, the net income reached $459,000,000 slide 16 talks about profitability. In the Q2 of 2021, our return on equity amounted to 39.3 percent on the last 12 months. Slide 17. Let's talk about indebtedness.
Gross debt at the end of the quarter was 3,339,000,000 of the cash position of $2,781,000,000 Our net debt amounted to 558,000,000 quarter total gross debt, 82% is long term. Our net debt to equity ratio was 8.9 percent, 5.1 percentage points above the last quarter, mostly driven by dividends we pay. This low rate ratio of indebtedness places Sirela at the right place to maximized returns for shareholders. Finally, on Slide 18, let's talk about cash generation. In the quarter, who had a cash generation of $87,000,000 compared to $70,000,000 in the previous quarter.
Now, Raf and I will move on to the Q and A session. Thank you. Thank you. Question. Question.
First from BTG Pactual, Elvys. Please go ahead. Good morning, Rafael and Yuri. Thank you for the question. I have two questions.
First, regarding launches and sales, what are could you give us an update what are sales like in the first half of the third quarter and also what your expectations for new launches in the 6 month period more high and since low income customers have suffered because the construction costs are higher. Also the other point is the construction costs. What do you expect to be the price of construction materials for the second half of the year? In recent conversations with your suppliers, what is the sentiment that will be the further transfers, especially steel prices that are expected to increase in the Q3. Thank you.
Question. Good morning. Thank you.
You asked about sales of launches in the 3rd quarter, 4th quarter product mix. We haven't launched a lot yet in the Q3. We have a lot to be launched still. And we are reasonably excited, but let's see the fact that this was very high in the last 2 or 3 months will create and more prudent market, so to speak, because we have to be more careful or pay more attention. It's good that Sirela had a very good period recently, but the level of attention and prudence must be high now because the IMCC was certainly very high and there was that increase in the construction inflation rate has been transferred to prices.
So question. If you're close to NCC, that would be margin. If it's not margin, then it's INCC. So
question. All in everyone in
the industry should be more prudent and attentive to that. But again, Brazil is Brazil, as usual. When things are very good, all foreign investors come, then it's not so good and I know we're used to that scenario. The idea is that it's not so good that everyone comes to the market, but not so bad either. So Brazil ends unstable.
It is going through several things. We remain optimistic as long as we can do a good work and keep our feet on the ground, deeply rooted. But we feel comfortable because we have improved. The company question is quite flexible. We have shown, thanks to our great team, that we are able question and answer session.
To play around and do things well, it's not that we'll leave low income segment. Now we'll work with all the segments and but connected paying attention to the profitability of every segment. We privilege good products that are well accepted by buyers and profitability. So the criteria is profitability, not the segment.
Clearly, we need to have a
good team in each segment to deliver good projects. Question and we have good teams. So profitable products will be given priority. Profitability is the main driver. And Yuri will talk about the rest.
Hello, Elvis. Thank you for your question. It's hard to say what will happen in the second half of the year. It's hard to project INCC. No one can do that.
Apparently the worst is over. The Central Bank is raising interest rate to curb inflation the foreign exchange rates are going up. Apparently, the worst phase is over. Talking to engineering team, we don't foresee any expected increase in steel prices in the second half of the year. So it's hard to get it right, but apparently the worst phase is over.
There are external factors that affect Brazil. It depends on iron ore, prices and all, but it seems that question. It's going to be calmer. Okay. Thank you, Rafa.
The next question comes from Alex Serraas from Itau BBA. Question. Good morning. Hi for Nuri. I have two questions.
First, about the margin. We continue to see a margin that continuous strong and a scenario of cost retention. How has been the margin of this last season of launches and how does it relate to margin of low income products who have which have suffered more like VIVAS. So how can you reconcile both margins to understand this 36%, 37% of gross margin that you present. And the second question is about regional diversification.
If we compare this last 6 months the crude figures with last year. Sao Paulo has lost a bit of share, 56% of launches, but we see other areas such as Rio de Janeiro and Grand D'Azur becoming more relevant. Do you see more interesting prospects outside of Sao Paulo State where the competition is higher. Thank you, Alex, for your question. I'll answer your question about margin and Rafa will answer the second one.
The margin of our launches. It's similar to margin that you can find in the release. The gross margin that is reported is a mix of several factors: sale of older finished units products and margin of launches. Maybe there was a greater share of launches in revenue as well as in gross margin. And with this RAC margin that are similar to RAC that I mentioned that helped that margin to stage to be a bit higher this quarter.
In terms of segmentation, the low income margin, I mean, there's no miracle here.
Quarter. As you said in
the last quarter, we lost a bit of margin. And that will depend on how much time the INCC will remain high and then the market's capacity to absorb price increases. Quarter. So it's normal for medium and high end products to have higher margins than low income products.
Half of twenty nineteen. Well,
we're only present in 3 cities, Sao Paulo view in the south. We operate bottom up. It's a team. Each team is competent, each one in their region. It's bottom up for land, good land with good profitability.
We have a team that's very good, committed and we see opportunities and that's how we do our launches. So we hope this to be successful, but we don't have a target for Rio Sao Paulo in the south. We're less worried about the regional aspect and more about good opportunities. I don't know if I answered your questions, but we don't we like to see things bottom up and not top down. Next question comes from Paisa Alonso from Citibank.
Question. Good morning, everyone. Congratulations on your results. Excellent. I would like you to comment please on future launches.
When we look at prices sales price of you. We see that high end has grown by 23% and low income is going down. Up to when can you use high end products to offset margins? Do you intend to continue to launch products in that segment? And with that, are you going to decelerate Ezzan and try to balance the number of land bank that you need.
Is there any pending amount still outstanding? Question.
Hello. How are you?
Our plans for 2021 2022 is pretty much settled. I mean, it's a very good mix and it's not so flexible and INCCO 5.10 percent above I mean 10 percentage points above expectations will not change our planned mix of products. 90% or 95% of time we'll be able to absorb some one off adjustments such as that, quarter, including VIVAS. VIVAS projects remain and high income projects remain. We don't have so many cards to shuffle and throw some away.
We have one set of cards that we play with. And as I told you before, we're able to operate in all segments with good profitability. Vivas is operating and will continue with its plans and the sum of land bottom up that we bought. So for 2021, 2022, we are okay, about Curi, our commitment to pay land. We have an annual account.
We met last year's figures. This year's figures, we haven't yet met. We have to pay the full amount of 2021, 2022, 2023, 5 years. So we have 4 years to deliver Tukuri. Question.
But what's the volume of this pending amount? It was RMB 1,500,000,000. I'd say $400,000,000 $500,000,000 I'd say we're lacking still pending $1,000,000,000 around that. Okay. Thank you very much.
Our next question comes from Hernan Mendo from XP. Question. Good morning. Thank you for the question. My question is about gross margin.
Backlog margins going. And this improvement, contribution. Were there specific projects that had a higher margin in this season or launches planned for the second half of the year have a similar margin. And then we could expect the gross margin to stabilize at that level. Thank you.
Question. Hello, Hannah. Good morning. Thank you for your question. Once again, margin of our launches.
A company like Sidela that has launched 19 projects this semester, of course, every launch has a different margin because land was purchased in a different way. But the margin of launches in general, as I said in the first question, is very close to our rank. So on average, it has been so in the last three quarters, and it will be likely to continue at the same average rate. The gross margin in this quarter specifically, the contribution of launches, the gross margin of launches that had a higher positive weight on it. But looking forward, it will depend on the volume launch in each quarter.
Each quarter is a different story, so that varies. Question. Our next question comes from Alimi Caldera from Bank of America. Question. Good morning, Rafael and Yuri.
Congratulations on the results. Thank you for my question. My question is more about your view about the price transfers and how much that would reach in middle and high end products.
So far, you had
you were successful in transferring price increases. But considering that the interest rate of banks are still low, but they're starting to increase it already.
Hello, Aliny. How are you?
Well, I hope that it stops there. And if it does so, like I said, it's hard to say what we expect for the future. It's all dynamic. If we have INCC of 20% per year, things will be very hard. I mean, we don't expect INCC to be so high all the time.
We expect it to go back to regular levels soon. We don't like to increase prices that's it. We have to dance according to the music. So far, the music is playing all right. Like I said, it was wonderful.
Margin has decreased a bit, but it's still okay for those who know to how to navigate it through it and operate well.
Okay, thank you. I
think it's important for everyone to understand that we need to operate at a reasonable profitability. Of course, the INCC that is so big may damage, the margin of or some, let's say, 4 3 or 4 plots of land. But you can't and the margin. We have to operate with healthy margins and we do that. Of course, the high INCC
gets in the way
a bit, but it doesn't ruin our projects. If you operate with the margins that are very much at the limit, Of course, the high INCC would throw you off your path, but that's not our case. And next question comes from Jodel from Morgan Stanley.
Question. Good morning, everyone. I have two
questions. One is a bit more general. Question. How do you see the tax reform? How could it possibly affect your business in this scenario depending on changes and what do you think about that?
And the second question has to do about your land bank. How do you see it today? Does it have room for launches in the next 1 or 2 years? What is missing. These are my two questions.
Thank you. Thank you for your questions, Gerald. The audio was not so good. Let me see if I understood it well. It's about tax reform and the impact it will had on us.
Please correct me if I'm wrong. Okay. About that, everything that's been designed and talked, discussed has does not impact our industry so much because we don't have a benefit of interest on equity. Intercompany transactions. It seems to be well taken care of.
So we're okay with that. There is that issue of taxing dividends. Today, we have a low leverage ratio, which is below the historical average. So if it is the case, we have room to pay dividends in the short or medium terms. We have meetings with banks every week.
We discuss this topic in the company often. If this is the case, will be prepared. Rafa will answer the other question. How are you, land bank, I mentioned it quickly for 2021, we have a complete mix and as well as for 2022. For 2023, most of it is taken care of already is complete.
And 'twenty three 'twenty two is almost complete and 'twenty three is we're getting in the way, still a few land pieces of land to buy, but we're question on the right track. Of course, for 2024, we don't have anything, and it's better not to. The cost of capital is increasing, so we have to work with the short term. Okay, that's very clear. Thank you.
Question. Our next question comes from Pedro Fonseca from Banco Santander.
Quarter. Good morning, Rafael Yuri. Congratulations on the results.
Question. You talking about price transfers and breakdown expected of the next quarter. What about the transfer on low income projects that the average prices lower. Do you see any possibility of transferring cost increase? And the PSO or rather sales oversupply.
Do you consider price increases, maybe a customer that will take longer to make a decision due to several factors? Or do you expect sales oversupply to remain at the same levels? Thank you. About the transfer of low income projects, price transfers. It's a bit more sensitive and less elastic, but good land, good properties in the good locations in the cities we operate.
You're able to sell the product at higher price. So maybe you go to level 4 or 5 and not level 3. So these are pieces of land we can that can be maneuvered.
You can either build
a product at Miacasa Miavid ore at level 4 or 5. The pyramid is a bit shorter, part, but we operate everything from bottom up. It starts with a good property, with a good piece of land. Question. And it's important not to operate it's important to operate with a safe margin, not very short but the high INCC does not make our macro strategy expected to we should expect a bit slower sales oversupply in time because it makes sense to expect lower sales of the supply after an outstanding period like the one we had recently.
Thank you. Question. Our next question comes from Marcelo Morata from JPMorgan. Question. Thank you.
I have two questions. This sales oversupply question, I would like to know whether these in credit facilities, these increases in interest rates from private banks, is there any decrease in conversion? People maybe are interested but end up not buying due to affordability. And the second question is about partnerships. With this increasing interest rate in silica interest trade.
Is that are those partnerships with Canada decreased? Or maybe you're interested with other partners or other projects? Question. Hello, how are you? About the interest rate increase affecting sales in the launch phase.
Customer have a reference of what the interest rate will be when the keys are delivered. So it's still customer who still have 1, 2 or 3 years to get the keys. So although interest rate has increased, it is still at considerably reasonable levels. Of course, it impacts affordability, question, but clients are still comfortable. I mean, they're good for Brazil.
Question. For Brazil, it's historically low. Quarter. So the decrease in interest rates or the worsening of interest rates is still non significant. As for Canadian's partnership, it's doing well.
I think it will continue. I cannot speak for them, but according to my understanding, things are going well and the partnership remains valid. We made some good projects together and we plan to continue to do so in the coming months. Okay. Thank you, Rafa.
Question. Our next question is from Pedro Hajnal from Credit Suisse.
Question. Good morning, everyone. I had
a technical problem in the beginning. So if someone has asked my question, please question. I would like to see how you see the pressure of inflation in on labor. Since we still have a strong amount of launches in the second half of this year in 2022 in Sao Paulo, what do you expect along those lines. And also, do you feel any pressure about that in this last quarter?
Thank you. Hi, Pedro. Thank you for your question. No one asked that. That's all right.
As about the inflation on labor. We monitor that because this was one of our main issues in the past cycle. But currently, up to now, it's under control. INCC, the component of labor in INCC is behaving well, but we do monitor it. That's a point of attention always.
We don't see any problems in that area so far, but we have to monitor because we're studying construction works in town. Thank you. Question. Ladies and gentlemen, this concludes the Q and A session. I would like now to hand the floor to Rafael Horne for his final remarks.
Question. Thank you all very much for your attention,
for attending the call. It's been a good quarter. And I would like to thank God first and secondly praise the team they make a difference. The team congratulations on the team of Sirela's associates, also to the partners. Okay, let's work keep working for everything to be successful and see you next time.
Okay, thank you. This concludes Sirela's conference call. You may now disconnect and have a good day.