Good morning, ladies and gentlemen, and thank you for standing by, and welcome to Cyrela's conference call to discuss the second quarter of 2021 results. Today with us, we have Raphael Horn, Chief Executive Officer, and Iuri 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&A session when further instructions will be given. In case you need any assistance during the conference, please request the operator's help by pressing star zero.
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. Such statements speak only as of the date they are made, and the company is under no obligation to update them in the light of new information or future developments. I will now turn the conference over to Mr. Raphael Horn. Please, Mr. Horn, you may proceed.
Good morning, everyone. Cyrela, once again, had a positive operational performance, 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-19, 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 358% when compared to the first quarter 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 BRL 1.5 million in the quarter, 51% higher than the great first quarter we had. The company's net revenue increased by 96% in the six months period, and there was a growth in margin driven by operational results. The reported net income amounted to BRL 267 million.
In addition, we had positive cash generation for one more quarter, maintaining the debt ratio at a low and healthy level, keeping Cyrela 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 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. 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 Iuri.
Thanks, Rafa, and good morning, everyone. On slide five, let's comment on the launches of Cyrela. In the second quarter of this year, we launched 19 new products with a PSV of BRL 1,929,000,000- 651% higher than the same quarter of last year. Excluding swaps and the percentage Cyrela, the launched volume amounted to 612% higher than 2020. The stake of the company in the launched volume was 84%.
Slide six to eight has the main launches of the company. Now Vila Mariana, Arpoador in Rio de Janeiro, and Cyrela by Pininfarina in Porto Alegre. Slide nine, we have the sales performance. In the second quarter 2021, pre-sales contracted reached BRL 1,560,000,000- 205% higher than 2Q20. Excluding swaps, it was BRL 1,248,000,000- 180% higher than the second quarter 2020. In the state of São Paulo, that accounted for 56% of our sales. Slide 10, let's talk about sales over supply.
The annual sales over supply was 55.4%. Looking at the sales over supply by season of sales, the projects launched in this quarter are 40% sold. Slide 11, let's talk about the total inventory of Cyrela. At the end of the quarter, the inventory at market value amounted to BRL 5.5 billion, a growth of 12% when compared to the previous quarter, driven by launches in the period. Movements of inventory could be seen at the chart on the left. On slide 12, let's detail the finished inventory. In 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 total in six new projects, 1,300 units with a PSV of launch of BRL 392 million, with a launch PSV of BRL 791 million. Slide 15, financial results. The net revenue of the company reached BRL 1,182,000,000 billion in the quarter, 18% higher than the first quarter 2021, 102% higher than the same quarter of last year.
In the semester, revenue of BRL 2,186,000,000- 96% higher than the first six months of 2020. Gross income, BRL 432 million, 144% higher than the 1Q previous quarter, and 25% than 1Q 2021. In the first six months, gross income was BRL 779 million, 123% higher than this semester. In the quarter, net income was BRL 267 million, compared to BRL 68 million in the previous quarter and BRL 192 million in the first quarter 2021. In the semester, the net income reached BRL 459 million. Slide 16 talks about profitability. In the second quarter 2021, our return on equity amounted to 39.3% on the last 12 months.
Slide 17, let's talk about indebtedness. Gross debt at the end of the quarter was BRL 3,339,000,000. With a cash position of BRL 2,781,000,000, our net debt amounted to BRL 558 million. The total gross debt, 82%, is long-term. Our net debt to equity ratio was 8.9%, 5.1 percentage points above the last quarter, mostly driven by dividends we paid. This low ratio of indebtedness places Cyrela at the right place to maximize returns for shareholders. Finally, on slide 18, let's talk about cash generation. In the quarter, we had a cash generation of BRL 87 million compared to BRL 70 million in the previous quarter. Rafa and I will move on to the Q&A session. Thank you.
Thank you. Ladies and gentlemen, we'll now begin the Q&A session. If you would like to ask a question, please press star one. If your question has been answered, you may remove your question from the queue by pressing star two. Please remove your phone from the hook, to have better quality sound. First from BTG Pactual, Elvis, please go ahead.
Good morning, Raphael and Iuri. Thank you for the question. I have two questions. First, regarding about launches and sales. Could you give us an update what are sales like in the first half of the third quarter? Also what are your expectations for new launches in the six-month period, more high-end 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 there will be the further transfers, especially steel prices that are expected to increase in the third quarter? Thank you.
Good morning. Thank you. You asked about sales of launches in the third quarter, fourth quarter, and product mix. We haven't launched a lot yet in the third quarter. We have a lot to be launched still, and we are reasonably excited. Let's see. The fact that this was very high in the last two or three months will create a more prudent market, so to speak, because we have to be more careful or pay more attention.
It's good that Cyrela had a very good period recently, but the level of attention and prudence must be high now because the INCC was certainly very high, and that increase in the construction inflation rate has been transferred to prices. If you're close to INCC, there would be margin. If it's not margin, then it's INCC. Everyone in the industry should be more prudent and attentive to that. Again, Brazil is Brazil, as usual. When things are very good, all foreign investors come, then it's not so good. 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. Brazil is unstable. It goes 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. We feel comfortable because we have improved. The company is quite flexible. We have shown, thanks to our great team, that we are able to play around and do things well. It's not that we'll leave low-income segment, no. We'll work with all the segments, but connected, paying attention to the profitability of every segment.
We privilege good products that are well accepted by buyers and profitability. The criteria is profitability, not the segment. Clearly, we need to have a good team in each segment to deliver good projects. We have good teams, so profitable products will be given priority. Profitability is the main driver. Iuri 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. It's hard to get it right. 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 it's going to be calmer.
Okay. Thank you, Rafa.
The next question come from Alex Ferraz from Itaú BBA.
Good morning, Rafa and Iuri. I have two questions. First, about the margin. We continue to see a margin that continues strong in 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 which have suffered more, like Vivaz? How can you reconcile both margins to understand this 36%, 37% of gross margin that you present? The second question is about regional diversification.
If we compare this last six months, the crude figures with last year, São Paulo has lost a bit of share, 56% of launches. We see other areas such as Rio de Janeiro, Rio Grande do Sul, becoming more relevant. Do you see more interesting prospects outside of São 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 is similar to the margin that you can find at 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.
With this similar to REF that I mentioned, that helped that margin to be a bit higher this quarter. In terms of segmentation, the low-income margin. There's no miracle here. We 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 on the market's capacity to absorb price increases. Once again, we don't have much room in this segment. It's normal for medium and high-end products to have higher margins than low-income products. Rafa?
Well, we're only present in three cities, São Paulo, Rio, and the South. We operate bottom-up. It's a team. Each team is competent, each one in their region. It's bottom-up work for land. A 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. We hope this to be successful, but we don't have a target for Rio, São Paulo, and 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 like to see things bottom-up and not top-down.
Thank you, Rafa and Iuri. That's very clear.
Next question comes from Thais Alonso from Citibank.
Good morning, everyone. Congratulations on your results. Excellent. I would like you to comment, please, on future launches. When we look at sales prices 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? With that, are you going to decelerate Vivaz and try to balance the number of land bank that you need? Is there any pending amount still outstanding?
Hello. How are you? Our plans for 2021 and 2022 is pretty much settled. I mean, it's a very good mix, and it's not so flexible. An INCC of five point or 10 percentage points above expectations will not change our blend mix of product. 90% or 95% of them will be able to absorb some one-off adjustments such as that, including Vivaz. Vivaz projects remain and our 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.
As I told you before, we're able to operate in all segments with good profitability. Vivaz is operating, and we will continue with its plans and the sum of land bottom-up that we bought. For 2021, 2022, we are okay. About Cury, 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, five years. We have four years to deliver to Cury.
What's the volume of this pending amount?
It was BRL 1.5 billion. I'd say BRL 400 and BRL 500. I'd say it's still pending BRL 1 billion, around that.
Okay. Thank you very much.
Our next question comes from Renan Manda from XP.
Good morning. Thank you for the question. My question is about gross margin. We see a considerable improvement in this quarter. This improvement, it's a 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? We could expect the gross margin to stabilize at that level. Thank you.
Hello, Renan. Good morning. Thank you for your question. Once again, the margin of our launches, a company like Cyrela that has launched 19 projects this semester, of course, every launch has a different margin because land was purchased in a different way. The margin of launches in general, as I said in the first question, is very close to our REF. 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, had a higher positive weight on it. Looking forward, it will depend on the volume launch in each quarter. Each quarter is a different story, so that varies.
Perfect. Thank you.
Our next question comes from Aline Caldeira from Bank of America.
Good morning, Raphael and Iuri. 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 were successful in transferring price increases. Considering that the interest rate of banks are still low, but they're starting to increase it already.
Hello, Aline. How are you? Well, I hope that it stops there. 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. 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, and we hope that we won't need to do that often. 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 how to navigate 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 three or four plots of land, but you can't think that a company the size we operate, a high INCC will end the margin. We have to operate with healthy margins, and we do that. Of course, a high INCC gets in the way a bit, but it doesn't ruin our projects. If you operate with 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.
The next question comes from Jorel from Morgan Stanley.
Good morning, everyone. I have two questions. One is a bit more general. How do you see the tax reform? How could it possibly affect your business in this scenario, depending on changes? What do you think about that? 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 one or two years? What is missing? These are my two questions. Thank you.
Thank you for your question, Jorel. The audio was not so good. Let me see if I understood it well. It's about tax reform and the impact it will have on us. Please correct me if I'm wrong. Okay. About that, everything that's been designed and talked, discussed, does not impact our industry so much because we don't have a benefit of interest on equity.
Inter-company transactions, it seems to be well taken care of. 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. 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, we'll 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, it's complete. 2022 is almost complete, and 2023, we're getting in the way. Still a few pieces of land to buy, but we're 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.
Our next question comes from Pedro Fonseca from Banco Santander.
Good morning, Raphael and Iuri. Congratulations on the results. You talking about the price transfers and breakdown expected for the next quarter, what about the transfer on low-income projects that the average price is lower? Do you see any possibility of transferring cost increase? The VSO, or rather sales over supply, 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 over supply to remain at the same levels? Thank you.
About 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. Maybe you go to level 4 or 5 and not level 3. These are pieces of land that can be maneuvered. You can either build a product that's Minha Casa, Minha Vida or at level 4 or 5. The pyramid is a bit shorter. We operate everything from bottom up. It starts with a good property, with a good piece of land.
It's important to operate with a safe margin, not very short. The high INCC does not make our macro strategy bad. I think we should expect a bit slower sales oversupply in time. It makes sense to expect lower sales over supply after an expanding period like the one we had recently. Thank you.
Our next question comes from Marcelo Motta from JP Morgan.
Thank you. I have two questions. This sales over supply 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. The second question is about partnerships. With this increase in interest rate and Selic interest rate, are those partnerships with Canada decreased or maybe you're interested with other partners or other projects?
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. The customer will still have one two, or three years to get the keys. Although interest rate has increased, it is still at considerably reasonable levels. Of course, it impacts affordability. Clients are still comfortable. They're good for Brazil.
For Brazil, it's historically low. The decrease in interest rates or the worsening of interest rates is still non-significant. As for Canadians 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.
Our next question is from Pedro Hajnal now from Credit Suisse.
Good morning, everyone. I had a technical problem in the beginning, so if someone has asked my question, please do not answer it. I would like to see how you see the pressure of inflation on labor. Since we still have a strong amount of launches in the second half of this year, in 2022 in São Paulo, what do you expect along those lines? Also, do you feel any pressure about that in this last quarter? Thank you.
Hi, Pedro. Thank you for your question. No, 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. 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 it because we're starting construction works in town. Thank you.
Ladies and gentlemen, this concludes the Q&A session. I would like now to hand the floor to Raphael Horn for his final remarks.
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. Congratulations on the team, all Cyrela's associates, also to the partners. Okay, let's keep working for everything to be successful, and see you next time.
Okay. Thank you. This concludes Cyrela's conference call. You may now disconnect and have a good day