Morning, everybody. Welcome to our earnings presentation of the third Q 2024. Here with me is André Damião, IR for Direcional Engenharia. Together with me is Ricardo Ribeiro, CEO, Paulo Sousa, CFO. This we are doing the same way we have done in all quarters, every quarters. We are going to present the numbers of the quarter, year up to date for 2024. We will open for questions. Anyone that wants to ask questions, use your raise hand tool here, and we will answer according to the order of questions. This is also live in the Direcional YouTube channel. If you want to watch it there is a link here for you in the IR site. Also there is the link for the presentation of this event. This presentation goes to investors and analysts and will be available in IR site.
I give the floor to Ricardo, who will begin the presentation.
Good morning, everybody. I would like to thank you for your participation here in our earnings presentation call. It is a huge pleasure to share the results of the third Q. A little bit about what we have had as results because of this journey and all the guidelines we traced some years ago. Now things have materialized, have become clearer quarter after quarter. I would like to begin with page three, where we address the main highlights of our operation. This was a quarter where we continue with our company's performance improvement work in all operating and financial metrics. Huge highlight, in my opinion, is the capacity that we have had in Direcional to grow, returning capital to our shareholders. This has become clear in our ROE levels that we have delivered.
In this quarter, we delivered the highest net sales in the company. When there is a growth of revenue, there is a demand for working capital. The largest growth net profit in our company, and here we paid dividends of BRL 277 million in July. We closed this quarter with an ROE of 29%, and even with such a healthy, solid level, the debt left closed at 4% of our net equity. We are delivering a high level of return with very low leverage. That is optimal in terms of leverage. We have a certain opportunity to optimize even more our capital structure, maintain all our conservatism that we have demonstrated in all the years. I would like to also highlight the expressive gains that we have had in the company as a result of operating leverage.
We have been able to grow our operations, the number of launches, sales, and revenue, maintaining stable or with inferior growth our expenses. As the result of this gain, the operating leverage reflects in a growth of revenue of 41% when analyzing the first nine months and 81% of net profit. For us here in Direcional, it is most relevant. For us, growth only makes sense if it comes together with the benefits that come from gain in scale. This quarter, in the last month, any metric you want to analyze, we grew in launches, sales, revenue, and also we had growth of gross profit margin, EBITDA, net margin and ROE. These KPIs are in the greatest levels of Direcional. When growth brings all these benefits where we become more competitive, we generate more value, then it makes sense.
This is why we have grown and have been able to improve our performance. As a result of this growth, the efficiency that we've had in our Direcional and our performance levels is the best in the history. This does not mean that we don't have opportunities for improvement. We do. We are focused on each one of them so that we can implement each small detail in the next months, and I hope this continues reflecting in our results. Now, going to our data, page five, where we address our launches. It is important to stress that we have been growing when compared January to September 2024. When we compare to the same period last year, we grew 13% in terms of launches. When we compare only the third Q of this year to third Q last year, growth was 19%.
We reached a total amount of launches in the nine first months of this year, BRL 5.3 billion. 12 months closed September this year, BRL 5.3 billion. When we launched the nine first months of the year, launches were BRL 3.9 billion. It is important to stress right here, when we analyze the last seven months of the company, launches was multiplied by 5.7x . So it was extremely expressive numbers. The following page here, page six, where we address our net sales. The highlight here in our operations this year was the growth we had with this indicator here. Our sales are growing 69% when compared to the first nine months of this year, with the first nine months last year.
Analyzing the last seven years, our sales multiplied by eight, and in the last 12 months closed now, September this year, we reached almost BRL 6 billion in sales, BRL 5.9 billion. When we analyze this year only, sales from January to September reached BRL 4 billion, BRL 700 million. Specifically this quarter, this was the best quarter in our history in terms of net sales, where we sold more than BRL 1.7 billion. Next page, where we have the VSO, our net sales index. Our sales speed, considering that capital is very expensive in our country and has grown in the last. This is an indicator, KPI, where we really did focus on this year.
We had a very expressive improvement year, huge increment in our net sales speed, which has allowed us to grow, demanding less capital, which means we're returning more capital to our shareholders during 2024, and also with expressive growth in our operations. So this VSO, this net sales speed indicator is huge, is very important, will continue being a priority. Most of the amount we have generated comes from this greater speed of sales. When analyzing the third quarter, VGV Gerencial had the same level of net sales speed, where we sold 25% of what we had available for sales in the quarter. Looking to the future, we intend to continue focusing on this KPI. I would say that these levels are levels that we believe are healthy, but also we see possibilities of continuity to improve, and we're focused here on this.
So perhaps this metric together with the sales volume and growth are KPIs that explain more adequately the value generations that we have been able to offer our shareholders this year. Now, I would like to give the floor to Paulo Sousa for the financial highlights. Afterwards, after Paulo's presentation, I will be here available for questions and answers. Paulo.
Thank you, Ricardo. Good morning, everybody. It is a pleasure to be here to be able to talk about this quarter's results. Thank you very much. Beginning here with the financial revenue here, rather net revenue, in line with the growth that Ricardo mentioned in terms of sales. At the return of works, our revenue reached BRL 911 million. It is the greatest level, 8% compared to last quarter, +63% compared to the third quarter last year.
Our business, as we know, revenue is the result of what we sell versus the evolution of our works. So here, to the right of the chart, we have the deferred revenue, what I sold and haven't billed yet. We have a stock of BRL 2 billion, 600 of contracted revenue. These are contracted results with very healthy margins, 43%, the greatest level in our history. Another important data is stability of the margin growing every year till we got to 43% in the first quarter this year, 43.1% last quarter, 43.4%, now stayed at 43.4%, showing the resilience of our results. When we look to the future, the gross margin level we are delivering now is a sustainable gross margin level in the short and mid-term.
It's also important to stress here, the annual growth of the revenue in the nine months, BRL 2.4 billion of revenue in the nine months. This is what's consolidated. When we analyze the non-consolidated, almost BRL 800 million in revenue. So BRL 3 billion in revenue. We exceeded BRL 3 billion of total revenue, BRL 2.4 billion consolidated, BRL 800 million non-consolidated SPEs. The results comes via equity income. Next margin, gross profit. Relevant growth here. When I look at the third Q last year compared to third Q this quarter, we delivered 70% expressive margin gains, going from 37% to 38.7%, the greatest level in our history in the last years. As we can see here, nine-month vision margin is 38.1%, and we believe we're going to close on a record level.
To the right here, it is always good to look at the history all the way from 4Q 2022, every quarter with growth. Our business here is always to try to improve. We improve every quarter. Specifically in the last two quarters, the leaps were even more relevant. It's important to stress our capacity of pricing products, launching products, and also our product mix. Those products that were launched in 2021 and 2022 are leaving the base, and now we have products more superior operating as we saw in our previous deferred revenue. Next slide, please. Growth, the expenses. This is what Ricardo said. Growth in our business brings benefits in terms of expenses dilution. We can do more with less. Of course, we're very careful because our business is very complex and things have to be very well done. Otherwise, things might slip, right?
The results might slip. This is what we have done here, growing slowly and constantly with constants. When we look at the G&A expenses, 4.4%, the lowest level in our history. It is important this reduction we managed. Also important to stress that G&A was the same as BRL 52 million last quarter. We have been able to grow the revenue. Revenue grew here. Annual, it grew 18%, less than the revenue, which grew 41%. So we had a reduction here of 5.4% to 4.6%. Consolidated, 6.1%. It is important to stress that the red line is more relevant because we developed and are responsible for the execution of all the projects we are partners in. So 4.6% is the most correct KPI. Commercial expenses. Here in this chart, it is not possible to visualize it.
With a larger cut up, we see just how much we gain in commercial expenses during the year. When we go back one or two years, our commercial expenses was above 10%. Today, it is 8%. It oscillates between quarters, right? Sometimes we launch more, sometimes we prepare to launch more in the following quarter. We do marketing campaigns, so we invest more here. There is some volatility in the quarters. When we look during the year, nine months, 2023 compared to 2024, our commercial expenses grew 8.4%, was 8.4%. Also growth, commission is focused. Marketing not. Eventually, you spend on marketing beforehand, so when the company stabilizes, the trend is for commercial expenses to drop relative to revenue because you have already spent with marketing. When we look before us with the reduction of growth, and it is happening, our commercial expenses over the revenue will fall.
Next slide. Here with regards to profit and return, this is the result. Net profit, as Ricardo mentioned, growing exponentially from quarter three to quarter three this year, 88% growth, expressive margin gain. Revenue grew 41%, going from 14.8% to 17.1%. Here, one of the greatest levels in our history, right? Showing that this business is certainly operating. When operating well, has huge margins. Every nine months compared to nine months, we went from 13% to 17%. To the right, we can see the red line here, which is the most important, is our capacity to extract return here. So here we operated really well. We have been operating the two row ROE generation well, as well as gaining margin, we gain in working capital. Here comparing 2023 to 2024. Last year, we generated sales over net equity, right? It was approximately 1.9.
This year is 2.45, so we are selling twice our book. Somehow this is our capacity to increase working capital. We have reached this return level of 29% annualized, BRL 156 million. It is important to stress the curve going from 16% in 2022 to 29% in the third Q 2024. Next slide. More important is the return. It is a deleveraged return, and we are increasing our working capital, but operations working capital is going faster with the operation, doing more with less, more revenue with less capital. Also in terms of capital structure, this last slide, we closed the quarter with BRL 1. 546 billion cash. Cash position that is very solid. As Ricardo said, perhaps we are under-leveraged here. We have a low leverage level, and we can see in the last chart to the right, 4.1, and we closed last year with net cash.
When we look at the previous year from 2018 to today, we are in the lowest levels of leverage, and we are always going to be deleveraged. I think, going between what we see here in this chart, we see good growth, and specifically with our debt schedule, which is the middle chart, where we have a long indebtedness. Average term of many months, and it is very well equated with a very good schedule here, 48- 60 months. We have BRL 481 million in growth, so we considered these two terms. We have almost a year of difference between the 200 and something million in the other one. So it is very well equated here. It is important to stress the maintenance of our AAA rating by S&P Global Ratings, which shows our conservatism, the way we operate. We always say our budget parts from capital structure.
This is where we define our size, what we are going to do. I think this is a strength that the company has. This is it in terms of financial results. Now it makes sense to go to our questions and answer. André?
Thank you, Paulo, Ricardo. Now we will begin with our questions and answers. The first question, Gustavo Cambaúva, BTG Pactual.
Hello, everybody. Good morning. Two questions here. The first, Paulo talked about the margin and the confidence that you have in terms of current and gross margin. Please break this up a bit, considering the mix of products of the company and where you have a greater margin, where it is lower, Direcional, Riva, Direcional, or between regions, where you see more opportunities today, and also because of cost differences between the different regions and competition.
Could you elaborate the margin difference between product and different regions? My second question has to do, in terms of volume and launches for next year, you had several years of very strong growth, Direcional Engenharia too, growing a lot, the sales team. So in fact, if we should think of a company that is more stabilized, considering BRL 5.5 billion, BRL 6 billion in potential sales value. So is there room for growth here for next year? Thank you.
Cambaúva, thank you for your question. Paulo, I am going to answer the first question. If you have something to add to it, please do so. Afterwards, I will talk about what we see in terms of perspective for this moment. In general, our gross margin is very similar in the Riva and Direcional segments. There is no great difference at this moment.
So margins are very close, and generally, there is a certain difference between margins and the SBPE segment and Minha Casa, Minha Vida program. But at the moment in the market, what we are going through, gross margins are very close in both segments. Another important point to stress with you, the gross margin per region. We have worked with gross margins that are very uniform in the country as a whole. I would say that if I were to mention a small gross margin difference, it would be the capital of São Paulo. At this moment, São Paulo capital has worked with gross margin slightly above the average of the rest of the country. But it is an operation that demands more capital than the others, specifically with respect to land, bank acquisition.
From a point of view of return, I would say the operations is relatively similar in our region. To mitigate the São Paulo effect, where there is a slight demand for capital that is above the other regions, specifically for new land acquisition, we have been working with higher margins to have the return of a capital that we've allocated on other projects. It is a city. At this moment, this is what's occurred in operations. We have been very highly selective in terms of available labor, which is our main point of our attention with regards to our operations in São Paulo. I think we have a very solid gross margin, strong demand, and it is very positive in terms of the eventual absorption of greater costs coming from labor, right?
I think that everything is very well educated when we look at the operation as the whole. I don't see much differences. In all regions we've worked in, from a point of view of return, this has justified investments we've done in the projects. Paulo, do you have something to add to this with regards to the margins?
No, it's okay. With regards to what we see in the pipeline, this has been much discussed and raised by the market. What I would say is the following, and I spoke about this in our highlights. It only makes sense to grow if we have performance improvement in the company. If we analyze the last five, six, seven years in Direcional, we have managed to extract value from our growth process. We've had synergies, we've had gains in scale in our growth process.
Growth has allowed us to develop a performance level that's way above the performance level we would have if our scale was smaller. When we look before us with the capacity of execution, funding, and demand or affordability, we continue offering products to all the regions. What I can say with regards to what we see in a shorter term, we have the next work sites, work projects that will begin. When we look at the pipeline of launches we have in Direcional, the whole team to take on these new work sites that will begin in the next three, four quarters are in-house. They have been trained to take on the works. Today, we have 105 work sites ongoing, and now we believe we will have 115 next year. Our capacity of execution, we are very comfortable here.
We have been able to deliver performance improvements in our operations and margins. Although I have been emphatic by saying that the recurring gross margin should be inferior, the gross margins we are delivering, I would say today we are very comfortable in the level of gross margin we are in. For some time, it should remain in this level before converging to the recurring level, which would be close to 35%. For some time, we should be around this level of 38%. This is the result of our capacity to execute works. Any eventual increment of volume large will only come at the end of last year. This year, it is not our priority. Our priority is to build what was launched, continuing returning relevant capital. We have been able to deliver growth, returning an important amount here.
This is our priority, and this is where most of the value we can generate today. If we observe the second quarter to next quarter, our ROE, we went from 25% to 29%. I believe we will continue evolving here. Growth depends on some variables, funding, affordability, execution, labor availability. There is a lot of value to be generated in other fronts, capital structure. This amount can be greater than growth itself. This does not mean that we are not going to use the opportunities we have had when we did the follow-on in June and we incremented our launches volume. When there is an opportunity, we use it. I think there is more value to be generated at this moment.
Thank you, Ricardo.
Thank you, Cambaúva . Next question, Fanny, Santander. Fanny, you have the floor.
Thank you, André. Good morning, Ricardo, Paulo. Thank you for the results.
My question is in keeping with Cambaúva's question with regards to growth. Recollecting in the past with the follow-on, you talked about scale that you had in some regions and just how this was added in terms of net sales speed. If you accelerate things more next year, where do you see yourself accelerating in terms of region? Do you continue wanting to reduce the amount of regions to increase scale in some specific regions? My second question, you also talked about funding and affordability. How do you see affordability of clients in average? Also we have a certain inflationary pressure. Do you see room for a rise in prices in case there is a greater deterioration given the stress we see in the exchange market? These are my questions.
Fanny, at this moment, in fact, we have been able to have excellent results because of the gain in scale we have had in the regions we work in. The last region where we began actions was in Salvador. That was about five years ago. It has been for five years. This brings huge maturity. We have maturing in time, we gain relevance, we learn. There is still results to have in those regions where we have more recent operations, but everything that is more recent is at least five years, right? Like Salvador, Recife, Fortaleza. Fortaleza had excellent performance for us this year, but there are still opportunities. Also, when we grow our volume and scale, we have very significant performance improvement.
We talked about this in follow-on, the opportunities we saw at that moment to grow in certain areas and have a performance improvement as a result of this growth. We have been able to deliver this. It is clear in our numbers from the follow-on to now, delivering gross margin growth at the time, 37% to 38.7%. Net margin from 13% to more than 17%. No doubt there are synergies coming from this that has allowed us to have these results to make us more competitive to any challenging scenario that might emerge before us. In São Paulo, clearly our market share is small, although it is a region that demands huge attention, specifically with regards to labor, but our share is small, so there is a lot of space and opportunity here. Affordability.
We have seen the program doing almost all the budget, which is just fantastic for our country, 600,000 units a program, right? Specific when I close the year. Recurrent are around 400,000 or a little less. As a country, we have been producing 50% more units for families that need the program for the acquisition of their own homes. Because we can see the budget being totally executed, I think it's not so easy to see changes in the program's parameters in the next quarters that might bring an increment in affordability because after all, the funding is being used. There is a demand for the purchase of units in the current conditions. Here, since there shouldn't be an increment in affordability, parting from a certain moment, we begin to have the capacity of price increment equivalent to the income of population.
There is not much room to touch here in terms of affordability gain. It's an increase of income for our client. We have been able to deliver very solid growth margins. I would say we could be operating with return levels that would justify investment of the product, even in a more challenging scenario in terms of affordability. I think affordability is not an issue at this moment in our operations, but I think that the program's parameters will not be adjusted in the short term, in principle. We have to use the FGTS resources to have the greatest amount of units, and this is the way to do things. I don't see anything here in this sense happening. Our net sales speed is good. I think that's what's important to stress. Minha Casa, Minha Vida and Cidades, where we have different publics participating in the program.
This has been gaining drive in the next months. We have been offering additional subsidies to Minha Casa, Minha Vida subsidies. This has allowed us to be able to include even lower income families. Our market increased with the entrance in effect of Minha Casa, Minha Vida and Cidades. Today, we are focused in generating value and ROE increment in the working capital, not so much margin. In terms of working capital, these programs are very relevant, fantastic, because it increases the market we can work in and serve. Our net sales speed grows, being able to include families that have never been included before. In Fortaleza, we sold nine units to families that make BRL 1,412, one minimum wage, and we've been able to see this in certain regions. From the point of view of company's operation, it's just fantastic. This has never been reached before.
From a point of view of the improvement of the life quality of our population and the country, it is fantastic to be able to include people, families that only receive one minimum wage. This is fantastic. In terms of cost, I think the highlight is São Paulo in terms of labor. Labor availability, we might have increase of costs in labor, but in general, I think that things are still under control. We included the expectations for the future, and I don't see. Although there is this combination of materials have increased in price, labor prices have increased, cost of commodities, cost of certain inputs that we buy. We have expectations here. We include this. We went through a pandemic where INCC increased 20% a year with a gross margin of 35%. We're talking about INCC was 4%, now it's 5%, 6%.
We went through the pandemic without losing gross margin. This is the highlight now. We do not have to create all this noise. It is part, and it is in the budget. I do not see a problem at this moment. Cycle, yes, labor availability. This represents less than 20% of our business. If there is a specific issue in an area, labor represents 25% of our cost. If there is a labor issue, it will not hurt the company as a whole. Of course, we are monitoring exchange and labor, but look at what we have confronted in the past and did well. Look what is happening now. I think we should not create all this noise. It is part. It is good that we have demand, and this is why we have a demand for labor. Things are very well, I believe.
Thank you, Ricardo. Just a quick follow-up. Some time ago, there was a change in the income levels. One was said this was going to be taken to the curator board to change the levels here.
Fanny, I do not know how to say that to you. In this curator meeting board, we had the approval of the budget for the year, the multi-annual. I will consult this because I cannot really tell you when this will come to the agenda of the board going from 642 to level 1. This is information I cannot give you now. Thank you.
Thank you, Fanny. Thank you for your question. Now next, Ygor Altero from XP.
Hello, everybody. Thank you for the results. I would like to understand more about the stability scenario, the size of the necessary book to have an operation of BRL 5.5 billion and the cash generation in this more stabilized scenario.
Paulo, just the beginning here, and then you can begin with the question. Ygor, I think since this interest rate increment and this decision of the CMN restraining backups, which would be for the origination of assets, right? I would say that a demand for assets we have in our company, since we have the base assets, which are the receivables of the purchase of a real estate, a property, demand has been relevant. Here we focus and our priority from the point of view of analysis of our shareholders is return generation for shareholders. Here, from the point of view of interest rates demanded for the purchase of these assets, this is an interesting moment. We have tried on our side to monetize these assets. We continue work here. I think this is the right moment.
It is not good to carry this in our balance sheets when we look at the return levels we can deliver here in the company. I believe that it is feasible, including when we analyze our capital structure, the leverage level we closed this quarter. I think there is room to change the volume of launches we have with a lower book or operate launches volume over this with an equivalent book. But I think there is value to be generated in the increase of working capital in our operations. I still see room for growth here at this moment, operating with a more streamlined balance in terms of assets and a lower PL. I do see perspectives here, working with a lower book for the same level, or one with the same book.
I think it's feasible, and this is where we have worked, made efforts, and we see the greatest value to be generated to our shareholders. Paulo, can you continue with answering the question?
Well, this is not an easy question, Ygor, because of the size, right? I think that we understand that we have idle capacity in terms of book. We have been growing, increasing working capital. It is early to say up to what point we can reach here. But the fact is, and this is the second part of the question with regards to cash generation, our business tends to be cash generation of planned production. So the trend is to believe that when the company stabilizes growth, cash generation is close to profit, and so cash generation is equal to net margins. So this should be the ideal model. Of course, there are seasonalities.
There are periods where works go fast or not, but in annual periods, it should be close to this reality.
Okay, very clear. So we certainly can believe that within this scenario, you will pay much dividends in case you can, in fact, reduce the book?
Yes, we will work for this. Yes, certainly we will work for this. Well, we're always analyzing the opportunities where we can allocate capital with a return level that justifies investments. We have been able to allocate growing returns. We reached 29% this quarter. So if we have the opportunity to allocate the capital, yes, we do. Otherwise, we return it to the shareholders. Direcional's history, perhaps you've never seen us holding back on capital without the need for the company, right? We always try to optimize this. We will continue in keeping with this and either reinvest or return to shareholder.
We'll always do this. So I don't think we've had. We don't believe we will return to the shareholders because our leverage is low and these activities haven't demanded so much capital. So cash burn, the surplus cash burn burden, because of daily operations are well allocated, any surplus will return to the shareholders. This is a discussion to have in the board, but the way our mindset is operating in the moment, that's how it is.
Okay, clear. Thank you, Ricardo, Paulo.
Thank you, Ygor, for your question. Tainan Costa. Tainan, you can speak now. UBS .
Good morning, everybody. Ricardo, Paulo, Damião. My questions follow up the first three. Ricardo said you are comfortable with the engineering execution capacity. Margins remain healthy. Funding, there seems to be a problem. Local things have performed well.
In this scenario, you said in the first question, if there is growth, it can come at the end of 2025. So I would like to understand the size of this growth, if you can share this with us, if 15%-20% reported in the last two years. In this scenario, imagining that you have growth, how is the capacity of the company to generate cash? We saw consolidated here, but if we apart from growth, will you go back burning cash or will continue generate?
Well, I think that it is a little early to discuss anything with regards to growth at this moment because we have several variables that are relevant before deciding to increment the volume of launches in the company. Availability of funding, so we have to see the use of the FGTS budget, how it's going to behave for next year.
Availability of labor, continue to operate with the efficiency we've had. Land bank and project approved, we are going to have. We will be prepared to use any opportunity that appears and that we believe makes sense to allocate capital there. From a company point of view and operating point of view, we have the capacity of using opportunities that might emerge. Just like here last year when we did the follow-on in June and increased the volume that was originally expected to be launched last year. We have to wait a bit, we have to see how next year will behave before dealing with anything relative to incrementing the volume of launches. I think it's early for this.
What I want to say is that there is a lot of opportunity to generate value in other fronts, specifically capital structure, and that I believe that this value generated is above any growth projection. We are prioritizing this front of cash generation at this moment. When we talk about eventual growth opportunities that might emerge, we have been able to grow a lot, returning a lot of company. In 2024, only in terms of dividend payment dispersed, we declared a dividend at the end of last year, paid this year of BRL 80 million.
July, BRL 277 million, almost BRL 360 million now, right? We declared another BRL 80 million dividends approximately a month ago, BRL 440 million. What was done until now in this year, it's almost 10% of the market cap of the company. It's almost 100% of the payout, BRL 460 million profit in these first nine months of the year.
I think that we have been able to grow and return a lot of capital to our shareholders. We're going to continue trying to do this. Obviously, if there is no growth, you have even more capital. Any growth that there is reduces the volume of capital distributed. But we see a possibility of growing, continuing returning capital. Of course, that we are going to think of growing if this invested capital gives expressive returns like we've been able to deliver. In case we don't see an opportunity of delivering a satisfactory return over the capital invested for growth, we will return. But it is possible to grow, returning capital as we have done. The expectation, if we're going to grow more or less, more, less capital. You reinvest, and you have huge returns, and it comes back further in the future, and it's very good.
This is what we have tried to do. Our mindset is this, and effectively it's a little early to try to address growth. I think there are other important relative points to be analyzed here, and there is other amounts that we have to consider, and we're focused on these other issues at this moment.
Clear, Ricardo. Thank you.
Thank you, Tainan for your question. Next, Pedro Lobato. You can ask your question now.
Thank you André, Ricardo, Paulo. Considering your mix, looking at Riva next year, we can see a good VSO net sales speed for 2024 and Riva with 37% of launches, which is the same as the last nine months, 2023. When we consider this and all the challenges that the macro scenario will have with a higher Selic, cash, more receptive in terms of SBPE financing. Tell us about Riva and what we can expect here for next year.
Good, Pedro. Thank you for your question. This is a kind of tricky question. When we look at the macro scenario, we have high interest rates, a limited perspective to capture savings account because of the higher interest. We will have less availability of funding, which should be a point of attention for the Riva operation. This is the shallow, macro, simple analysis, but I don't think perhaps it's correct. In my point of view, we have noticed in general, to have any kind of financing, it is done through the financing of individuals that acquire the units. A bank grants a credit to acquirers of our product. First, we pay the debt of the company, the production we use to do the works, and then we receive cash generation, surface cash generation.
Here, companies that have a more solid balance with a track record end up being those companies that when there is a scarce of resources, the bank priorities to grant credit for production. Here we try to be very disciplined in our company so that we can maintain a very solid capital structure. We maintain a AAA rating, an analysis of our financial health so that we can continue being the company that banks will opt for financing. Here, having our works with the financing to construction means a security that there will be credit for our buyer. Here we end up differentiating ourselves and being able to offer something that has huge value for our clients.
I believe that this can be a scenario which will materialize, and if this is the scenario, we certainly will be prepared in Riva to continue offering something that is very different. I think that we can continue having a competitive advantage because of our journey, our capital structure. I believe that this certainly can be a very relevant point so that we can continue having a performance in the Riva segment that is differentiated. Another point that is important to stress, in a scenario of loss of capacity of purchase that should happen with an increase of interest rates in the SBPE, rates increase, purchasing capacity drops for the customer because of the income he has. I see Riva differentiating itself here because of the products we offer.
Riva, we have a product where we have a construction process that is very competitive, with competitive cost, works execution in short period of time, which allows us to offer this product in regions that are very noble, and we can offer this product for very competitive prices. In a purchasing capacity loss scenario where a client would be 100 sq m, he can buy in the same place 80 sq m from Riva. In this purchasing capacity loss and with more limited restrictive credit, Riva differentiates itself because of the product it offers. We have to wait to see. We cannot only look with this more shallow, superficial macro analysis, because when we go into the details, we see that we have differentiated conditions in these more challenging market scenarios.
Thank you, Ricardo. Excellent explanation. Thank you.
Thank you, Pedro. Thank you for your question. Next, Aline Caldeira, Bank of America.
Good morning, everybody. Congratulations on your results , and thank you for giving me the opportunity of asking a question. Ricardo said that part of the profitability increase comes from working capital increase. I would like to know in terms of VSO at the point, the company has been accelerating net sales speed. I would like to hear from you if you see the level we have today is a new normalized level for the company, or do you believe there is still room for growth of the net sales speed. Do you see space for growth and what can lead the company there?
Aline, I will try to answer this until Paulo unmutes himself.
Here with this expensive capital scenario, where we believe will remain so for a certain period of time, it makes sense for us to operate with a net sales speed that is more elevated. We have done this this year. I believe that the level we are working with, 25, is a healthy level, specifically because on the other side, we still have eventual issues with regards to inflation, where our hedge is the increase of the amount of sales sold in the inventory and because there is fixed prices here. In a scenario, expensive capital, higher net sales speed to have capital in the execution of the project. On the other hand, with a less defined inflation, higher exchange rate today we have, IPCA was not easy.
We have to be very careful so as not to work with extremely high VSO so that we do not have this hedge against eventual surprises, right? For which we always have to be prepared for. I think that here, this level we have worked with, we are going to try to work a little above this. On the other hand, we see a fourth quarter with an important volume of launches. It is difficult with regards to this level up. This is where we would like to be working with, but not excessively high because of the need for eventually having a hedge for contingencies, right? New things that might happen in terms of cost increase. We should not be working with a VSO above this at this moment.
I am sorry, Ricardo. I had problems with my audio here. Just to add to this, Aline, we've seen a VSO dynamics that are better with the other launches. We've launched better products, right? Aligned with what Ricardo said, where perhaps we can work with a level above what we have today. Maybe this will happen after we migrate the whole inventory for new products in relation to what we have in terms of the 2023 harvest product. I would add in this way.
Perfect. Very clear. Thank you.
Thank you for your question, Aline. Next question, Rafael Rehder, Banco Safra.
Good morning, everybody. Thank you for the time. I have two questions here. I would also talk about the company. Looking at Minha Casa, Minha Vida program, the cost of the company will be more expensive. Do you see this? If in a scenario where you have at a higher rate, your strategy changes, I believe we can see Direcional reducing here. The second one is more specific. You've been talking about the optimum capital structure, working with a certain leverage level, a guidance of 23%. I would like to understand if this can change anything in terms of the budget side, right? If you could be more conservative here. These are my two questions.
With regards to legal entity. We have contracted the legal entity at market prices. We have not had difficulties hiring or contracting here, although it's more expensive. Since we work with off-plan transfer, when we transfer, we don't rebuild the project with the receivables of the project. There is no exposure and no need for financing. Of course, for more capitalized companies, there is always the option of using the PJ. It's optional. We might try to find other lines of financing if this is the case. So that's the point: it's more expensive, but we haven't seen difficulties. This is not a bottleneck. Apparently, it would be for the segment of the operation, in the format we're in now.
Ricardo, if you would like to add to these ?
I think this is exactly it. You have this. We can always opt for financing versus the SPE financing, try to be as competitive as possible. Optimum capital structure here with regards to this view. If we look at our history, we have always tried to operate the net debt over the PL of 23%, but obviously, when things change, it makes sense. Our debt is very long, so this gives us huge comfort here. I would say that at the first moment, there isn't huge change in this strategy when we look in the long term, specifically when we're leverage level below these levels, 4% in terms of net debt over net equity. But if it goes up 2%, this wouldn't justify a change.
As long as we maintain the duration of this long debt payment schedule of debt service comfortable with regards to our cash position, there shouldn't be a change in our policy at this moment.
Perfect.
Thank you for your question once again. Next question, Luiz Capistrano, Itaú BBA.
Good morning. Thank you for the results. My question has been answered during the other questions before, but it would be good to ask you, because this wasn't done objectively by anybody. When you think of drivers for results, ROE next year, that you said is the focus instead of growth. Several elements were mentioned. The increase of the VSO. Can you generally tell us about what you understand and prioritize the main levers for this improvement on return? Secondly, you're beginning to incorporate a high inflation in budgets. Does this come with a need for price increase in the different regions? Is the market accepting this price increase or haven't you tested this yet?
Luiz, thank you for your question. The main discussions are in keeping with this way to extract more value, results, and return. When we look at the short term, we still have a growth of results to be contracted and we see our operations that are beginning to generate cash. I think ROE comes from growth. I say this because we're launching around BRL 5 billion in terms of VGV. When I consolidate those SPE that goes through equity income is 24. We have a profit growth in terms of PL via the catch-up between revenue and sales. I think here we already have a natural capture and we don't see a need for expansion of the base of the equity base. What we're trying is to return equity and not allow it to grow as a result. This is one of the levers.
The other, as Ricardo said, is to try to operationally leverage our business, do more with less booking, with less asset. We have some assets that we still see the possibility of monetizing, of carrying it in a more asset-light, generating revenue without having to have these assets in the balance sheets. I think we can try going for this kind of level too. The other lines, the growth of results should have expenses dilution, and maybe we can gain margin here. But here I prefer to deliver first and then to see how things work. Ricardo, also lastly, this sub-leverage. Since we have a financial sub-leverage, we have 4% of net debt over the PL. So Ricardo said there is a certain comfort here with this level. We have financial leverage that can be reached in the short term.
I think this is it, Paulo. I think that at this moment where the budget is being completely used, I think there should be no change here that eventually might bring affordability. I think from a gross margin point of view, I don't see a perspective for improvement. Also because the level is healthy, it is difficult to have margin gain, but we have operational capacity here to be captured. So we might have an increment on net margin, allowing our net profit growing above the revenue. The revenue grows 41%, net profit 81%, but not in a gross margin scenario. It's net margin as a result of operating leverage, and the focus to continue generating value is in the working capital. We are going to prioritize in terms of working capital, the monetizing of these assets is in keeping with working. Everything is in keeping with this.
So here we have room to work and continue going for optimization. In terms of operations, we want to serve lower income families where other clients don't have competitiveness to work in, increase net sales rates in terms of this market segment where there is less supply so that we have greater speed of sales.
Very clear. Just with regards to price. You mean the capacity of continuing adjusting price. When you said that you were beginning to incorporate an INCC operation, does this include an increase of marginal price? How does market relate to this, or have you not done this?
Well, Luiz, we analyze every project in a very detailed way. Everything is very granular. We analyze all our projects with relatively short periodicity, right? Obviously, we don't do something generalized, the whole of Gerson from here to tomorrow grew so much.
No, we look specifically capturing opportunities where we see. Since we have in our budget, we have an expectation of INCC that should materialize in the next times. For the maintenance of our margins, I don't think this would be necessary after launch to have an increase of price. However, if at a certain moment we see an increase of certain products that lead to an increase of cost over what we have, this should reflect in a more important price increase. But this has not been necessary. Everything we've seen in terms of costs increase is comfortable when we analyze what we have in our budget. But in case this happens, obviously, we're going to have to reflect this in prices. I would say at this moment, we have very gross margin levels over the recurring gross margin.
When we look at three, four, five years from here on, I would say that it is very optimistic to believe that the gross margin levels will remain where they are. They will end up converging to kind of 35. Here on our side, we are going to try to maintain it as much as possible and close to where they are. But I think that there might be a convergence to 35, which is still healthy, but in a more normalized scenario where there is increase of cost without purchasing capacity gains.
The purchasing capacity gain will be limited to the increase of the average income of families. But once again, I do not see a gross margin problem that might justify an increase of price or cost increases that might justify this. There has been a lot of questions and a lot of noise here, and I think that it is a little too exaggerated.
Next comes André Mazini, Citibank.
Hello, Ricardo, Paulo, André. If you can tell us about the cancellations that reached 9.4% of gross sales, if there is a change of approval criteria, or was it something else? If, in fact, the most common instance of a cancellation is a non-cash Caixa approval. If you lose a deadline, you have to cancel. Most cancellations are for other reasons, right? Then you have the funding of the sector in general approved. The multi-annual approval, BRL 120 billion for next year. It seems that it is flat, but for the primary market, it grows 12% because the secondary market is reducing. What are all the funding measures that might come?
If there is a chance of this happening in the short to midterm, if the government is willing to do this trade-off, stopping with the birthday withdrawal
We went from 8% to 9% as a percentage of the gross sale. I am going to try to explain to you. In our point of view, it is still within the normal. Of course, we want to work to reduce things. Our sales level, we changed sales level in the last quarters. We are selling between BRL 1 billion and BRL 1.3 billion, and now we are selling BRL 1.5 billion to BRL 1.7 billion.
And cancellation in our business is fast between sale and the cancellation of the client. But there is still a lag of a little more than a quarter, where the cancellation impacts become effective, right? Among them, the approval of the bank. Also we cancel and there is an operation to formalize the cancellation. So I would say that the eight last year was faster than nine now because we had lower sales in the previous quarters.
We're always going to try to reduce cancellations. It is an impact in our client. It's an impact for us. I don't see this as abnormal. I don't know if you could understand this, but the main point is this. This is a carrying cost and a certain delay with regards to the cancellation becoming effect.
I agree. Everything Paulo said, cancellation below 10%, I don't think is a point of attention. There was oscillation, but still in very comfortable levels and in line with what we've had historically. Now, going to the second part, there is huge room, and we notice clearly prioritization of the new product that generates jobs, increases the total amount of properties in the countries, increases collection, increments economy. The existence cost here, prioritizing new products gives room for next year and even above this 10%-12% level that you mentioned. We see other measures too. The vision of the government with regards to what would be correct for the population of our country. We've seen discussions, I would say, the birthday withdrawal, but we're trying to find a way out via things that are, where you can have it from your wage g oing to a consignated.
We try to find a way out that is similar, giving security for banks to work. It's not that there would be losses, right? This is for the market. From a structural point of view, it seems that it might make sense because the birthday withdrawal in the FGTS, the purpose was completely distorted, and we've seen the use of the FGTS of workers for means that wouldn't be the best. We've seen this of the government to correct this and without burdening the FGTS that in the future might give more availability of funding to be allocated in this sector. This is something we're seeing in news. From a point of view of country makes sense and comes here to correct this distortion that happened with this birthday withdrawal of funds.
Did I answer your question? Did Ricardo answer his question?
We have one hand raised here, Marcelo. Oh, we do not have any more hands raised. Oh, yes, we do. Marcelo, if you want to ask a question.
Ricardo. I want to go back to two points you mentioned. The first question, how do you see this convergence of gross margin in the next years to something that you believe is normalized to 35%? If I understood correctly, a nominal maintenance of sales price and inflation naturally rising this. Is this correct, or is this a scenario where we have weaker margin market, VSO reducing? How would you describe this convergence for a normalized level of 35%?
My first option, the first option I would think in practice is the following. We, perhaps it has been three years that we have been working with a level above 35%.
However, it is always prudent to make clear to you that any calculation, any analysis that you do, a decision you take with regards to the company or not, I think it is prudent to consider margins that are inferior to this. In terms of being cautious too. Here we do not control supply and demand, program parameters, funding availability. We adapt to this reality that we can never change. We adjust product, land, size of unit, pricing. Here we have a series of ways of adapting to the reality that might come, and we have to be prepared to adjust as fast as possible to that new reality. Although we have confronted very challenging scenarios, specifically during the pandemic, we went below 35%. We were always able to adapt to remain with these margins, and I think it is very cautious to consider in the future.
Our team and our company, we will do the very best we can. In the last years, we have been able to perform well, but I think it is also very prudent to think, to consider. In case there is a change in scenario, I believe, still at a very low margin level, we can have these adjustments with a return that justifies allocating capital and continue working without any kind of change here in our operations. What I feel that sometimes the market tends to perpetuate the results of the last quarter. If you consider the last five, seven years before was not the scenario we were in, right? We have been able to be more competitive in the purchase of products, commercial expenses. Great. I think our business has changed starting from the moment we have the scale we have today.
But for caution, I think it would be interesting for you always to consider 35% level in the future.
Perfect. Also, another point that you mentioned. In your current net sales speed index, you have a natural hedge against inflation, because you have the opportunity of increasing prices during the sale. Things that you have in inventory. But on the other side, this is a variable you cannot control because market conditions can worsen and you might not have the conditions of implementing this price increase, and you continue with the challenge of the sale. Would it not be better to continue going more aggressively and trying to maximize the sales speed and guarantee the sale up front as long as you have the comfort in your budget and margin and inflation increasing?
We do have things happening with inflationary pressure. I agree with what you say.
I think we're far from a scenario we had in the pandemic that we went through, where we had 20% inflation increase in 12 months. Yes, capital is expensive and sometimes cost of capital is sometimes worse than an increment on inflation. I think the greatest value we do generate comes from increase of VSO. We have tried to do this, but I think there is a limit here, optimum limit of operation in terms of VSO and where in our vision we are slightly above where we are, and we're working to get there. On the other hand, I don't think the VSO level we have today has been a level that doesn't allow us to deliver attractive return. With low levels, when we analyze this, we're delivering close to 30% a year, which I think is healthy. I think things are very well established.
I don't think there is a problem to take the decision of increasing VSO, but I don't think our VSO is in a low level. I think it's in a healthy level. We can improve things. I think we can give better return here, no doubt. But there is a point of equilibrium here. If you sell 100% of the product in the first phase, you only receive 15%-20%. You have to compare this with the labor cost in order to calculate the POC and receivables. You sell everything, but you only receive 50% of the cash flow. Perhaps it's not the best way to sell everything in the first month because you block 85% of your revenue and you only have 15% in cash.
We have to get to a point that is optimum here, and this is where we're close to the peak of execution works, where things are being done simultaneously.
Perfect. Thank you very much.
Thank you, Marcelo. Hugs to you. Thank you very much. Anybody else that wants to ask questions, raise your hands. We still have some minutes. Since we do not have any more questions, we would like to close our Q&A sessions. Our IR team is at your disposal to answer any more questions that have not been addressed here. I will give the wrap-up words for Ricardo.
I think we had a really great discussion. We certainly did cover the main points of our operations. I hope things have become very clear. Once again, I would like to thank you for your participation, your trust in our company, our team. I would like to congratulate the whole team. We are very satisfied with the improvement and the performance we have been able to deliver. This does not mean we have not things to improve. We do have things to improve here.
We are very focused here, but I think in these last years, we have had a journey where I believe work has been very well done. I would like to use to thank the team, the customers for your trust, and those of you that are with us believing in the company, allocating capital so that we can continue building and delivering to our people. Thank you very much and have a good morning, everybody.