Good morning, and thank you for waiting. Welcome to the teleconference of Direcional to discuss the earnings results regarding the first quarter 2019. We have Mr. Ricardo Ribeiro Valadares Gontijo, CEO, and Carlos Wollenweber , CFO and IR. We inform that this is for investors, and all the participants will be listening to this teleconference during the presentation of company. Next, we are going to start the Q&A session when further instructions will be provided. If any of you need any assistance during the conference, please ask for help of an operator by dialing star zero. This event is also being simultaneously broadcast via webcast, and it can be accessed via the address www.direcional.com.br/ri, where you can see the presentation. The presentation of the slides will be controlled by you. The recording of the event will be available right after it ends.
Before we proceed, we would like to clarify the possible statements that may be made during this teleconference related to business outlook of the company, projections, and operational and financial goals are beliefs and premises of the board of the company, as well as information currently available. Future considerations are not assurance of performance. Investors should understand the general economic conditions of industry, operating factors may affect the future performance of Direcional and may lead to results that materially differ from those expressed in future considerations. Now, I would like to give the floor to Mr. Ricardo Ribeiro, who will start the presentation. Please, Mr. Ribeiro, you may proceed.
Good morning. I would like to thank you all for your participation over our earnings results call regarding the first quarter of 2019.
This has been another quarter in which we have delivered a growth of revenue, great margins, and increase in our profitability. Minha Casa, Minha Vida bracket two and bracket three reached 80% of the revenues of the company. We have a consolidated growth margins of over 33%. This accounts for a growth of 14% approximately regarding growth margin that we delivered in the fourth quarter, which was last year, which was 29%, showing the great efficiency of the company in the works. This efficiency in construction, added to the growth of our revenues, has allowed that our growth profit to grow approximately 100% when we compare to the first quarter last year. When we analyze the past 12 months closed in March 2019 with the 12 months closed in March 2018, the growth of growth profit is 200%.
Our focus is to keep on growing our operations, keeping the efficiency, so that all this growth profit gains reflect in greater dilution of our G&A expenses and translated in quite significant growth in our net profit. We are very optimistic in this path we have started a few months ago that has been showing clear results in our statements. I would like to start our presentation on page four, where we highlight the consolidated numbers in a separate way. The evolutions we had in bracket two and bracket three in Minha Casa, Minha Vida. When we compare the past 12 months closed in March 2019 with the same period closed in March 2018, we see a growth of 55% in launches, 51% in sales, 128% in net revenue, and 142% in gross profit in this segment.
This reflects very well work performed by whole team of the company that should be acknowledged by me. Our journey is quite long, and it takes some time for the reflex of the work and the change in strategy we had at Direcional features in the numbers we see now. This work has not stopped. It continues, and this is why we believe this improvement should proceed with consequent increase in our return and more return for our shareholders. On page five, still on our highlights, in the first quarter 2019, Minha Casa, Minha Vida represented 83% of launches of the company, 95% of net sales, and 80% of growth revenue. It is important to highlight that these brackets or segments of Minha Casa, Minha Vida, where we have more profitability, in 2016 accounted only 12% of the revenue of the company.
As we've analyzed the exercise of future fiscal years, this segment represents almost 90%, and it shows that it should gain relevance in our revenues. Analyzing separately each one of the three segments where we operate, in this quarter, we delivered a growth margin of 40% in bracket two and bracket three, 14% in the middle standard and 5% in bracket one. This means that our results of the fiscal year is concentrated in the segment where we had greater margins, which is great. Page six, about our launches in the quarter. We've reached BRL 392 million, accounting a growth of 13% regarding the same period 2018. In the past 12 months, closed in March, we reached over BRL 1.7 billion in launches, which accounted for a growth of 62% regarding the past 12 months closed in March 2018.
Our revenue is significantly below this level of launches, hence the expectation that with the continuity of growth of this revenue, our profitability should also grow significantly over the next quarters. Regarding our net sales, on page seven of our presentation, we've reached in this quarter BRL 287 million in sales, 15% growth regarding the first quarter 2018. In the past 12 months, our net sales reached almost BRL 1.5 billion, accounting for a growth of 80% compared to the past 12 months, closed in March 2018. In this quarter, speaking about page eight, the speed of sales of Direcional was consolidated, one was 13%. This value was negatively impacted due to the fact that our launches were concentrated at the end of the month of March, considering that the first quarter in Brazil, we have holidays and some holidays also that impact our launches.
When we analyzed VSO Minha Casa, Minha Vida, reached 16%, and if we include the launches of first quarter where we had reduced sales with a late launch, it was 18%, which is quite healthy. Looking ahead, we believe that the speed of sales of the company will grow, considering the fact that we have a greater volume of units available for marketing since the beginning of the quarter. With this VSO, 13% consolidated the first quarter will possibly grow over the next quarters. On page nine, we have a summary as to our levels of available units inventory. We closed the first quarter with approximately 9,500 units in inventory and approximately BRL 1.9 billion. What we have in terms of PSVs available for sales is in Minha Casa, Minha Vida. 78% is in the southeast of Brazil.
72% of what we have PSV available for trading, 18% are concluded units. Only 1% is in Minha Casa, Minha Vida. This shows the high acceptance of our product and the efficient process of sales and on lending or transfer of the company. It is important to highlight here that a year ago, our inventory represented 39% of the total inventory. The significant reduction of this percentage shows that the decisions we have taken last year were quite ascertained. On page 10, which we refer to our land bank, we have closed the first quarter with over BRL 21 billion of sales potential in our land bank. Approximately BRL 17 billion are for Minha Casa, Minha Vida, and BRL 4.4 billion are for the middle bracket or middle income segment.
Over the few months, we had great efforts to migrate part of the land bank of middle income to Minha Casa, Minha Vida. Part of this migration has been accomplished. The products have been launched and part is still underway, and the launches should occur over the next few quarters. In addition, over 2019, we should have a few launches in the middle income segment that were not originally in our business plan. For those middle income launches, we have two basic assumptions, which is the transfer should happen at planning stage when at the sales time with an associated model, as we do in Minha Casa, Minha Vida, and the construction process of these projects should be industrialized. The same process that we use in Minha Casa, Minha Vida.
It allows us to have a short construction cycle and consequently, a high turnover of our assets, allowing us to have higher returns in the future. Of our land bank, 66% is in the southeast, 18% in the midwest region, 14% rather, in the northern region, and 3% in the northeast, where we are growing our operations. I would like to now give the floor to Carlos, our Financial Firector, our CFO, so that he can talk about the financial highlights. At the end of the presentation, I will be happy to entertain your questions.
Good morning, everyone. It is a pleasure to present our financial results of another quarter, showing consistent growth in the profitability of Direcional.
Gross revenue totalized BRL 365 million, increasing 63% when we compare to the first quarter last year, showing on slide 12, Minha Casa, Minha Vida accounts for 80% of our revenues, contributing to the increase of consolidated gross margin. On the next slide, we show adjusted gross profit. Twice as much was delivered in the first quarter of 2018. As Ricardo mentioned, a growth of 250% when we compare the past 12 months. The consolidated gross revenue of the quarter was 33%, result a margin of 40% in segments two and three, Minha Casa, Minha Vida, presented in the next slide. Gross revenue of this segment was BRL 292 million in the first quarter, growth of 94% regarding the same period as 2018, and gross profit totaling BRL 110 million in respects of cost of construction deliveries, and that contributed to a higher margin than the return.
On slide 15, we show the SG&A expenses. Administrative expenses accounted for 8% of gross revenue, reduction of 4.7% compared to the first quarter last year, and we hope to having benefits of the dilution over the next semesters. Commercial expenses represented 9.7% of gross sales because of a specific reduction of VSO, and we should have a more dilution of those expenses, especially marketing and sales booth from the first quarter on. As a result, in the next slide, we have BRL 20 million, representing a net margin of 6%. It is important to show our expressive improvement regarding first quarter last year. We doubled our net income, and we had a reduction of and reduced SG&A. We are confident that we will expand our net profit and return on assets on a consistent way in the next quarters.
As you can see in the media, we face delay in payment in bracket one, Minha Casa, Minha Vida, who closed the quarter with BRL 25 million of invoice but none received. In addition, we had an investment of BRL 8 million in our project, and project we developed in a regime of shared control, as we have not consolidated the cash balance in our bank. Adjusting the results of cash with these two effects, the cash generation in the quarter was BRL 15 million. On slide 17, we see the cash entry with the on-lendings. In the segment of middle-income sales, Black Friday, November, they came into cash in this quarter with the necessary term for registration of the funding contract. With a lower volume of sales regarding fourth quarter, the cash input was 40% prior.
In Minha Casa, Minha Vida because of operating problems in the program in January and February, only adjusted in March, we had a backlog of sales actually made and not transferred but overcome in the month of April. This impacted the cash generation in this segment. Lastly, on the next slide, we present our capital structure. Our leverage measured by the activity on equity, we reduced 11 percentage points compared to the first quarter 2018. Even with the distribution of BRL 146 million in dividends in the period, a yield of two digits. Without further ado, I would like to move on to the Q&A session. Thank you.
We are going to now start the session of Q&A for analysts and investors. If you want to ask a question, press star one on your phone.
If at any time your question has been answered, please press star two to withdraw from the queue. The questions will be answered as they are received. For journalists, please contact our press assistance via [Ms. Daniela Naves] on this telephone, 3134 315446 or email danielanaves@direcional.com.br. Please wait while we proceed to the questions. Our first question is from Alex Ferraz, Itaú BBA. You may proceed.
Good morning, Ricardo and Carlos. Thank you for your presentation. I have two questions. One regarding the comments you made on new launches, those two projects that were out of the budget. What should be their representativeness in terms of PSV or something related to Caixa Econômica or some private bank that would be approaching this market? The second question is regarding gross margin. On lines two, three, it was about 40%.
You have a comment that you had savings on the construction works. This is not recurrent. I would like to understand that in addition to savings, if there is a mix, if there is great margin there, or it was just simply project on the segment two that had a very strong segment.
Alex, Ricardo speaking. Thank you for your question. I am going to answer the first. Those launches in the middle income segment, we have seen a certain recovery in this segment. I believe credit availability is quite satisfactory.
We have seen interest rates being reduced in those brackets, and if we maintain precisely the same process of cash flow in the business, adopting a funding that is not a guarantee but from savings, we would have no change in our business model and high returns with a small cash exposure and having a business that is little capital-intensive, which is our intent. These lines, we have been analyzing launches in this segment that were not forecast. We certainly are going to work with Caixa Econômica Federal, which is a bank that has a lot of experience in this funding process. We will also have launches with private banks. We have a process that is quite advanced for the launches of those projects, and the idea is to work with Caixa and private banks in our business model.
With regards to growth margin that you asked about Minha Casa, Minha Vida, they are basically gains that we have had for delivering the project at a cost that is lower than the estimate, and this is a reflex of inflation that we put on our budget that does not materialize in prices. That because we have not been suffering cost pressure when it comes to labor and materials are rather low. The gains we had vis-à-vis forecasts of inflation, they do not materialize, so we reverted part of that to our results, partly.
Perfect. Thank you very much.
Our next question is from [Cambaúva] from BTG Pactual. You may proceed.
Hello. Good morning. First, regarding what Carlos mentioned, the margin.
Carlos, could you tell us a bit about what was the gain that you booked in this quarter in terms of construction savings, and if you have something else for the next quarters with the deliveries, perhaps of the same crop that you have had in the first quarter, or if you have accumulated everything in terms of construction work savings. My question is whether you can have higher margins in the future quarters or not if all the savings has been booked in this quarter. My second question is if you could talk a bit about the performance of launches and sales in the beginning of the second quarter. The first quarter was a bit weaker than last year regarding launches and sales. You have also mentioned something in March. There was no time to book sales in the quarter.
Could you tell us a bit about the sales in the second quarter, April and May, and the launch pipeline for the second quarter, if it is stronger? Thank you.
Hi, [Cambaúva] . This is Carlos. Regarding gains that we've been having in the budget, we are being very conservative when we recognize results. Basically, those projects at the final phase of delivery, in which we studied the possibility of recognizing certain savings. We do not expect to have a margin at this level in a recurrent fashion, but we have not recognized all the results we may have. It depends very much on the scenario that we will have. If it continues on the same levels at which we see, which we can save inflation costs and basically build on the budget very close to the original when we started construction, we may even expect new savings.
[Cambaúva] , regarding launches, traditionally, the first quarter is a weaker quarter of launches in this industry as a whole. Just as it happens in a recurrent format every year, the second quarter will be, the expectation is that it should be a stronger quarter in terms of launches as well, which is natural. I do not think there is very much of a difference as to what happens every year. As to sales, January was a quite complicated month, and until now faced difficulties. When we analyzed the first quarter month by month, clearly January was more complicated. From February onwards, we had a higher volume of sales considering credit analysis process by Caixa Econômica, once it was normalized, and actually management of financing contracts. January was somewhat out of the curve from this standpoint, in a negative way.
We believe the second quarter should be a stronger quarter in terms of sales, especially because it does not have this effect of our having had a very complicated month in the beginning of the year.
Okay. Thank you. Have a good day.
Our next question comes from Luis Stacchini from Credit Suisse.
Good morning. Ricardo, Carlos, thank you for your presentation. I have two questions. Insisting on the point of savings in the construction work, could you share with us what was the average level, the impact and results? Perhaps it would be interesting for us to really understand what was the scope of the project, the volume in real, in terms of PSV, the projects that you had in this study, to have an idea what was actually the scope of this revision in terms of the budget lowering.
Second point I would like to ask is regarding the segment one that you mentioned, the increase, BRL 25 million. Actually, there is BRL 70 million receivables in your balance sheet, and you have cost to incur. I would like to know whether in this backlog you have something that has not yet been started, that you consider to hold a bit more, to have more confidence regarding receivables to date. After the announcement of the government of the release of BRL 800 million in May, if you have seen some differences in payment, if any rules have been established. If you could give me a taste on that, I would be very grateful. Thank you.
Luis, this is Carlos speaking. Again, regarding the budget, it is hard for you to give you a margin that we expect. It should be slightly smaller than we have acknowledged this quarter now.
But on our budget, we have been quite conservative in terms of projecting increase in labor, increase in cost of materials, use of mold in our project, et cetera. So these reversals that we had in the first quarter were basically on the construction works that we had delivered or very close to completion and delivery. So actually, what we have approved when the project was approved for launch and commercialization, in practice, considering the economy of the companies, we unfortunately see a higher number of dismissals than hiring. So very few people are able to increase prices in the segment of cement. That is a classical example. We are able to carry out those projects with the budget below, and that should be recurrent if the economy of the country improves a bit.
And that is why we make a decision of only making this adjustment at the final stage of delivering construction work, as we have recognized in this quarter.
With regards to the segment one of Minha Casa, Minha Vida, we have quite a lot of confidence of these segments being completed in end of June. You can see in our growth in accounts receivable with this segment. So it was higher than what we have in terms of revenue per quarter. In the segment, it increased approximately BRL 25 million in the quarter because of the measurements we have invoiced but ended up not receiving due to delays or payments in arrears. In April, our cash generation is quite good because part of those delays, we have actually received.
And because a certain backlog that we accumulated of on landings in bracket two and bracket three, we managed to overcome that in the month of April. In the projects that we have in our list that you have mentioned regarding that, what we contracted in the fourth quarter last year, a project in Rio de Janeiro has not been started. All of the others are underway, are proceeding normally, and we are confident that the delays and payment that we have was well of about a month and a half, they will be turned regular. We are proceeding normally except for that one that we contracted in the last quarter.
Thank you very much, Ricardo. Just a follow-up regarding the savings. Can you give me an average amount of savings that you had compared to the estimated for us to have a notion?
I can give you a detail later, but the greater savings that we have had in terms of construction work, part of it was offset by the a bit more aggressive depreciation considering this level six, and we were more aggressive in mode depreciation. You can think about two GDPs that we have had in this quarter.
Okay, thank you.
Our next question is from André Mazini from Citi. You may proceed.
Hello, Ricardo and Carlos. Thank you for the call. My question is on the sales. On that paragraph, you mentioned that the credit analysis on banks changed. They were more restrictive on the margins. Could you comment on that, how this will reflect, if there was a decrease, et cetera? Another question on this slide, there was some news on Black Friday regarding the possible reduction on bracket two from 10% to 3%. How do you see that?
On one hand, this is more sustainable if FGTS will offset the reduction of subsidies by the federal government. What would be the impact in terms of VSO, if you can give us an estimate on that? Thank you.
André, Ricardo speaking. Thank you for the question. Regarding credit analysis, banks, Minha Casa, Minha Vida, the main bank that works with it is Caixa Econômica, and our feeling here is that there has been an increase in the criterion of approval of the financings by Caixa. In our view, it is quite positive, very healthy in the long term. We, as a company, don't want banks that are involved in programs like Minha Casa, Minha Vida. We want everybody to have results. Nobody wants to lose money and having too high bottom line operations, because we know that in the future, this could mean a problem for the program.
These adjustments in the credit analysis should actually happen from time to time. If we notice any problems in the economy and credit to customers or at a certain income bracket, we are very solidary so that this should happen. We have been noticing this greater restriction in credit analysis. We are making the necessary adjustments, especially in terms of our sales force, and we believe there should not be greater impact on the VSO, in the sales of supply. We're going to see customers that fit the profile that the bank is looking for. This is natural, and this will not have greater impact on our sales. There has been an impact regarding the news on Friday in terms of the reduction of participation of the federal government in the subsidy of bracket two and bracket three.
In this report, they mentioned that it should drop to 3%, in my understanding, corresponds to the disbursement that has been made by the federal government until May, the current month. Actually, there shouldn't be further disbursement until the end of the year. I think this decision is very healthy. One of the points that exists of concern in any program that has any governmental participation, even though it's quite small, which is brackets 1.5 and two, is that there may always be a change on the part of the government that impacts the program, and we have full subsidy of the FGTS. I think this gives us great security. Another relevant point is that if you observe the total launches of the program in brackets 1.5 and two is BRL 9 billion.
The government should place BRL 900 million and the FGTS, [BRL 8.1 billion] . The budget piece of the severance payment that was provided to you, BRL 9 billion were approved. It wouldn't be necessary to have an investment of the government to maintain the program the size it is currently. The way it was proceeding, the fund would bring [BRL 8.1 billion] , union, BRL 900 million, but the budget was already BRL 9 billion. In my view, the impact should be close to zero. There should be no impact whatsoever, simply a replacement of what would be the investment of the federal government and the investment of FGTS, which in my view is very good news. Excellent. The great point for our attention is bracket one, where funding comes 100% from the federal government. We know there is a challenge from the fiscal standpoint for the government this year.
There is a great challenge in this area. We are quite comfortable that up to June, all the payments that were in arrears in the first quarter will be regularized with an increase of BRL 900 million that was extra made to the program recently. From June onwards, we should track the budget and the payment flow. An important point to stress is that bracket one for Direcional accounted for 15% of our revenue, not so relevant. Second quarter is a quarter in which we start delivering works. We just completed one in Rio Grande do Sul. We just have two construction works in bracket one underway. So the relevance of this segment will be increasingly smaller, and we believe any impact in terms of delay in payment, if it happens, it will only happen in the late part of the year.
We believe that all the delays that we had in the beginning will be actually updated, and we expect things to happen in a normal way with no delays. So this quarter should be quite positive for this segment. Number one.
It's clear. Thank you very much, Ricardo.
Our next question comes from Marcelo Motta from JP Morgan. You may proceed.
Good morning, everyone. Two questions. First, if you could comment on those mid-income and understand price, location. You talked about something that is quite relevant to understand what kind of project it is. Second question is on sales expenses. They were a bit high considering sales volume. You've mentioned sales speed, launches more concentrated in March, but I'd like to know about this level on the sales volume should continue, or if you have something regarding the launches in the second quarter. Thank you.
Well, at Direcional, we have sought markets in which the inventory volume available for sales is lower. So São Paulo is a place where we seek volumes in this segment for Direcional. We will try to get an average price of about BRL 300,000, right above Minha Casa, Minha Vida, where we can build apartments with the same construction process, with a private area that is upper scale, and the customers do not make changes to the plan or to the blueprint of the apartment, and they have concrete walls. We should have a variation from BRL 260,000 to BRL 400,000. This should be our focus when we have our launches. In addition to São Paulo, I believe that we should have some space for launches in Belo Horizonte, which is a market in which we have a more reduced volume of inventory in this price range available for sales.
At a higher price range, I would say Direcional has quite a lot of inventory to sell. I think we have some space to operate. Regarding commercial or sales expenses, well, there were expenses indeed that ended up happening in the first quarter regarding launches that we had late in the quarter. We did not have a high volume of sales and revenue recognition of those projects, so we had a quarter in which expenses had a higher weight more than normal, and our expenses have been a great focus of ours in the past weeks, I would say. Our expectation is that they should not maintain the level they've had in the first quarter. I think the first quarter, we had some effect there in which the expenses were a bit higher than what should be recurrent level of a company.
Perfect. Thank you.
Our next question is from Roberto Waissmann, from Bradesco BBI. You may proceed.
Good morning. Thank you for the call. I had a little problem in the beginning of the questions with my call. If I am repeating anything, please let me know. I have two questions. The first is regarding the estimates of launches and sales for the second quarter, considering there have been some changes in the Caixa funding. If you could talk about that. A follow-up to this question. If you have FGTS, you have BRL 260,000- BRL 400,000, how much is that to have in terms of on- lending, the plan? If this is a requirement for you to operate in this segment from now on. Thank you.
We actually talked about this during the call, but I am very pleased to answer your question because of your connection problems.
Regarding SBPE, necessarily, we should have actually the own lending at the planning stage. It is important for us to turn real estate projects minimum possible capital intensive. To go back to the model that we have worked before, that has proven kind of complicated because of terminations, leverage, several problems that we had when there was an economic crisis. That is not our goal. We are going to work in this segment of the Brazilian Savings and Loan System, SBPE. Transfer at the planning stage, little debt, having an associative model, and the other one is to use the construction process similar to what we use in bracket two and bracket three in Minha Casa, Minha Vida. Regarding the second quarter, the first quarter traditionally is weaker in terms of launches.
We believe in the second quarter, as it happens every year, the volume of launches should be higher than what we had in the first quarter, same thing regarding sales. Especially because in the first quarter, we had a high impact in sales in January. We had a month quite heavily impacted, and we have not had this impact since February. We expect to have the second quarter, both in terms of launches and sales, higher than the first, considering the expectations of conditions being maintained as they are currently.
Thank you for your answers. With regards to the segment one that you mentioned in your first question, everything should be back to normal. As to May, what about the on-lendings, this segment one or bracket one, s pecifically?
Payments in this segment one i n April, we had part of the delays in the first quarter have had a reduction, so to speak. The deadline between the execution of service and payment was reduced. Part of what was non-paid has been paid in April, and we believe this reduction in the payment term will be better because there has been a recent approval of extra payment in the program. We should have all the payments normalized in the first quarter, and everything should be paid off by June. We are quite optimistic with this normalization in the second quarter.
Thank you.
Once again, if you wish to ask a question, please press star one. Please let us wait again while we collect questions. Thank you. The Q&A session is closed. I would like to give the floor to Mr. Ricardo Ribeiro for his final remarks.
A summary, something that drew my attention that I think is quite relevant in this part of Q&A was precisely the delay in payments of segment one or bracket one. It is fundamental to clarify to all shareholders, investors, the market in general, that segment one is a business that is totally different from brackets 1.5, two, and three. 100% of the funding is from the general budget of the federal government, whereas 1.5, two, and three brackets, all the funding comes from FGTS, severance payments. The federal government puts BRL 900 million a year in a segment that makes over BRL 60 billion. The share of the government is irrelevant.
This separation is very important because many times we see the news in the media, they cause unnecessary noise that affects only one of the segments, in this case, bracket one, and has no impact whatsoever to the 1.5, two, and three segments. Since segment one is little representative in our operations at Direcional, it's important to have this clear so that everybody has effectively a measure of what would be the impact on the company, which in this case is quite reduced. Of course, there is an impact, but it's not so significant. I think this is the most important message of the second part of our call in the Q&A session. In addition, I would like to thank everyone's participation. I'd like to say that our team of investor relations is available if you have any further questions. Thank you very much.
We wish to proceed with this cycle of improvement of our results, our returns, with this significant change we've made to our business over the past years. Well, thank you very much, and I wish you all a good day.
Thank you. The conference call of the first quarter earnings results of Direcional now is closed. Please disconnect your lines. Have a good day.