Good morning and thank you for waiting. You are welcome to Direcional's teleconference to discuss earnings for the second quarter 2017. Today, we have with us Mr. Ricardo Ribeiro Valadares Gontijo , Vice President, and Mr. Carlos Wollenweber, Chief Financial Officer and our Investor Relations Officer. We would like to inform you that we will be listening only mode during the company's presentation. All presentations will only listen to the presentation during the company's presentation.
After that, we are going to start the question and answer session, when we are going to provide further instructions. In case any of you need to have any assistance during the conference, please ask for the support of an operator by dialing star zero. We have simultaneous webcast that may be accessed through the company's website at www.direcional.com.br, where the slide presentation is found. It is going to be controlled by you, and it is going to be available after we close.
Before proceeding, we would like to clarify that eventual statements being made during this conference regarding business perspectives in terms of operational and financial goals are within the company's administration. Future considerations are not guaranteed. Investors must understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Direcional and could cause results to differ materially from those expressed in such forward-looking statements. Now, I would like to pass the floor to Mr. Ricardo Ribeiro, who will start his presentation. Please, Mr. Ricardo, proceed.
Good morning, everyone. I would like to once again thank you for your participation in this call for the second quarter, and I would also like to start this presentation by going through the main highlights of Direcional throughout this period. Let us move on to page three of the presentation for those who are following.
The main positive highlights for this second quarter were parts of our results demonstrated the operational change or the change of our operational strategy, and this is going to become clearer and clearer over the next quarters. But some changes have been relevant and are very clear. We believe that they will definitely bring more value to our shareholders in the future. This quarter, we generated BRL 28 million of cash. In addition to that, we have an expressive growth in terms of sales with the MCMV segment. We had an increase of 122% in sales when we compare it to the last 12 months and the second quarter of 2017. With the 12 months concluded, we can see in the second quarter that we had a significant purchase of new plots dedicated to MCMV, and therefore we bought nine areas.
We need to continue buying plots in some regions where we have a significant potential for growth. It is possible that you will continue seeing a growth in our land bank over the next quarters. If you analyze the last five quarters of the company, which is the graph on the right lower corner of page three, you can see that we have bought over BRL 2 billion per year. It is only natural that we continue growing and that we have more launches, and we reached BRL 360 million in the quarters that were concluded in June. Therefore, the pace has been very strong, and it is only natural that it is going to get closer as time goes by.
Starting with the presentation of our operational results and talking about the launches we had this quarter, there were six projects launched, totaling 2,396 units with a PSV of BRL 291 million, representing an increase of 136% when compared to the first quarter of this year. Actually, I would like to highlight that this quarter we recontracted another segment, which represented 45% of the total sales. Now when we analyze MCMV, the growth was 45% when compared to the first quarter of this year, in line with the company's growth strategy. In addition to that, if we analyze the revenue for the second quarter, and you will see later on when Carlos explains, you will see that our revenue represents 50% of the overall company's revenue.
With the sales in areas two and three, we will see continued growth in this segment, because in an analysis of our revenues in the corporation, it represents 72% of the total. Now going back to the launches, when we analyze the first consolidated semester, we come to a total volume of BRL 414 million, which represents a growth of 37% when compared to the first semester last year. In page five, when we talk about our sales in the second quarter of this year, we had net sales of BRL 272 million, which was a significant growth of 95% when compared to the first quarter of this year, and a growth of 297% when compared to the same period last year.
When we analyze only Tier 2 and Tier 3 of MCMV, and when we compare the first and second quarter, then we can see a growth of 378% when we compare the first quarter this year to last year's. Also in terms of growth, we had 115% of net sales when we compare one year to the other, and 167% when we analyze years two and three of MCMV separately. Now talking about the trader, you can see here that we had sales of 36% when compared to the first semester this year, and we had a significant decrease of 29% when we compare it to the second quarter in 2016. It's important to highlight that mutual rescissions have been decreasing over the last five quarters.
However, until the end of 2017, we do not have a significant volume of deliveries, which will somehow make it difficult for us to decrease this indicator by the end of this year. Another important information is the fact that we resold 67% of the units that had mutual rescissions. In the first quarter this year, this percentage had been 51%. So we had some improvement in the volume of units, which is very positive. Now talking about sales velocity for Direcional, we can see that in this semester, we had a mean VSO of 7%. But when we analyze MCMV separately, we can see that the VSO was 18%, and the growth is very clear and very consistent quarter after quarter. So our opinion is that the VSO level is very healthy, and we will try to maintain it over the next few months.
Right now, our challenge is in fact huge to increment sales over supply for the mid-tier, and our results were below what we want to have. Consequently, that had an impact which was much lower than the VSO for MCMV. In page eight, when we talk about our stock, we have concluded the second quarter with a PSV of BRL 2.1 billion available for sales, which are represented by about 6,200 units. Of the total number, approximately 22% is already concluded. However, even though we have a relatively high volume of units, the mean age of our stock has been consistently decreased. MCMV has had a recent participation, and now it represents 48% of the VSO available for Direcional.
In page 9, I wanted to talk a little bit about the land bank focusing on MCMV 2 and MCMV 3, and we had a significant volume of purchases. Only in this quarter, we bought 1.6 million, with a volume of 11,600 units. The potential PSV is of BRL 7 million. When we analyze the mid segment, we have about BRL 5 billion on the land bank, approximately 18,000 units. We are still very careful in launching in this segment, which has suffered a lot of impact. However, as the market is warming, we are very optimistic about starting launching for this segment as well. Now I wanted to pass the floor to Carlos so that he can share with you a little bit of the financial data for the quarter.
Good morning, everyone. It is a pleasure to introduce the results for the second quarter. I would like to reinforce that we are very happy with the performance of MCMV 3. We have healthy gross revenues, and here you can see that we have 16% and 18%, which is very healthy in the last quarter. The growth of our revenue is also very clear. We can see that we had a 50% increase in the last few months.
Therefore, we are very enthusiastic about the perspective to start delivering an adequate return to our shareholders. Now, moving on to my presentation in slide 11. You can see the consolidated gross revenue, which totaled BRL 103 million in the second quarter. We had a reduction of 52% over the year. It has an impact on the cycles of the projects for MCMV 1, which decreased significantly when we compare it to the first semester last year.
It is very important that we highlight that the gross of revenue from incorporation grew again, and it totaled BRL 134 million, with an increment of 11% when we compare it to the first quarter this year. In the next slide, we show you a breakdown of our gross revenue. It is important to highlight that for segments two and three in MCMV, it represented 38% for the first quarter this year when compared to the accumulated results for 2016. I would also like to call your attention to the graph on the right side, where we showed an evolution of the revenue. We had an increase of 50% in LPN. MCMV 2 and MCMV 3 had an increase of 214% in the second quarter. In the third quarter, we expect to have a consistent increase with margins reported for the incorporation segment in the next quarters.
In slide 13, we present the administrative expenses, which totaled BRL 65 million, and the nominal value is the same as it was the first semester last year. With a gradual increase in the consolidated revenue, we will be able to look forward. The commercial expenses were maintained total stable and represented 5% of our gross sales in the period when compared to 7% in the same period last year. In slide 14, we present the profit for the second quarter and an improve of 11% when compared to the first quarter, indicating a gradual improvement that we can expect when we analyze a future semester. In the first quarter, we had a reduction of 62% when compared to last year because as we have already explained of the decrease in the segment number one.
In this semester, we had a BRL 22 million income, and the MCMV two and three represented 40% of the volume when compared to 29% in the same period of 2016. We had an increase in the nominal value of 22%. It's important to understand here that in the associated segments, things happen as we have our construction plans. It's natural to have increase in cash resulting from associated segments looking forward to the next semester. In slide 16, we present cash generation in this quarter, helping us to leverage our balance to 22% of net debt. Undoubtedly, one of the lowest in this sector. We have concluded a quarter with robust cash of BRL 217 million, with successful operations in the volume of BRL 200 million for the second quarter.
Our capital structure remains solid, and we are going to have a pass along of our with a free cash of BRL 212 million. I would like to open for questions and answers. Thank you.
We are now going to start the question-and-answer session for analysts and investors. To ask any questions, press star one on your phone, and if at any moment your question is answered, press star two to be removed from the line. Questions will be answered as they are received. For journalists, please contact us by Mrs. Renata to the phone 31-3431-5442 or by email, renata.matos@direcional.com.br. Please hold while we poll for questions. The first question is from Nicole Hirakawa from Credit Suisse. Please move on.
Good morning, everyone. I have a question. I wanted to understand about your assets and how much these segments have represented, and whether you have any expectations that they will be more representative. I would like you to talk a little bit about what you think the government approach should be for the segment, and whether the idea of the government is to maintain it or increase it. How do you think that matches with the program in this current scenario?
Nicole, good morning. Talking about the end of semester, we had one launching for the segment in the city of Piracicaba, mean sales value of approximately BRL 1,000 per unit. The total volume of the value was BRL 50,000. For families with low income, the sales velocity has been very strong indeed, and for the product we sold in this quarter over 40% of the venture.
The main challenge are the margins, which are a lot harder, but we expect to compensate it with the turnover of this project. We have expectations of having more launchings, even though it is not very representative in terms of what we intend to launch this year. It's hard to say how our budget is going to be for next year. We have expectations only, but I think that because of the relevant role for this area, especially in the reduction of segment one for obvious tax reasons, I think that it's going to be maintained. I believe that the 40,000 units volume we have for this year is going to sell, and if we have 40,000, it's not going to last us to the end of the year, and we will have to do what was announced for segments two and segment three with a maximum volume per month.
It has been very successful. We have margins as a challenge, but I think that it will be maintained because it plays a very important social role.
Well, thank you very much. I have another question. In this scenario you have just mentioned for launchings by the end of the year, to what extent you think that you will be able to maintain the launching expectation, your original expectation?
Well, Nicole, it's important to highlight that it affects projects that have not been hired yet. Everything we do is by contracting a PJ, and as it is contracted, we move on normally and this limitation does not affect a project that was previously contracted. It's hard to say, but it was recently announced.
However, when we analyze the results of the guarantee fund by the end of July 2017, it was at 2 percentage points below the total amount for 2016. In 2016, we did not have any problems with budget by the end of the year. So unless we have a volume which is much higher than normal to be contracted for those participating in the program, in our opinion, it should not have a significant impact because the pace this year was very similar to last year's according to the public information we have. So because of that, we have maintained all of our launching estimates for the year. But it's important that we monitor it month by month, especially for this 1.5 segment. I don't know whether we have had more demand for segments two and three, but we have not changed our planning so far.
Thank you very much, and I wish you a good day.
Our next question comes from Gustavo Cambaúva from BTG Pactual. Gustavo, please move on.
Good morning, everyone. I have two questions here, and the first one is whether you could talk a little bit about the pipeline for segment two for the rest of the year. I wanted to know what it's like, because in the beginning of presentation, you mentioned that you had purchased a lot of plots. But since we have some delays in approvals, I would like to know what is your expectation for launchings in segment two and three. Then my second question, for the segment 1, you restarted this project. I would like to know if you have any expectations to restart projects that were in the backlog or eventually contract new projects. I wanted to know what your perspective is to restart segment one.
Cambaúva, it's hard to define launching when we go on a quarter-by-quarter base. We remain optimistic in terms of the volume of launches for the second quarter. Since last year, you have seen that we have been able to increment it one quarter after the other. But we depend on the approvals so that we can have launches and also PJ, which is hired along with the financial institution. I can tell you that we are very optimistic that we have done our best possible. Every project has been launched with a good velocity and the limitations so far have only been the approvals.
For this year, we have made a huge effort to try not to concentrate launches for the fourth quarter, even though for the time being, our internal scenario, when we analyze our expectation for the approval of projects, we can see very large concentration for the fourth quarter. We are trying to make a lot of efforts to anticipate that so that we can have more linear contracts. However, this is not yet our scenario, and the fourth quarter tends to be stronger than the third one. When we talk about segment one, we had this recontract for a project in the south, and we have two other projects where we have tried to get a contract.
But with this recent announcement on a cut of budget, one of the ministries that suffered the most was the Ministry of Cities. Therefore, we do not have a clear idea whether it will be possible to contract or not. We were more optimistic about it, but today we cannot take it as guaranteed because we do not know where they're going to make the cost cuts and what projects will suffer an impact. Therefore, we should not take it into account. In case this contract comes through, it would be a positive surprise as it was the one for the second quarter. Okay?
Okay. Thank you very much.
Our next question comes from Luiz Mauricio Garcia from Bradesco BBI.
Good morning. I think that a relevant aspect for you would be the mid-income stock. It has not stopped. We have been making sales.
But I would like to know how you see this because we know that we have the hotels in Belo Horizonte. So how do you see the stock as a whole and not its more net aspect, but the one which is not. So what do you do to monitor that? Then when would you, in fact, resume a stronger distribution of dividends? What level would be comfortable for you to do that? Also take into account the purchase of stock and the use of resources that you may need.
Luiz, thank you for your question. I think it is very important to deal with this mid-income issue, and I would like to start with some numbers for you today. We have a mid-income stock of approximately BRL 680 million, and we have receivables of about BRL 790 million.
If you add this stock to what we have, we have about BRL 1. 4 billion, a little bit more than BRL 1.4 billion, and we have BRL 563 million of debt. You can give whatever discount you want in the stock, and you can estimate a higher volume or a more conservative volume in these receivables that will have to be resold. But when we get BRL 1.4 million and compare that to our debt, we have about BRL 600 million to bring in the company. Of course, we have a lot of value to obtain from this segment. Unfortunately, we would like to extract it to the company as fast as possible. In the second quarter, we had an impact, which ended up decreasing the VSO. We have two things that we have to take into account.
One of them is to have the cash for this mid-income segment as soon as possible. We do not have a lot of use for this cash right now, but we could use it to reduce the company's PL because it is obviously very high for the volume we need to be able to run MCMV, which has required a very low volume of capital because our launchings were very successful. But of course, I understand that this segment has been very low when we analyze the value of the company. I think that we have a huge challenge ahead of us. We can improve a lot and bring a lot of value to our shareholders, and definitely we need to bring it in as soon as possible so that its existence is clearer.
When we talk about plot, because of different things that we cannot plan or forecast, like savings increase and liquidity. We have avoided purchasing plot. Everything that we have purchased is by means of exchange. Our cash generation is not going to be used to buy plot. We are going to remain that way. For mid-income, we have had some positive news recently. With these changes in the country's interest curve, we can see savings accounts, investments increasing. Once again, another question you asked, I will answer and then Carlos may comment it as well. But what should we do with cash burn? If we would be comfortable in leveraging dividends. I think that with a decrease in selling and with an increase in the participation of segments two and three of MCMV, which requires less investment, it is only natural that we see a decrease in debt.
Of course, because our construct plans are coming to the end, and we will be able to pay for them or they pass along with the pass-through. It is natural that we have, or with the increase in the corporate debt when compared to the PJ debt, I think that with this increase in selling, we are more comfortable with the corporate debt. But I believe that you will see Direcional with a net debt of 15%-20%, which are comfortable levels if the selling is maintained according to what we expect from the market. What are we going to do with exceeding cash? It is too soon to say. We can rebuy our dividends, or we may have opportunity of projects with high profitability that would make sense for us to participate.
It is too soon to say, but undoubtedly our focus is to increase returns, be it by net profits. Well, just to complement, it is clear to us that the two value leverages for the companies are exactly that we have a significant cash burn for Direcional. We don't need to have all of the PL close to BRL 1.6 billion for the company, for the volume of MCMV that we are targeting. The cost consumption for MCMV in segment two and three is very low. Just to give you an example, of the total debt of the company contracted today, what we obtain in terms of funding to carry out these ventures corresponds to 10% of our overall debt. The leverages would be to bring the cash back to the company.
Initially, this cash burn has also helped us take down the loans and the least interest we will have to pay, and that will increase profitability. But the goal now is to reduce production debt. As we pay this debt, then we can study an increase in the distribution of dividends. These are two important levers. If we analyze the midterm, we will have a reduction of the booking price because we will be able to have a more asset-like procedure, and we will increase the company's revenue by accelerations in launch and sales with a good margin, which will have an impact on the profit of MCMV 2 and MCMV 3. Therefore, it's important that in the midterm, we can obtain a different profitability and adequate levels for our shareholders. Well, about this segment you have just mentioned.
In the mid-income segments, we can see that the main banks in São Paulo have announced a different rate this year, and some companies have said that also credit analysis has become less restrictive. Do you also see that in other areas because the banks for some regions are changing that in the areas that they trust more. Do you see that as well? Do you have any products to sell?
Well, I will tell you a little bit about some ventures that we're delivering now.
In fact, this change in the interest rate was very important. Therefore, SBPE banks, the mid-income banks, to be able to obtain the volumes for the enterprises that they have funded, they are now passing through 80% or 90%, which is a period where they talk to clients, show the products without any competition, and then after a bit, clients can negotiate with any bank in the market. What we had seen before this reduction in the interest rate is that all the clients basically were waiting for the ABC so that they could hire or contract with differentiated rates when compared to the banks in the market. With this reduction in the interest rate, this scenario changes a lot. We have revisited our client portfolio for clients where we're about to deliver.
In this regard, we can see that clients, in fact, when we analyze rates between 9.5%- 10%, this was practiced by the main banks, clients want to contract with these banks, and they do not have to wait for the ABC because the difference is not going to be as relevant. In this regard, it has been very positive. On the other hand, what we can see and what you commented about the credit analysis, they are still very strict. So even though clients are interested, the percentage of clients who obtain approval according to the bank criteria and the levels the clients are willing to fund, to loan, remain very high.
Then at the end of the day, clients have to use Banco do Brasil or Caixa so that they can obtain conditions that are according to their capacity to pay the debt. But we have had a significant advance. What we expect for next year, perhaps with an increase in the savings investments balance, people will be investing more in savings accounts because its profitability will make sense and so forth. Then banks will start having a stronger movement. For the time being, it has been good, but we're in the very beginning of the process, and we can't say that, in fact, we have already solved everything we thought in terms of potential from now on.
I would like to remind you that to ask questions, all you have to do is dial star one. Our next question is from Marcelo Motta from JP Morgan. Marcelo, please move on.
I'm going to ask this question about the mid-income stock, and I would like to know how you see the trade-off between gross margin and sales velocity. You have said that you have a high stock, and I would like to know what or how you are willing to give discounts so that you can accelerate that and therefore dilute your costs and improve your bottom line.
Motta, this is really the great challenge we have. Trying to balance margins versus sales velocity or VSO. This is something that we have tried to deal with, and just to give you some numbers, in the first quarter, we had a higher VSO. However, if we compare it to optimal levels, we have given more discounts than we would have liked to. So really the challenge now is trying to balance margin versus VSO.
Right now it's very important that we have better VSO, even if we lose a little bit of margin in this segment, because the amounts that are stuck in this kind of project are very significant, and so we have to balance it out. According to our opinion, if we have a VSO improvement, it will make a lot of sense. But it's difficult for me to tell you what the margin reduction is going to be, and that's something we have to balance out here. Well, for us, with this increase in segment one, Direcional is now divided into two segments. We have the mid-income segment. Because our constructions will be concluded by the end of the year, most of the stock we'll have will be concluded, and our receivables will be ready to pass it along to the bank.
This is something that has to be monetized. As Ricardo said, we have an equity between BRL 900 million or maybe a little bit more than that. We have to capture it back or invest in the business or pay dividends. We have to bring this capital to the company. We also have MCMV 2 and MCMV 3, which is doing really well. It's very healthy. We already have a very robust land bank, which guarantees us to have investments at an adequate level for the company nowadays. Profitability of gross margin ranges between 32%- 36%, which is very healthy in our opinion.
Following a construction model that Gafisa now has proved to be able to do after having delivered 100,000 segments for MCMV 1. We're really focusing on that. We want to monetize our equity and grow our MCMV 2 and MCMV 3 volume as much as possible.
Thank you very much.
Once again, to ask a question, all you have to do is dial star one . Thank you. The question-and-answer session is closed. I would like to pass the floor to Mr. Ricardo Ribeiro for his closing remarks.
I would like to once again thank you all for your participation. I think that this question-and-answer has been very important, but I would like to make it clear that our team is always available to clarify any concerns that you may have. We would like to more and more share good news with you about the evolution of our operation, which is right now clearer in operational data, but soon will become clear in financial data as well. Thank you very much, and I wish you a good day.
Thank you very much. This concludes today's Direcional second quarter 2017 earnings conference call. You may disconnect your lines at this time.