Good morning, and thank you for holding. Welcome to Even's earnings call concerning the results of the third quarter of 2023. I would like to point out that for those who need simultaneous translation, the tool is available on the platform. To use it, you have to click on the button Interpretation, the globe icon at the bottom of the screen, and choose your preferred language, Portuguese or English. For those who will listen to this teleconference in English, there is an option available to mute the original audio in Portuguese by clicking on the Mute Original Audio button. We would like to inform you that this event is being recorded and will be made available on the company's IR website. During the company's presentation, all participants will have their microphones on mute. Following that, we will begin the questions and answers session.
To ask questions, click on the icon Q&A at the bottom of your screen and type in your question to join the queue. When you are called, a request to activate your microphone will be shown on the screen, and then you must activate your microphone to ask your question. We would like to advise you to ask all your questions at once. We would like to clarify that any statements that might be made during this teleconference regarding Even's business prospects, as well as its operating and financial projections and goals, are based on the beliefs and assumptions held by the company's management and on information currently available. Forward-looking considerations are not a guarantee of performance and involve risk, uncertainties, and assumptions since they refer to future events and therefore depend on circumstances that may or may not happen.
Investors should understand that general economic conditions, industry conditions, and other operating factors may affect Even's future outcomes and may lead to results that materially differ from those expressed in these future considerations. Here with us today are the chief executives of the company, Mr. Marcio Moraes, CEO, Mr. Marcelo Dzik, CFO, and Mr. Tiago Krall, Strategic Planning and Investor Relations Director. I will now give the floor to Mr. Marcelo Dzik, Even's CFO. Mr. Dzik, you may proceed.
Good morning, everyone. We are pleased to present Even's earnings results concerning the third quarter of 2023, as well as the accumulated results for the first nine months of the year. In order to provide more transparency to Even's and Melnick's separate operations, the following figures represent Even São Paulo's results, excluding Melnick's participation. In our release, you will find the detailed breakdown of both consolidated and ex-Melnick figures.
I would like to begin with the highlights for Even São Paulo in slide three. In the graph in the upper left-hand side of this slide, we highlighted the rising volume of launches to the amount of BRL 973 million Even share in the first nine months of the year, representing an increase of 24% when compared with the same period of last year. Our net sales totaled BRL 1 billion Even share and represent an increase of 20% in relation to the first nine months of the previous year. So far in 2023, we have delivered BRL 1.3 billion of PSV, which is 42% more than what we delivered in the same period of 2022. In the nine months of 2023, net revenue totaled BRL 1.2 billion, an increase of 23% when compared with the same period of last year.
We reported a gross profit of BRL 283 million accumulated in the year, an increase of 23% when compared with the first nine months of 2022, and adjusted gross margin of 25.3%. We have noticed a tendency for the recomposition of margins as new launches and inventories are recognized in the revenue. Our inventory gross margin is estimated at 27.8%. The accumulated net income for São Paulo's operation was BRL 135 million in the first nine months of the year, a significant increase of 92% when compared with accumulated result of the first nine months of 2022, which represents an annualized ROE of 12%. Moving on to launches. There were three projects launched in São Paulo, amounting to a PSV of BRL 278 million, of which BRL 199 million corresponds to Even share.
In the next slide, we show the renderings of these projects in São Paulo, namely Marquise Vila Mariana in the high-end segment, Go Magri and Go Joaquim in the compact segment, which are respectively 48%, 48% and 98% sold as of October. In slide six, we show you the renderings of two projects at the pre-launch phase, which amount to approximately BRL 1 billion in PSV. Aster, next to Ibirapuera Park, and Casa Sabiá, located in the neighborhood of Moema. In slide seven, you can see the sales performance. We had an impressive performance in the sales of launches with the sales-over-supply ratio of 46% in the quarter, and we continue with the strong sales of remaining inventory, as can be seen in the graph on the left-hand side of this slide. In total, we sold BRL 298 million, that's Even share, and reached a total SOS of 14%.
Concerning cancellations, the graph on the right-hand side of the page, we ended the quarter at BRL 40 million, 32% below the figure for the same quarter of the previous year. It is important to note that we continue with low delinquency in our client portfolio. In the next slide, we present our deliveries. In this quarter, we delivered Arcos Itaim with a PSV of BRL 90 million. In slide nine, we break down our inventory. We have a total inventory worth BRL 1.9 billion in São Paulo, of which only 13% represent finished units inventory. Out of the inventory under construction, 89% will be delivered from 2024. Moving on to our land bank in slide 10. We currently have BRL 4.7 billion in land bank concerning Even share, comprising 21 plots located mainly in prime neighborhoods of the south and west sides of São Paulo city.
In slide 11, as an important part of our strategy, we present our solid capital structure. We ended the quarter with a gross debt of BRL 853 million and a cash position of BRL 506 million, which is a net debt to equity ratio of 22.6%. We highlight the amortization schedule of corporate debts with very long maturities that are consistent with our business side. In the quarter, we consumed BRL 133 million of operating cash, reflecting the high volume of construction work and a higher allocation of capital to purchase land, as well as the payout of dividends to the amount of BRL 50 million, corresponding to about 50% of the accrued profit in the first half year. Now, on the slide 12, we present the consolidated financial indicators.
Net revenue in the quarter amounted to BRL 652 million, a decrease of 5% compared to the third quarter of 2022, and an increase of 12% accumulating the year when compared with the same period of 2022. We delivered a gross profit of BRL 124 million with an adjusted gross margin of 22%. Lastly, we delivered a net income of BRL 48 million in the quarter, representing a net margin of 9.2% and an annualized ROE of 10%. In the first nine months of 2023, we delivered profit worth BRL 159 million, 52% higher than the profit made in the whole of 2022. Now I would like to give the floor to Marcio Moraes, Even CEO.
Good morning, everyone. We are confident as our launches continue demonstrating high levels of SOS-positive results, attesting to the quality of the products we are putting in the market.
We have just opened now in the fourth quarter the sales centers for Áster Ibirapuera and Casa Sabiá Moema, which are high-end products with relevant PSVs and in unique locations. We enjoyed a wonderful performance in the third quarter with sales of inventory maintaining high levels of previous quarters. Even though July is a seasonably weak month, Even's inventory is young and diversified, and in the cumulative result of the year, we launched as much as we sold, maintaining our inventory at a very healthy level for the home. Construction costs remain stable with the INCC index the last 12 months at 3.5%. Should not be a problem for the industry in the short term.
Changes to some policies master plan should facilitate the purchase of land in the city, generating new and good opportunities for the industry, and for Even owns a qualified land bank acquired along the years, which allows for amazing high-end projects in desired regions of the city of São Paulo. We are preparing major launches for 2024 with a special mention to Faena São Paulo, an iconic project of residences and a luxury hotel. We have great operating capacity and a solid balance sheet, which enables us to execute our projects and take advantage of the good opportunities presented by the real estate market. We are eager to continue launching, focusing on the profitability of our projects, and we are committed to growing the company's margins and ROE, as well as to working to maintain consistency of results. Thank you all for your presence again, and we can now move on to the Q&A.
Now, we will begin the Q&A session. Remember that to ask questions, you must click on the Q&A icon at the bottom of your screen and type in your question to join the queue. When you are called or on the icon, raise hands to ask your question. When you are called, a request to activate your microphone will show on the screen, and then you must activate your microphone to ask your question. We would like to advise you to ask all your questions at once. Let us now proceed to our first question. It comes from Rafael, sell-side analyst for Banco Safra. Rafael, we will now open your microphone for you to ask your question. Please, you may proceed.
Good morning. Thank you for the presentation. I have two questions. The first question, I would like to discuss the gross margin, especially the Margem REF. If you could just break down the margins in terms of dates of launches. The second question, if you had fewer deliveries, how this impacts the cash, and how you expect to reach the level of leverage, and how you are in terms of deliveries for 2024?
Hello, Rafael. Thank you for the question. Dzik here. We have been talking about this. We have been very transparent that we are in an expectation with a reduction of margins. We know that 2022, our margins were under pressure. The costs of the markets in our sales of compact and emerging markets. Now in 2023, we have seen and we expect for next month, a gradual recomposition of margin, especially in São Paulo.
We can see these numbers in the Margem REF a little bit, but our inventory margin, even at this level, when we talk about the new launches, we have been balancing our margin with gross margins that are much better. When we look in summary, we have had more difficult margins, but we see looking forward is a gradual recomposition of our margins.
Thank you, Dzik. In relation to cut, how do you see in which quarter it will be the peak of leverage?
Rafael, we had a year with some cash burn, especially on the construction work. We had a very high volume of construction work in the last 12, 18 months. In the purchase of land, we have refined our strategy, our leverage strategy. We have putting more cash into our land. So we have burned more cash in 2023.
We should, and it will depend on the level of land purchasing in this next cycle. But in 2024, we will be in line with what we did in 2023. On the one hand, new opportunities brought up from by the next Strategic Master Plan will lead to burning cash. But we also have some high-end projects. As we had in the last year, we may have a very positive result in terms of advances of revenues. We have a big project. We are in the pre-launch of Sabiá in Moema with a very high VGV, almost BRL 1 billion of VGV in these two projects. We are structuring, you know, the launch of Faena, our biggest project for the beginning of next year.
So these very high-end projects, these three very high-end projects, we expect to see very positive results in terms of revenue, but it will depend on our purchase and the speed of launches and sales.
Thank you. It is clear.
Our next question comes from Mariangela, sell-side analyst from Itaú BBA. Mariangela, we will now open your microphone so you may ask your question. Please, you may proceed.
Good morning. Thank you for the presentation. Thank you for taking my question. I would like to know how you see the demand and competition of high-end in São Paulo City for 2024. What do you see what can be a differentiating factor in your products if you are going to see a similar year in terms of launches as we have seen 2023, or if it will be faster? I would like to see another question of margins divided by launch date.
When are we going to see the margins reported by the company that is closer to the backlog figures? By the end of next year, by the end of the middle of next year, the end of next year, what is your pipeline?
Hello, Mariangela. Dzik here. Thank you for your question. First, talking about high-end markets, we monitor these very closely. We have seen consistent levels of sales, and we see a very positive environment for our launches. We have these pre-sales now, close to BRL 1 billion, who have had one year, almost one year, of sales. And we see the segment—monitoring very closely this segment. Our differentiating factors when you talk about high ends, like when we concentrate very good locations in projects with very large lots, with very nice entertainment areas, and we have seen a very high level of absorption. This year has not been different.
A market that has been working with very high levels but with a very good absorption. Even at image side, with big projects and what we have been planting, cultivating with RFM projects, in partnership with RFM, more boutique projects that will be launched next year, I see a very good space for the high-end projects. Regarding the trends for the margin, Mariangela, it will depend on the speed of these launches. Our prospect is, yes, by the end of 2024 to be at a very high, different level, but it will depend on the speed of launches and obviously on the speed of absorption of this inventory. I have mentioned here a few times, we have a very important volume of pre-launches and also of land that we intend to launch.
Also answering your question about volume, it will be more or less the same volume as this year. It will depend on the absorption by the market. But our land bank and our operating capacity allows us, we could go a little faster or a little slower, but we have been cultivating this recomposition of margins, and we believe by the end of next year, we will be at a much better level.
Thank you for your answer.
Our next question comes from Herman Lee, sell-side analyst from Bradesco BBI. We open your microphone for you to ask your question. You may proceed.
Good morning. Thank you for this opportunity. We have two questions. The first one, like to understand your sales strategy and how you have been working in terms of discount, given the inventory. And the second question, more regarding concerning the competitive environment. How you see the competition in the purchase of land, if you have felt some changes in the payment conditions.
Hello, Herman. Dzik here. I will talk a little bit about the sales strategy, and then I will. Our sales strategy: we have been monitoring this project by project, so we are very attentive to the curve of each one. We have very low tolerance for finished inventory and for compact units, which is a consequence of our master plan. Although our operation is very concentrated in the high-end, we do have some compact units, and our tolerance for these compact units, which depend more on the economic cycle and the profile of the investor, is very low. Our focus in our projects, high-end projects, our type units, our average ticket has been growing.
We have been working very well in this market, and the idea is to take advantage of the product differentiating factor and take advantage of the aggregate value, the added value, but paying attention to the curve on a project-by-project, and very low tolerance for finished units inventory and also low tolerance to compact units aiming at investors. So our inventory, BRL 100 million, is related to Ibis Hotel, which is not the characteristic of our typical, finished units inventory. We have some deterioration due to costs, but this is an inventory we have been planning to sell. Our strategy is not to carry it, but it has been a very positive result. In the pandemic, the hotel business went through a very difficult period, but it has been delivering. This one has been delivering very positive results, but this carryover is much lighter for us.
Marcio will talk about land bank.
Thank you for your question. Concerning the competition for land, this year was atypical because it was a year in which we discussed the Strategic Master Plan. So by the half of the year, the Strategic Master Plan was approved, so we held on; we held these launches waiting for these changes in the Strategic Master Plan. Now in the second half, now with a defined Strategic Master Plan, but still with the insecurity of how the new zoning law will be in São Paulo, which sets to law what the Strategic Master Plan approved. So we are cautious. We see great opportunities to buy, but we have this uncertainty of the changes that the new zoning law will bring, which will be approved by the end of this year, probably by December 20th.
On the other hand, our inventory of land, our land bank, we see some approvals because we have gain of margin in front because of what has been approved. The competition is not so stiff. All the companies are studying very carefully the purchase of land. So I think we are all waiting to see what the new legislation will do in terms of 2024.
Complementing Marcio, it's Dzik here. It's important to highlight that especially because of our strategy of big land bank, of big lots, our acquisition or purchase process is very long. It's not rare that it takes years, so we have a lot of things happen. Marcio's team is prospecting a lot of lots.
What we're doing, we're working on this information, on these possible changes we're going to have in the Strategic Master Plan, so we can conclude the purchase of land that we see a greater potential in. As we don't, we don't see an increase in purchase. We have a lot of things going on and being prepared.
Thank you. Our next question comes from Elvis Credendio, sell-side analyst for BTG Pactual. Elvis, we'll now open your microphone for you to ask your question. Please, you may proceed.
Good afternoon. I have two questions here. First, regarding the launch pipeline, you mentioned a few projects that you have for the fourth quarter and beginning of next year.
I would like to understand it in terms of volume, if we can expect an increase in volume for next year, if you are excited about this in terms of growing the number of launches, and also understand if the partnership with RFM Incorporadora, if it will gain more relevance in terms of PSV for the company. The second question is regarding construction costs. We have seen a slowdown in the INCC index. If you see that looking forward in next year, if you are going to see some gain in margins because of this lowering construction costs.
Hello, Elvis Credendio. Thank you for your question. I will talk first about the volumes of launches. We are prepared for a significant volume for next year. It will depend on the market. We have had this positioning. We do not work with very specific numbers, very specific guidance, you know.
In 2022, we launched less because the environment was hostile. We understood it was a moment to do our homework. In 2023, we launched more than last year. For 2024, we believe we will follow the same lines. We have very good projects. Only these three we have already begun the pre-launch work, and especially now with the partnership with RFM Incorporadora, which is consolidated. This is a year of preparation. As soon as the market shows us that this is possible, we will have these launches for next year. We have almost BRL 1 billion of PSV in this partnership, not necessarily for next year, but we have a very good leg back already positioned for this partnership that will add to our operations in São Paulo.
Just Marcio Moraes here, just to continue.
In relation to the partnership, we should have had launches in this year, but because of the new Strategic Master Plan, which gave us some gain of margins in some of the projects, so we moved it to next year. So there will be some surprises for next year. In terms of construction costs, we see the commodities, energy. Oil will be a very important commodity. We do not see any surprises of increases of cost, except if the war escalates abroad, which will lead the oil price to a higher level. But Brazil will increase its oil production next year, so this will probably hold the price down. Regarding labor costs, because we are going to bring in a lot of infrastructure costs that will absorb labor. So we see that in the project that we are going to begin construction work in 2024.
They are basically contracted and hired with suppliers we already know, with the two companies that have been in the market for over 40 years. So we know our suppliers that are in line with our projects. So we do not see any discrepancies in the construction costs.
Thank you for your answers. Our next question from Hugo, sell-side analyst from Citibank. Hugo, we will open your microphone. You may proceed.
Hello, gentlemen. Good afternoon. Thank you for this opportunity. I see people asking a lot about competition and strategic master plans. I would like to understand or to go on a tangent that these two issues talk with. We know that one of the attributes of the Strategic Master Plan is the Cota de Solidariedade, which will a kind of a bonus of PSV to the order of 10%-20%, depending on the lot.
And I imagine as a consequence, it makes sense if you file a lot of projects that were already on the pipeline to be launched, so you can have an advantage in these new regulations. Does this logic make sense for you to hold on launches now and relaunch them later on a new regulation? Regarding the competition in São Paulo, do you think this will bring some relief in the competition, especially for the projects you already have, and that will not be affected by the Strategic Master Plan, some kind of structured operation? This is the first question.
If you allow me, regarding the Master Plan, how do you see in terms of room for new purchases, considering that you have a contracted volume of construction that already presupposes a continuing burning of cash for next semester, for next quarters, and you have already purchased a lot since the second quarter of 2023, if I am not mistaken, BRL 2.3 billion of PSV added? Does this calculation is justified concerning the burning of cash and these new opportunities given by this new Strategic Master Plan? These are the two questions.
Hello. Marcio here. I will try to see if I understood all your questions. Regarding the Master Plan and the Cota de Solidariedade, there is a characteristic that it benefited some projects in smaller lots. It gave more benefit to areas of approval below 20,000 square meters.
In other lands, in other lots, the benefit happened, but it was smaller. In smaller lots, the benefit was bigger. That is why RFM, the land in partnership with RFM have been refiled and revised. Regarding Even's lots, we had some gains. Some of them, we understand they could be changed, but the ones that come with the structured operations, for example, Faena or Faria Lima, nothing will change. In this case, maybe we have some advantage because the approval cycle in São Paulo is long, takes a year, more or less, and while the competition is having this new filings approval will be launched. This will give us some advantage in this period.
Regarding the competition, really, the volume that has been launched in this second half year was smaller because the whole market went on hold, waiting to see if it would be interesting to change these new projects or if file new ones, which will take one more year. We do not buy land to store it for five years. Our land bank is short-term. We want land that we can launch within one and a half, two years. We are observing this very closely in terms of new opportunities of purchase. But when the opportunities come along, we will try to close these deals.
Now, complementing Marcio, we are not going to miss out on great opportunities. We have balance sheet and fundraising structure to take advantage of this.
If we see the opportunity for more land, then we are going to work more on the capital structure to bring this land, not necessarily cash, but we have a lot of investors, some raising capital, different strategies, maybe mix both strategies. Part of the land that we have bought in cash, maybe we will recycle this in this new model of raising funds. What we do not want is to miss out on good opportunities. We have the structure to take advantage of these opportunities. Each case is different, but yes, we will try to take advantage of new opportunities brought along by the Strategic Master Plan.
Thank you. Our next question comes from Ygor Altero, sell-side analyst for XP. Ygor, we will now open your microphone for you to ask your question. Please, you may proceed.
Hello. Thank you for the call. Thank you for taking my questions.
I would like to understand which regions you see room to launch with less competition in the high-end segment and how you see the middle income. Everyone now is moving on to high-end because of this new, more difficult affordability. Do you think that in terms of launches, that it will not be contemplated by in the middle income? I would like to understand how you see this concerning the middle-income segment.
Hello, Ygor. Dzik here. In the high-end segment, what we have been allocating our efforts in our land bank, yes, partially, at least, depending on what the players want. Yes, the high-end segment has been shown to be resilient. So the questions we put it is high-end. It is not just like turn the key and start and move to high land. We talk about a construction of land bank that takes years.
We have been working on these purchases sometimes for two, three, or four years. Faena project, we started the process of purchase over 10 years ago. So this changing strategy is not so easy. When you talk about good regions like Jardins, Itaim, really prime locations, the truth is, it is very difficult to operate in these regions, and the inventory is, yes, it is very short, very low. But so two, three, four, five years ago, we had a very high level, but we had a great absorption in this market. Talking about the middle income, we do have some projects for this. It will depend on the interest rate. Normally, this client depends on financing to buy the projects, so we are concentrating high-end. But we see some opportunities in the middle and upper middle income segments. We used to operate on this.
We see some things in Perdizes, Brooklin, Campo Belo. These are regions we know very well, and we keep monitoring these regions. It will depend on the macroeconomic scenario. Maybe we will see some opportunities in this segment. But as of now, we are positioned in the high-end market.
It is clear. Thank you.
We remind you to ask questions. You must click on the Q&A button at the bottom of your screen and type in your question to join the queue. Or click on the raise hand icon to ask your question. I would like to say that the Q&A session is concluded. I would like now to give the floor to Mr. Marcelo Dzik for his final remarks. Mr. Dzik, you may proceed.
We remain confident in our positioning, in our strategy on high-end and differentiated projects in São Paulo. We delivered in an adverse economic scenario, good results and consistent in the first nine months of 2023, and we believe that our new launches will produce great results in future quarters. I thank you for the analysts, collaborators, partners in this call. Our Investor Relations team is at your disposal for any clarifications. Thank you.
The earnings call concerning the third quarter of 2023, Even is now concluded. The Investor Relations department is at your disposal for any questions you may have. Thank you all for participating. Have a good afternoon.