Good morning, ladies and gentlemen. Thank you for waiting. Welcome to the conference call of LPS Brasil to discuss the earnings regarding the second quarter 2018. Today with us are Marcos Lopes, CEO, Francisco Lopes Neto, Vice President, and Marcello Leone, Chief Financial Officer and Investor Relations Officer. We would like to inform you that this event is being recorded, and that all participants are going to be in listen-only mode during the presentation of LPS Brasil. We will then start the Q and A session when further instructions will be provided. Should any of you need any help during the conference call, please reach the operator by pressing star zero. This event is also being simultaneous webcast on the company's website address, www.lopes.com.br/ir. In there, you will also find the respective presentation available. The slide selections will be controlled by participants.
The replay of this event will available soon after its closing. We would like to remind that webcast participants may post their questions on the website to LPS. These are going to be answered after the end of the conference call. Before moving on, we would like to let you know that any statements made during this conference call relative to LPS business outlooks, projections, operating and financial goals are based on beliefs and assumptions of company management. Forward-looking statements are not a guarantee of performance since they involve risks, uncertainties, and assumptions. They refer to future events and therefore depend on circumstances that might, may or may not occur. Investors and analysts should understand that general conditions, industry conditions, and other operating factors may affect the future results of the company and lead to results that will materially differ from those in such forward-looking statements.
First, Mr. Marcos Lopes will present the operating results, and then Mr. Marcello Leone will present the results of CrediPronto and all financial results. We will finally open for the Q and A session. Thus, we would like to turn the call over to Mr. Marcos Lopes. Please, Mr. Lopes, you may start.
Good morning, everyone. Thanks for attending our conference call to discuss the earnings of the second quarter 2018. Today with me are our Vice President, Francisco Lopes Neto, and our CFO, Investor Relations Officer, Marcello Leone. Before starting the presentation of the company results, I would like to make a brief comment contextualizing the scenario in which the real estate market was inserted in the months from April to June. In the months of April and beginning of May, we had the discussions about the injunction that revoked the protocol route, right?
A fact that was generating a prevention from the launch of new projects in the city of São Paulo. However, by mid-May, the injunction was reversed and the issue was settled, therefore enabling significant pickup in the number of launches as you are going to see further on. With a similar movement to that in the launches, however, in an inverse of chronological order, transactions had good results in the beginning of the quarter with growth compared to 2017. In June, especially this year, we had the beginning of the 2018 FIFA World Cup, an event that historically impacts the business in the period. However, even with the deceleration, the result presented for our own operations in the quarter was relatively stable that of 2017 and better than the three first months of the year.
I'd like to highlight here growth in the franchise segment that had excellent results in this quarter with increase of 130% compared to the second quarter 2017. Although the industry is facing some occasional obstacle and the fact there are still some uncertainties in the market, we can observe that demand is gradually recovering and should consolidate in the near future. Confirming our perception about a better market, we have a pipeline for the second half of the year of approximately BRL 7 billion, which could account for growth of 30% compared to the volume launched in 2017. I would like to highlight that we are fully prepared to monitor this growth, reinforcing our leadership position in this market segment. Now I'm going to start the presentation on slide number five, commenting on the company's highlight in the period. Slide five.
Here we show the main highlights in Lopes results in this quarter. First, I would like to highlight growth of 18% in total transactions, considering both our own operations and franchise segment totaling BRL 1.6 billion in the period. If we think of our own operations alone, we can see that the result of this period was stable compared to the previous year due to the factors I've just mentioned. However, compared to the first three months of the year, there was growth of 9% in transactions. As presented in previous quarters, the segment of franchises continued with significant growth. Consolidating increase of 130% in the businesses performed in the second quarter 2018 compared to the same period 2017. Company net revenues had increase of 4% compared to the same quarter last year, a fact that hadn't happened since 2013, reaching BRL 26.4 million in the quarter.
Finally, our EBITDA, as a consequence of increase in net revenues and drop in expenses, had growth of 122% in the quarter, reaching BRL 762,000. I would like to use this topic to start talking in this quarter that we had an impact of one-off legal expenses with litigations and provision of contingencies that added up to BRL 6.1 million. If we just consider these expenses, EBITDA in the period would have been BRL 6.8 million. Now we are going to slide number seven, showing in detail the results of the transactions performed in the quarter. In the first chart to your left, we can see growth of 18% in total transactions. In considering our own operations and franchises, we added up to BRL 1.6 billion in the period.
When we break down the results in the segments, we highlight the constant evolution of our franchise operations with growth of 130% in invoiced transactions and 63% considering the total transactions in those operations, including the operations that are still to be paid royalties. As for our own operations, we had stable results compared to the previous year, mainly due to the factors I mentioned in the beginning of this conference call, reaching BRL 928 million in the second quarter 2018. On slide eight, we explore the segmentation of your transactions in the region. As presented in previous quarter, most transactions concentrated in São Paulo with 62% share, followed by the South region with 21%, and an increase of 4 percentage points compared to the previous year.
The other regions we operate, like Brasília, Espírito Santo, Fortaleza, accounted for 18% of total transactions in the period, in line with what we had in 2017. Just like the previous quarter, we had no transactions of our operations in the Rio de Janeiro market. Since the beginning of the years, we no longer consolidate the Patrimóvel operation. On slide nine, we show our national comprehension in the franchise operations. As we discussed before, transactions performed in franchise operations to Rede Lopes had significant increase compared to the same period 2017, adding up to BRL 636 million. If we break down this total by city, we see, just like our operations, São Paulo led transactions with 53% share by means of its 41 stores in operation, followed by Rio de Janeiro with three stores, and together accounted for 24% of the total.
South accounted for 15% of share with 23 stores in operation, and the other operations in the segments distributed in the states of Minas Gerais, Bahia, Espírito Santo, and the Federal District totaled eight stores and 8% shares in transactions. On slide 10, we show our indicators on speed of sales over supply and speed of sales over launches. In the first chart to your left, we can see a reduction of two percentage points in the speed of sales over supply in the second quarter 2018 compared to the same period 2017. This reduction is mainly due to the impact of the 2018 FIFA World Cup in the performance of transactions in June.
To your right, we can see the speed of sales over launches in the city of São Paulo that had an improvement of five percentage points compared to the second quarter 2017, with a total of 27% in the period. On the next slide, in slide 11, we show to your left the distribution of transactions in our own operations according to the segments the company operates. The primary market accounted for 95% of transactions, with the highlight of non-listed home builders that had 70% the period. Due to the change of the operations in the secondary market, it had a less share of 5% in transactions in the second quarter 2018, since we only have one own store in this segment, all the others being franchises. To your right, we see the variation of transactions distribution in the primary market between listed and non-listed home builders.
You can see there was an increase of six percentage points in listed home builder share with 26% of transactions. As a consequence, non-listed home builders accounted for 74% of the total. On slide 12, now we can see the launches of the company in the second quarter and also its pipeline for the second half 2018. In the first chart, we can see growth of 29% in the volume launched in the second quarter 2018 compared to the same period 2017, with a total of BRL 2.2 billion in the period. To the side, we can see that those launches were distributed in three main regions, Brasília, Espírito Santo, and São Paulo. The latter accounted for 89% of the volume launched.
When we segment the city, we see that 58% of the launches were performed in the capital of São Paulo, 24% in the cities of the metropolitan region, and 18% in the state Espírito Santo, consolidating then 4,364 new units distributed in 28 different projects. The other cities and states like Paraná and Ceará accounted for 3% of launches in the period. To the right of the slide, we highlight the pipeline of launches that is expected for the second half of 2018. We expect to launch until December a total of BRL 6.9 billion. This value is double that of the first half of this year and 25% above the same period 2017. This total is divided into 75 projects. In that, 50 of them are located in São Paulo capital. We are quite optimistic of making this pipeline come true.
This act would pose a growth close to 30% in the volume launched by launches 2018 versus 2017. At the same time, it would give signals of recovery in the Brazilian real estate market. These were my considerations about the operating results. I am going to turn the floor to Marcello Leone, that will make his remarks about the results of CrediPronto, and then about the company financial results. Thank you very much.
I am going to start presenting the results of CrediPronto on page 14. There you can see the volume of CrediPronto that grew 92% year-on-year, driven by an improvement in credit conditions. We are already working the company with an average rate of 9.5%, which is lower than recent rates we were working with around 10%. This is one of the factors that has improved our numbers and portfolio.
Despite the growth in the volume finance, the mortgage volume, the portfolio was stable with a slow drop of 0.3%. So what they are saying that it has not growth, but it is healthy. Remember that the former portfolio had a negative spread in results, and it is being renewed by new credits, new mortgages that are more profitable, which will generate positive results to CrediPronto in the long term. On page 16, I start the presentation of our financial results. Here, we have a negative impact on our income of the discontinued operation of Patrimóvel of BRL 3.6 million. This asset was available for sale in the beginning of the year, is no longer consolidated in the company's results, and we hope to settle the Patrimóvel bill issue very soon. On page 17, we have the evolution of the company's net commission fee, and its breakdown by markets.
We see there is significant improvement in São Paulo as of the second half 2018, with growth from 2.22 to 2.41, and as a result, we grew the whole of our net commission fee with 2.23%. Part of this effect is the fact that the economic segment had a drop of 4% in the company, as you can see on the chart to your right. But basically again, that means that we have a better rate when we are selling our units. On page 18, we have the gross revenue reconciliation. You can see that our transactions in the second quarter of 2018 was 928. Net commission averaged 2.26%, which brings us gross brokerage revenues of BRL 21 million.
Then we have CrediPronto of BRL 3.6 million, franchise revenues of BRL 2.3 million, and this is a breakdown of BRL 636 million for transactions closed in franchises with the new franchises accounting for BRL 51 million and older franchising BRL 586 million with an average royalty of 0.4%. Then we have other revenues of about BRL 2.3 million. Total revenues of the company is BRL 29.3 million. On the next page, we can see the evolution of the company's net revenue. We had growth of 4% quarter-on-quarter. If we break down net revenues by segment, we can see that we had a share of BRL 6 million in CrediPronto and BRL 2.1 million in the franchise project, in addition to BRL 18.2 in the transaction of our units. On page 20, we can see our results per segment of business.
We had a loss in our own operations transactions with BRL 5.8 million.
This loss is due to the contingencies that we already talked about in our release and also in this presentation. The franchise business continues to be very profitable. So is the CrediPronto business, with an EBITDA margin of close to 6%. On page 21, we can see the total costs and expenses of the company. What happened here is the following. In this period, we had BRL 6.1 million of legal expenses, in that BRL 4.2 were the materialization of contingencies in the company, and BRL 1.9 million was the payment of litigations, be them tax, labor lawsuits. The payment of BRL 2 million means savings for the company indeed, because the tax liability that we had in legal expenses accounted for millions of reais. The labor liability of BRL 500,000 accounted for BRL 5 million labor lawsuits that we had in the period.
Although they are expenses that were not planned, they were caused by positive events. We estimate that the value of contingencies as of the second half will go back to normal at about BRL 1 million per quarter. That will enable the company, will keep its level of expenses close to BRL 20 million. Again, we can have one-off payments, but altogether these are good news because the payment of these contingencies means the company is no longer going to pay much larger contingencies. On page 22, we have the EBITDA of the company that grew 121%, going from BRL -3.4 million to BRL -0.8 million, positive by 3%. That, of course, has an impact by the legal contingencies that we had. Otherwise, we could have a positive EBITDA of almost BRL 7 million. The same goes for net income.
We had a drop of 2% in our net income, but because we are working with a much lower level of expenses and we are keeping the volume of revenues despite the fact that we had the World Cup, we were able, if it weren't for the contingencies and thus the non-recurrent expenses, we would have more than BRL 1 million of income in the period. On page 23, we show the non-cash effect IFRS in company results. Once again, we recommend you all to not consider the effects of IFRS to understand our operating results. Finally, we had cash of operations in the quarter of BRL -5 million. This cash burn in the quarter is due to the payment of contingencies. Today, the company has a cash position of BRL 40.5 million. We believe that this is a still comfortable position for the company.
We expect the materialization of new contingencies, and we have a robust level of launches for the second half of the year. Now we are going to open for your questions. Thank you.
Well, ladies and gentlemen, we'll now start the Q and A session. To ask a question, please press star one. To withdraw your question from the list, press star two. Our first question comes from Bradesco.
Hello, everyone. Good morning. First, I would like to talk to you about the performance between transactions with your own operations and franchise operations. You already talked about that in the opening of this call. But I would like to try and understand why is that franchise operations are being able to have so much better performance than your own operations. And another point, if you could please give us some color on, when we take a look at your cash position today and what is going on quarter-over-quarter in terms of cash generation. We would like to hear from you if there is a possibility for you to increase capital. Thank you.
Hi, Victor. This is Marcello Leone speaking. I'll first answer your question about the company's cash position. Well, once again, I would like to reinforce the following. The company today does not want to have a capital increase. We understand that our capital position brings us certain comfort. We do not see ahead of us any round recurrence event that is going to be negative. And also we have a pipeline of launches that is extremely robust. Things that we haven't had in previous years. We just had a guidance to the market yesterday.
So we believe that a good performance in our launches will enable the company to even close the year at a better position. As for the franchise project, what is important to highlight is the following, the organic growth of franchises happens in two ways. First is the commercial success of the model. We are having lots of real estate agencies joining us because we have a very appealing franchise business, so we have new franchisees, and therefore we have organic growth for the business. It doesn't mean that the secondary market is better, but we have more opportunities. And also when we have a franchise, Lopes offers tools such as the Lopes network with more than 110,000 units to be sold, associated brokers, operating systems, and et cetera. So we can generate better performance for companies that join us.
And that also translates in greater growth for the business model. And for you just to know, among the franchises that we have here, not all are in the secondary market. Part of the franchises are secondary market, but we already have franchises of launches working in units where the company does not have an operating headquarters. I think the most important of which is in Rio de Janeiro today.
Okay, thank you. So just as a follow-up. So if we were to take a look at the growth of franchise operations, considering the same base, would we have a similar growth? Are we going to have new franchises coming in and benefiting your growth? If we were to look on the same base, would you see growth that is somehow different from what we saw before? And then you talked about franchises in the primary market. How much do they account for in terms of volumes of the primary market? When we think of listed home builders, they are showing strong sales and they have strong launches. The sale of inventory is affected, especially ready-to-use inventory, which is a bit more comparable to the secondary market. It seems that performance is not as even. Could you tell us a bit about that?
Victor, I think your question is quite relevant. Today we have the sales of launches in Lopes franchises, and they account for BRL 60 million, BRL 70 million a month. In this volume that we reached, I would say 1/3 would be launches and 2/3 would be the secondary market. Okay? Now it is important for you to realize that we disclose the total volume of sales or revenues generated by franchises. You have the breakdown in the presentation on page. Let me just check what page this is. Page 18. You can see out of BRL 630,000— I am sorry, BRL 636 million of franchises, BRL 51 million came from new franchises and BRL 586 million came from operating franchises. You already have a base to compare growth of the operation there.
Okay, thank you very much.
Our next question comes from Gabriel Simões from Itaú BBA.
Good morning. Thanks for your presentation. It is Alex here. I have two questions as well, compared to your results. The first is if you could give us a little bit more disclosure about the pipeline for the second half of the year. We know that especially because of the protocolo, some launches were postponed in São Paulo, but we are not sure about what we should expect because of elections, a scenario of uncertainty.
How confident are you in terms of your pipeline if they are really going to happen or if it is something that is probably going to happen more in the fourth quarter or even after that? Also I would like to know a bit of your equity. Do you believe you are going to have any sale this year about Patrimóvel, or do you think that you are still ongoing in ongoing negotiations? That is it.
Hi, Gabriel. This is Marcos Lopes. As for our pipeline, we are quite confident. These are confirmed launches. Many of them already have sales stands on, brokers working. We have a date for launch. There is a reflex of the injunction that was being held. That is why launches were delayed to the second half of the year. Interest rate is quite appealing. The FGTS release also helps the real estate market.
Of course, the electoral period is a point of attention. These launches are confirmed and they are to meet a need, a demand of the market. We are just working on pre-sales and this will reflect along the third quarter already. Our pipeline is quite in line with what we believe is going to happen for the second half. As for the Patrimóvel sale, we are addressing that and whenever there is any evolution, we are going to release the information to the market.
Okay. Thank you very much.
As a reminder, if you want to ask a question, just press star one. We are now closing the Q and A session. I would like to return the call to Mr. Marcos Lopes for his final considerations.
I would like to thank you all for attending the release of our earnings for the second quarter 2018. I would like to tell you that the company is ready for the market recovery. We did our homework. We are quite solid. I would like to thank Marcello Leone for 12 years performing his activities as CFO of the company. We are sending him an invitation to be a member of the Board of Directors to be validated in the shareholders meeting. I am going to turn the call back to Leone for his final considerations.
Well, thanks, Marcos. I would like to thank the company for the 12 years. Marcos and Francisco for your confidence and for the invitation of joining the Board of Directors. To the market participants with whom I interacted along the years, thank you very much. The people who worked with me, my team, and also the peers of executives I worked at along the time. Thank you all very much.
LPS Brasil conference call is now closed. We thank you very much for joining us and wish you a good day.