Good morning, and welcome to Tenda's earnings results for the second quarter of 2019. In today's conference call, we have Rodrigo Osmo, the company Chief Executive Officer, and Renan Schantz, the Chief Financial Officer and Investor Relations Officer. We would like to inform you that this presentation is being recorded, and all participants will be in listen-only mode during the presentation. Ensuing this, we will hold a question and answer session. Should any participant require assistance, please press star zero. Before beginning, we would like to inform you that this conference call will address Tenda's financial results for the second quarter of 2019 and information currently available. Management statements involve risks, uncertainties, and may make reference to future events. Any changes in macroeconomic policy or in legislation and other operating results may affect the company's performance. Mr. Renan Schantz, you have the floor, sir.
A good morning to all of you, and thank you for participating in our earnings conference call for Tenda. We are going to begin making remarks regarding the second quarter of 2019, and then we will have some space for questions and answers. In the second quarter of 2019, Tenda presented solid financial results while seeking to overcome the challenges posed by the changes implemented in Minha Casa, Minha Vida restriction in client credit scoring in financial institutions. We invested in the first Tenda trades fair in five metropolitan regions. In a single weekend, we sold 369 units, 9% of the total units sold during this quarter. Despite this, the net sales PSV fell by 2.1% compared to the same period the previous year.
The lower average price of the units sold in 2019, one of the factors that hampered the PSV sold, was also decisive to maintain a high speed of sales. We still have the challenge of achieving the net pre-sales guidance for the year, which is equivalent to 5.4%-16.2% year-on-year growth. The 9.9% growth of PSV launched in the first half of 2019 is still insufficient to ensure that the guidance will be met, which means Tenda has to increase its efforts to make new products available for the third quarter. Accordingly, the company maintains its guidance on net sales to be able to materialize our projection. Adjusted gross margin in the first half of the year stands at 35.9%, close to the top of guidance.
On the other hand, the gradual reduction in sales prices and the increase in costs in the main building materials like steel and concrete had a negative impact on the company margins, which is evident in the 4.5% drop when compared to 2018. A crucial factor for the gross margin to be sustained at the guidance is the new collection initiative that the company aimed at ensuring customer non-default, consequently strengthening the balance sheet. Cash generation remained positive, ending the quarter at BRL 26.2 million, and net income increased to BRL 73 million this quarter, up 41.4% year-on-year. Earnings per share ex treasury reached BRL 2.43 in the last 12 months, a growth of 8.6% year-on-year. Besides this, we had an ROE of 19.3% in the last 12 months.
Regarding capital distribution, Tenda delivered BRL 36 million to shareholders in the quarter, 49% payout, and BRL 181.6 million in the last 12 months, a 77% payout. The company's distribution strategy so far has been to maintain a stock buyback program, seeking opportunities to buy in the market and monitoring the number of shares in treasury to ensure the execution of option-based compensation plans. In parallel, the company must deliberate quarterly with the board the anticipation of the minimum mandatory dividends. For the second half of the year, Tenda remains attentive to the more restrictive environment for client approval under Minha Casa, Minha Vida. We also believe that the regulatory scenario regarding the future of the program and maintenance of FGTS have been strengthened in the last months.
Regarding Minha Casa, Minha Vida, there are signals that the subsidized acquisition model is increasingly seen as the most sustainable way to address the country's housing deficit. In terms of the FGTS initiative set forth by the government in July, were aimed to maintaining the fund as a more profitable source of savings for workers in the long run and to reinforce its importance for the low-income housing programs.
We reiterate our focus of acting in three different fronts. First, operational excellence proven through one more quarter through cash generation. Secondly, maintaining a conservative capital structure with low leverage. In the third place, having a footprint in metropolitan regions where the housing deficit is disproportionate and entry barriers are higher. Tenda continues its commitment to seek the greatest return for shareholders in this section. With this, I would like to end my comments and offer the floor for questions and answers.
We would like to begin the question and answer session. Should you wish to pose a question, please press star one. If you wish to withdraw your question, please press star two. Our first question comes from Alex Theis from Itaú BBA. You may proceed, sir.
Hey, good morning, Renan. Thank you for the presentation, and I have two questions. The first referring to the margin compression, and when we look at your adjusted margin this quarter, you had a minor expansion compared to the first quarter because of that reversion of PDD. Have you brought this to present value, the PDD, considering that you are now entering this into the system, and if we can expect to have this reversion impact going forward considering your new collection system?
In this scenario for the midterm of Minha Casa, Minha Vida and the changes, it has become somewhat difficult to make purchases. But it seems that in the medium term, we will have a correction of route. Are you thinking of adopting a different strategy to be able to get your foot in into these special purpose entities, or do you expect to gain share through a reduction of prices or an adjustment of the rate?
Good morning, Alex, and thank you for your question. Let me respond to the first question referring to gross margin and PDD, and Rodrigo will refer to the FGTS. In gross margin in the second quarter, we delivered 36%. We're at the top of our guidance, and the margin for the semester is also equivalent to the top of our guidance. On the other hand, the result was better than our expectations.
We see more compressed future margins compared with those we worked with up to present. Some of these effects were already expected, and we imagined that others would happen further in the future. When we compare the F margin, the future margin that we had last year, there was a drop of 5 percentage points. Now, it made sense to have a drop because last year we were working fully in the Faixa 1.5 bracket. Tenda decided to work with higher brackets, and therefore, this year we had to work with greater discounts vis-à-vis 2018. Because of this, we expected a margin compression. We did not expect to have the increase in construction costs, the cost of materials such as steel and concrete, and in infrastructure services, because the first signal of resumption of the sector once again leads to these changes.
We are able to observe this in the balance of open companies, the increase in the cost of material, and the conditions of Caixa Econômica Federal for credit approval for clients has become more stringent. If we want to sell to the same clients, we will have to sell with further discounts. Because of this, we had a deterioration in our gross margin beyond our expectations. Because of this, the future projection associated to this margin in the second quarter is to have lower margins vis-à-vis the margins that we had in the first quarter. When we look at our attainment of guidance in gross margin, we see that this will not be according to the top of the guidance as we had in the first semester. The second semester will be different once again because of the future margins that we will see in coming semesters.
What did help us in the second quarter, despite the scenario, was the reversion of the PDD. Since the end of 2017- 2018, we have been investing in having a more professional collection team, increasing our structure and investment in systems. All of the enhancements had come to a standstill for six years before this, along with Gafisa. After this, we decided to restructure our collection system. It has been implemented, and we have enhancements month after month. We have also structured our team in a very significant way. Those that acted in the collection market and that have good cultural fit with Tenda have reinforced our process. We have practical measures, more digital work with the clients, and a change in the quality of work with third parties.
The effect that we have seen is a recovery in money, in cash from default clients, and an increase of negotiations in-house. Now, which is the provisioning model of the company? We base ourselves on the default of the last three months to project the default of all of the sales that we have in our portfolio. With each new sale, we look at the background for the last six months, and of course, this has enabled us to greatly enhance what we had and have a reversion of provision, which is a non-recurrent event. We have already adjusted all of our sold portfolio based on those levels and based on our background. Unless we have new enhancements in the collection levels, we shouldn't see this reversion once again.
If we maintain our present day collection performance, which is what we expect, we are always going to work with a percentage of PDD on revenues, but a percentage that will be somewhat lower than we had below. The investments made were precisely to achieve this going forward. As expected, we will be consuming part of our net revenues as always, but now at healthier levels than before. This is the effect of our collection optimization. This will reduce cost pressure. We have already considered this in our budget for works, and we do not think we will have any more increases in our cost, no significant effect for the second semester.
Good morning, Alex. This is Rodrigo. I would like to ask you a question. In truth, there are two questions. The first, the changes announced by the Caixa Econômica Federal, how does this impact your long-term stability, and if this changes your willingness to enter other segments with higher income brackets, for example? Our vision is that this provisional measure does not alter the outlook for a reduction of liquidity of the fund in the coming years. It does not improve it nor aggravate it. We know the technical people from the government who have carried out this study. They are highly qualified people. We are convinced that this is a very well-founded change. Once again, there should be no great impact. The problem is that this already forecasted drop of liquidity, eliminating the liquidity for the coming years. This will be the more probable scenario.
As part of this scenario, there should be an adjustment in the Minha Casa, Minha Vida parameters so that the volumes of loans will tend to fall going forward. Of course, the margins will have to remain at lower levels than the ones we have at present. All of this has been altered through this provisional measure. This measure has given more visibility to this scenario. The government at the beginning of its mandate took its stance vis-à-vis the FGTS, and more importantly, it has stated that low housing is a very important segment for the government. Formerly, this was a doubt how the government would react with this segment that has subsidized purchases and credit.
Very clearly, the government has stated that it is its understanding that this low housing segment is strategic for them, that this has important social impacts, and that there will be investments in this. Once again, Brazil has a great deal of lack in this and invests well below what should be invested. So this executive vision brings more visibility. We do know that the program will continue on although we have not resolved the profitability of the FGTS. What does this represent for the company's strategy? Our present day strategy, which is bracket number two in metropolitan regions, one plus four. This is a strategy that has its limitations. We are in eight of the ten most important metropolitan regions of Brazil. We can grow in three, four, five more.
Now, the margin of volume of these three, four, five would be much lower vis-à-vis the eight in which we are already present. This strategy does have its limitations. We are able to grow substantially in the regions where we already are, but this is not a strategy that would enable us to continue investing for the coming decade. The company, despite all of this, is extremely ambitious. Our ambition is not to populate these markets and stabilize at volumes that are greater than those that we have at present. We understand that the main competitive edge of the company, and perhaps the most important competitive edge, is our cost of execution, and this could be very valuable in other segments, in other regions. We already have an example of this in an expansion that we did in buildings with elevators. That was a very successful expansion.
80% of the developments in São Paulo have this elevator, and we believe that we would be able to grow in nearby regions with this clear competitive differential. Obviously, we want to work in regions that are not small vis-à-vis the ambitions of the company. They would have to be substantial. When we speak about the bracket number three for medium and high income brackets, we believe that we would not have a significant differential in that segment. Therefore, so far the company is not convinced that we have to penetrate that segment. It is not a segment that we would be satisfied acting in. We do have a differentiation in products, a differentiation in funding. Diversification is not the attribution of the company management. It will be the choice of the shareholder.
If shareholders believe that they don't want to concentrate 100% of their funds in real estate, of course, it would be natural to enter the medium and high-income bracket segments. Upon penetrating a segment where we do not have synergies or where we do not see competitive edges, we would not be distributing value to our shareholders. Nowadays, this medium and high income bracket is not part of our radar.
Thank you very much, Rodrigo and Renan, for your very clear answers.
Our next question comes from Luis Stacchini, from Credit Suisse. Please, you may proceed, sir.
A good morning and thank you for the presentation. I have two questions. You spoke a great deal about the new conditions of Caixa Econômica Federal. If you have perceived any changes in the policy in the different markets that you have a footprint in, which are the main assessment criterias where perhaps you believe there will be greater scrutiny on the part of Caixa? If there is a great deal of variation among the different geographies where you are active in. The second point I would like to address, to follow up on the previous question, refers to changes of parameters in Minha Casa, Minha Vida. We have discussed if the present-day regional concentration will continue normally. These are built in regions where the low housing scarcity is greater. Perhaps there will be a move toward more concentrated areas. Therefore, what is your perception of this?
And perhaps this would give you the appetite to open up in different markets if there is the introduction of new regional factors or changes in parameters according to regions. Of course, there is nothing definite yet on the table, but what is your reading of this future potential?
Thank you, Luis, for your questions. Once again, we will both be answering the questions. I will answer the first. Rodrigo will answer the second. Regarding the conditions of the Caixa since the beginning of the year, we observed an increase in the parameters for the approval of credit to clients. The intention is to have a healthier portfolio in the future. This is an intelligent move for banks, and the portfolio is strategic for them. When we try to stratify type of clients and type of markets, we perceive that this has been very general.
Although the income bracket is low, we do have some developments that we sell to clients with income brackets of BRL 3,000 or BRL 4,000, and we can also sell to clients with BRL 1,500 or even BRL 1,000. We see that there is a credit squeeze despite the income and in spite of the regions. Once again, this is the definition of the Caixa based on internal parameters for credit scoring. And once again, it has put a halt to this broad granting of credit across the board. We observe that there has been an increase in the conditioning for the clients throughout the year. From May onwards, we observe greater stability in the parameters.
It is difficult to project what will happen in the future, but in the last three or four months, these parameters have remained stable, and this enables us to forecast what will happen for the rest of the year. This is the new normal situation, and because of this, we have mentioned that the backlog margin would allow us to look at this and replicate it going forward. When we look at our results, there are some costs that have not been included. The PDD, the taxes, the provision for warranties after the works. All of this will appear when we transform the backlog margin and gross margin. We used to have a backlog margin greater than the gross margin in 5 percentage points, and we hope that going forward, this margin will be lower. As the backlog margin has dropped, so has the gross margin.
The conditioning has remained stable in the last three months, and this is a situation that we observe throughout Brazil and in all the sales, and it is our understanding that this is a new policy that will be maintained by Caixa Econômica Federal.
Luis, when it comes to the concentration of the new phase of the program, two comments. First of all, which is the understanding of the sector when it comes to this mismatch between deficit and the Minha Casa, Minha Vida market? There is a mismatch between the southern regions that have a greater participation in the program than a deficit and the north, where the situation is different. The reason in the north is an economic reason. The income is very low in that region, informality is high, and the cost of the development is high.
There are more abandoned areas, and it is more difficult to buy material. When we look at the two regions, Northeast and Southeast, the understanding of the sector is that we have a great deal of imbalance. The Southeast has 40% deficit, 40% of the units are funded by Minha Casa, Minha Vida. The Northeast has different parameters. Therefore, the adjustments that will take place are not substantial. They will merely be marginal because of this mismatch. Now, there should be greater activity in the Northeast, and should this happen, it will not be a problem for us. The Northeast is an important part of our portfolio. It represents more than 20% of our sales. We sell more than our share in the program as a whole, and Tenda is a leader in Salvador and Recife, for example. Therefore, this would not pose a concern for us.
Very good. Thank you, Rodrigo. A follow-up question regarding the Caixa conditioning. If you could explain, which is the change in the present-day policy for your products? If you could comment how it used to be formerly and what the policy is like at present, especially in the 1.5 bracket. If you could explain this, it could be very helpful for us.
Thank you. Luis, which has been our reaction to that issue of conditioning? The customer, the client loses the ability to finance, and Tenda has two options. Either they reduce the price, or we get this money back through offering keys, which entails a higher risk. This is a very risky debt that Tenda would have to take on. So which has been the stance of Tenda when it comes to this Pró-Soluto? We only give funding when we have to give funding.
So far, we have had a great deal of difficulty in doing this. And when we offer high funding, what we do is something that is not positive for the company. We deliver keys, and it is possible that the seller will exchange a good price, which would be a down payment for a much lower price. And once again, all of this because of those incentives that we have never been able to resolve properly in the company. We do have some pilot projects in this. But once again, we don't want to lose in terms of the quality of price. Another factor that is happening is that when we withdraw the 1.5 bracket, we sell to clients who need more of this Pró-Soluto. Formerly, clients did not need this because they had high funding. They had a minimum percentage of the sales price, which was 20%.
We want to continue to sell to these clients, and we have to re-qualify this amount of 20% with our own resources, and the only way to do this is using that delivery of keys and that Pró-Soluto system. This relates to the natural process of Pró-Soluto. We try to maintain the same value. And in the 1.5 bracket, if we wanted to sell the 2.0 bracket, we see that the client will have to recompose the subsidy that they have lost with this 20% aid. And so the trend, therefore, is for an increase that happens through this adjustment of mix of 1.5 bracket and 2 bracket , and because of the cash conditionings. Once again, we're not trying to increase prices because we think this will be counterproductive.
Thank you very much, Renan and Rodrigo. Have a good day.
Our next question comes from Victor Tapia from Bradesco BBI. You may proceed, sir. Good morning.
The first question refers to the changes in the program. Can we still expect further adjustments? Because in a certain way, this was announced in a very qualitative fashion. I would like to know if there are any quantitative highlights, if there will be an increase in this conditioning. The second point, another question that refers to your expenses. We see a significant drop in your expenses, and I would like to understand if this will continue on, and which are the levels that you expect for the reduction of these expenses.
Victor, I don't know if you could repeat your first question. I'm sorry, we truly could not hear what you were saying.
Yes, of course. The changes that have been announced, it seems they have not had a great impact on the program. It continues to run normally. I would like to know if we should expect new changes that have been announced qualitatively some time ago, and if you have any more details, more figures about this, and if you could announce this or disclose this in the call. If there are any changes in the subsidy that comes from the government. Once again, this is the first part of my question.
Victor, thank you for the questions. I will respond to the part about expenses, and then we will speak about the FGTS. When it comes to other expenses, in truth, we did have a reduction in other expenses in our results.
We do like to look at these line items because they are shared with other line items, and we have had a reduction vis-a-vis last year. The issue is that last year we had big events that were part of this result. This year, we had few of these events. The legal department, that includes all of the civil and labor suits, represents a large volume of contingencies, and it has remained at a stable level quarter after quarter from BRL 13 million quarter- on- quarter. I think that we should continue to use this level going forward. The level of suits or processes we have received has dropped, and it takes some time for these suits to be transformed into provisions. Therefore, if we look at the number of suits and the drop in suits, we should imagine that this will also happen in the future.
We will have contingencies plus other expenses, but this will take some time. Once again, we have had constant figures through the quarters, and basically this is what we had in 2019. On the other hand, in 2018, we had some suits that causes distortions in the volume of our contingencies. We had arbitrage in the acquisition of a company. We had taxation issues. During the second semester 2018, we observed some peaks in our contingency because of these considerable suits. When they do happen, they completely offset our contingency of BRL 15 million per semester. Once again, in 2019, we have not had any of these events. In the first quarter, a BRL 4 million increase. In the second quarter, no increase whatsoever. Looking forward, we still have considerable suits, expressive suits, and should we lose, they could generate the peaks that we had in 2018.
Because of the volume of data, we can now work with more precise statistics. Now, each of these large suits or litigations represent a great deal of money, and of course, they can have a great impact on our contingencies. So far, we do not foresee any of these events.
Victor, when it comes to the new phase of Minha Casa, Minha Vida, we still do not have a quantitative definition in terms of quality. What the government has announced, and that apparently will be the line that they will follow, is that the structure of Faixa 2 bracket will be maintained. There are no great changes. This is a very successful program for the government, and there is the intention of creating a new bracket, which is called Level 1, which will follow the mechanics of Faixa 1.5 bracket with the intention of growing this segment.
The federal government would be offering 50% of the subsidies for this segment. Once again, for a segment that presently is very equivalent to Faixa 1.5 bracket, as the average subsidy is of BRL 45,000 for the Faixa 1.5 bracket. I think that the calculation is simple. There would be 100,000 units in the Faixa 1 segment. Once again, this is still under discussion, and it would be very difficult to offer something more definite when it comes to the change in the mechanics of subsidies. In 2019, there would be a lower share of subsidies. This, of course, would unblock the FGTS, that would not have to await the subsidies to be able to use its resources. This should happen very soon. We expect it to be resolved the coming week. Just a question, therefore, in this last point mentioned.
So we can believe that the subsidy will be of 10%, or what will happen after these changes? We have to see what it is that the government will be defining. The budget at present is BRL 9,000 , and I'm not stating that this is what will continue. Now, if the union comes in with 5% for the entire year with BRL 500 million, the Caixa Econômica could loan the amount that it has budgeted. Now, all of this is based on simple calculations. We all are waiting. All of this is pending the government decision.
Thank you.
Our next question is from André Mazini from Citi. You may proceed, sir.
Thank you for the call, Rodrigo and Renan. A question on the marginal deficits. You spoke about Curitiba, for example, in Paraná. How many units are you expecting to sell there? Goiânia seems to be a more lengthy process. How many units per year are you foresee for Goiânia? Because of the changes in funding, and how the housing deficit will be approached, I would like to know if anything will change until the end of the year.
André, thank you very much for your question. When it comes to the new units and how they are being built, Curitiba, in fact, is a very similar market. Basically, it is between Rio Grande do Sul and São Paulo, and we observe that the quality of the market is very good. It is one of our best markets. São Paulo is our best market. Curitiba has high income brackets, and it is a very good market when it comes to demand, and we have been able to practice good prices there. We are very close to beginning the production of 1,000 units per year. Presently, we have 500 units per year. We are about to make that decision of growing our operation, and this will be equivalent to 1,000 units produced.
We have been quite cautious in terms of this decision. Sometimes you base yourself on a logic, and you have to make sure that you can execute throughout the year. We do not want to generate counterproductive costs for the company. On the other hand, I cannot say that Curitiba is in a stable position. We are testing the legal issues in cities surrounding Curitiba. This is a process that takes time. We have launched in Curitiba, São José dos Pinhais, and there are other cities. In terms of demand, this is a very broad region, so we are going to do this in a carefully scaled way. Goiânia is quite different from Curitiba.
It does not have a positive demand situation. It is more challenging to sell in Goiânia because of the price. Land is very easy to find, and the legal issues of land tend to be simpler because Tenda has already had operations there. We have a privileged position in Goiânia when compared to Curitiba. So each market will have its own difficulties, and this happens in other regions where we have a footprint. As Goiânia was launched at the end of the year, it will take us longer to be able to reach that production of 1,000 units a year, which is the minimum amount for the market to become profitable according to our in-house parameters. Curitiba is about to have a growth in production. Goiânia should take some more time. This year we have another market.
We already have land purchased and more than one project under approval, and we will be informing you about this during the third quarters and fourth quarters and speak about our expectations. We still believe that we have the operational capacity of penetrating one region per year. We have prospects for our market for the year 2020. We are at an advanced stage of this, and we do have additional markets that have to comply with a minimum demand, which is having at least 1,000 units built every year. We have been structuring ourselves in terms of people.
People is the great bottleneck when it comes to growing the number of markets we have a presence in. We want to grow in a very organized way so as not to lose control of our operations. We prefer to do this gradually to guarantee greater success with lower risk levels, because we do know that the market can suffer with this disorganized expansion. We do have that issue of time and maturity to be able to get to new markets.
Thank you, Renan. A very clear response.
I would like to remind you that should you wish to pose a question, please press star one. Our next question comes from Marcelo Motta from JP Morgan. You may proceed, sir.
Good morning. I have two questions. The first, if your growth goes beyond your sales, you have had a steady growth of revenue, if we can expect further growth that will go beyond your sales, and according to your guidance, which will be your speed of sales? The second question refers to the funds from private markets for Minha Casa, Minha Vida. Would there be a certain level of BRL 50 where you would consider using other financing that does not necessarily come from Minha Casa, Minha Vida?
Thank you very much. Marcelo Motta, thank you very much for your questions. When it comes to your top-line growth, sales year-on-year have had a drop of 2% in the semester. On the other hand, net revenues have had an increase, and what motivates this is the number of developments under execution. We ended the semester with 54 developments under execution, compared to 39 for the last year. It is a growth of 44%. This because of the launches that we had had in 2017, 2018. As the growth of launches has been more stable at around 10% a year, and in 2018 we grew more, we should not have an increase in the number of developments under execution.
There is a delay, of course, with respect to our budgets, but all of this should follow a logic, the same growth that we have in construction. I think we will now have a more stable curve of growth of 10%, which is what we observed in 2018 and in the first semester 2019. When it comes to private funding, we have had discussions with the banks. We understand the strategy of MRV that has begun opening up the banks for the sectors with lower income. This is very important for the segment as a whole. What we have observed so far is that they are more interested in the higher income bracket, in Faixa 3. And the idea would be to carry out pilot projects, but we should remember that in São Paulo, we have average income brackets that are lower than the ones they normally work with.
And what is interesting is the news about an indexing rate for loans. Caixa Econômica Federal would like to carry out some tests. And this, of course, inaugurates several options for the market as a whole and for popular housing in the long run for two reasons, because this will enable us to have a lower interest rate. At present, we have TR + 5% or 6% in Minha Casa, Minha Vida. When we work with a broader consumer price index, the values would be more positive, and it is possible that the banks will have lower interest rates, enhancing the capacity to pay of our clients. And on the other hand, banks can work with the securitization of their portfolios. This is not possible with prefixed portfolios. Therefore, the opinion that we have is that this will be very positive for the housing construction market in general.
It will enhance the sophistication and increase the number of instruments for the financing of housing. And we do have a very optimistic outlook on this. It is very positive for the real estate market in the long run.
Thank you very much, Renan.
As there are no further questions, we will return the floor to Mr. Renan Zervini Schantz for his closing remarks.
Very well. Thank you very much for your participation in our call, and we can look backward at a very strong first quarter, 19.3% of ROE, and a 5% variation on equity. All of this is very positive. When we calculate capital use, we would be at 27.8% in the last 12 months. We believe that these are expressive results. When we look forward, we have a much more challenging scenario than the present one. The guidance for growth margin continues to be feasible.
In the first quarter, we were at the top of the guidance, but the outlook for the second semester is for a reduction because our backlog margin has a 4 percentage point drop vis-à-vis the first quarter. This is a scenario where we are going to deliver good results, but we will not be at the top of the guidance because of a more challenging scenario. In terms of our net sales, our guidance is in a rather risky situation. Why? The combined scenario that we had of events was very important. We did not hold the trade fair. We had an internal trade fair, but it does not have the same efficiency as the Caixa trade fair that is more advertised.
Because we have had reductions in the sales price, which makes it very difficult to comply with our guidance, the launches that we had an increase of 10% are insufficient to comply with our guidance. We are carefully monitoring our performance in the third quarter, as this will enable us to know if we can deliver the top of the guidance or not. In terms of regulatory issues, we have conflicting opinions. A very positive view regarding the stance of the government in FGTS and the importance of the low housing program, and this is an expectation that we have when we have a change of government. We were somewhat anxious at the beginning of the year, but we have seen important endorsements of FGTS and the Faixa 2.
There have been new proposals for the program, and Faixa 2 will remain very similar to what it has been up to present. On the other hand, in FGTS, the proposal of the provisional measure does not alter the liquidity of the fund, either upwards or downwards. We do observe a reduction of liquidity in the last four years. The measures set forth have been very positive, but there are no changes when it comes to liquidity. We continue thinking that the size of the program should be reduced by the government so that it can remain stable. When it comes to competition, which is our outlook, we had an increase in the conditioning and in the cost of construction. Of course, this has an impact on the cost of development in the entire sector.
As the great bottleneck of the sector is funding, the better positioned companies have a mattress, they are protected, and they can survive through this period. We have worked on this strategy, and we are quite convinced that we will be able to navigate through this moment with the changes in the program. This enables us to seek platforms for sustainable growth in the company, as we have done with the Faixa 2, with an elevator, as mentioned by Rodrigo. We are going to continue to see new platforms of growth through a conservative use of our capital, and with a high level of cash using working capital so that we can have high efficiency and a great deal of security going forward. I would like to thank all of you for your participation, and I wish you a very good day. Thank you.
The earnings result presentation for the second quarter 2019 ends here. We would like to thank all of you for your participation. Have a good day.