Good morning, and welcome to the earnings results conference for the third quarter 2018 for Tenda. We have with us Rodrigo Osmo, the company CEO, and Renan Sanches, the CFO and IR Officer. We would like to inform you that this conference call is being recorded, and all participants will be in listen-only mode during the presentation. Ensuing this, we will go on to the question-and-answer session. Should any participant require help during the call, please press star zero. Before beginning, we would like to inform you that this conference will address Tenda's financial results for the third quarter 2018 and is based on information currently available. Management statements involve risks, uncertainties, and may reference to future events. Any changes in macroeconomic policy or in legislation or other operating results may affect the company's performance. We now give the floor to Mr. Sanches. You may proceed, sir.
A good morning to all of you, and once again, thank you for being with us in the earnings conference call to release results for the third quarter for Construtora Tenda. We are going to begin making some remarks on the main aspects of the results and events of this quarter, and in doing this, we will be at your disposal for questions and answers. In this third quarter, we are pleased to announce that once again, we present consistent results in a period that traditionally is cyclic for the sector. We launched 14 developments in the third quarter 2018, totaling BRL 577 million. We attained BRL 490 million in sales, with 31.5% of speed of sales, reaching the accrued amount of BRL 1.4 billion. We delivered more than 2,600 units this quarter, almost 1,000 units more than in the same quarter the previous year.
We continue to expand our land banks that total BRL 7.8 billion, 24% higher than what was posted at the end of the third quarter 2017, with BRL 1.3 billion in acquisitions this quarter. These sound results have been the source for the growth of profitability at Tenda. The return on equity in the last 12 months reached 16.2%, double the ROE presented in the period of the 12 previous months, a rising trend that began two years ago.
Our adjusted EBITDA grew 70% vis-à-vis the third quarter 2017 to BRL 83 million, and we attained net revenues of BRL 64 million in the quarter and BRL 152 million for the nine months of the year, more than double compared to the same period the previous year. Thanks to these good operational and financial results, we had the corporate credit rating, brAA+, with a stable outlook reaffirmed by Standard & Poor's.
We would like to highlight that this quarter we returned to the institutional capital market, issuing a clean debenture with the ABC Bank amounting to BRL 150 million at CDI + 1.75% at a lower cost and a higher duration than any other. With this, our gross debt ended the quarter at BRL 341 million, with the net debt and shareholders equity negative at 25.1%, a drop of 2.2 percentage points notwithstanding the new issuance. As we look forward, the regulatory and macroeconomic scenario demand attention for the last month of 2018, especially due to the problems of reallocation of the employees retirement fund, the FGTS. This has an impact on the hiring of new development for range 1.5 and 2. Despite this, we think that Tenda is well positioned. We are cash generators, and we are de-leveraged.
The works in execution have a good percentage of transfer, and all of our land will be apt for development for My House, My Life . We believe that our conservative capital structure and operational efficiency will be the foundation to continue seeking the objective of being the company that offers the greatest return to shareholders. With this, I would like to end my comments, and we are now at the entire disposal for questions.
We will now go on to the question-and-answer session. Should you have a question, please press star one. If your question has been responded, you can leave the queue by pressing star two. Our first question comes from Luiz Maurício Garcia from Banco Bradesco. You may proceed, sir.
A good morning, and my first question is about the more competitive environment of My House, My Life . How is it that you expect this to turn out, and which is the scenario for Tenda in the future? The growth margin, well, we're always speaking about a stabilized growth margin at levels below the present one. At present, it is at 37.5%. The margin is of 32%, 33%.
Therefore, I would like to know what you believe that this new scenario will require, perhaps to be more conservative at the company, and when do you think that this situation will become more stable and to move away from this more competitive and disputed environment? Secondly, my question refers to contingencies. When you take away the last project that you have written off, you stated that you have no other contingencies that have not been mapped. Therefore, which is your forecast for other legal and civil contingencies that you may face? And which is the semester level that we could expect going forward?
Luiz, this is Rodrigo. When it comes to the more competitive environment, there are some important factors that we have to consider. First of all, referring to range 1.5, that has been very important for our sales and for our growth margin, with a very positive impact on growth margin. What we have observed this year is that the demand of the range 1.5 will be higher than the funds that we have in FGTS, and this fund will no longer be able to increase its budget for the 1.5 range. Now, this range has grown during the year. The outlook for 2019 is that the competition for resources will be even greater than we observe at present. And of course, this could lead to a restriction in the capacity of selling in range 1.5.
We will compete, but we'll perhaps have to put the brake on production in range 1.5. Additionally, what we have observed, and we have been mentioning this for some time, the funds from the CEF have decreased year- after- year, and we believe that our plan will require adjustments going forward. Now, the only way to do this will be through a revision. We could eventually get to range 2, perhaps. Now, your evaluation is correct. We hope that the company margins will occur at somewhat lower margins that we have delivered so far. But our strategic vision has always been to maintain the lowest cost structure possible in the market. We do have a very competitive cost structure, and the way to reduce the size of the program, in our understanding, is to reengage your parameters and to focus on those parameters that are making money.
If we're not making money, we should leave the program. Once again, we need to be competitive, even in this new context, with more restrictive parameters.
Good morning, Luiz. This is Renan speaking. When it comes to the contingencies, this quarter in the line item contingency, everything was perfectly ordinary. There was no great judicial agreement, and contingencies are highly associated to our legacy projects. Protests take some time until they go through all of the instances, of course, and because of this, we believe that we will have additional quarters with a high level of contingency. Now, when we have contingencies that are more relevant and they become part of our new model, their representation will be reduced because the new model no longer has those same reasons for having the contingency that we had in our old model.
That is to say, delay in work and problems with our contractors. We imagine, therefore, that we will have a healthier balance going forward, and we believe that we will have a greater stability in terms of the line item contingency. Now, what else can we have in terms of legacy when it comes to contingencies, as there is nothing different? We do have some relevant fiscal causes or suits. One of them associated to a period of legacy where we had BRL 400 million because of inflation and the outlook of losing an amount very similar to this. Now, any value that is submitted to judgment will, of course, have an impact on our semesters.
We're not imagining remote or possible losses, but with this level of contingency, we will have to recalibrate our results. We have an estoque, and we're protecting ourselves against any type of labor suit. This is part of our process. Anything that will come out of this problem will cause distortions in the semester. We do believe that there will be distortions going forward, but less associated to our legacy projects and perhaps more associated to our new fiscal regime.
Yeah, that is very good. Your parameter for provisions has been fully clarified.
Our next question comes from Enrico Trotta from Itaú BBA. You may proceed, sir.
Good morning to all of you, and thank you for the presentation. I have two questions very similar to those posed by Luiz. Perhaps we are in a more restrictive environment, and the program will have to undergo adjustments.
But I would like to understand what will happen to your operations, the size of the company, a more effective funding, and perhaps more competition for this funding when we consider metropolitan regions. If you're thinking of entering new cities. You have decided to remain outside of Belém, and perhaps you could clarify to us which would be your expansion plan into new cities and which would be your budget in this new scenario. The second question, which also refers to this new scenario and a faster migration to the range 2 products. Your portfolio is growing, and of course, your portfolio has become ever younger. Now, what is going to happen to your portfolio in the future? Which will be the impact on margins if we presume that there will be this full migration to range 2?
And once again, the level of profit for 1.5 range products tends to be lower. So what will happen if this migration to range 2 does happen in 2019? Thank you.
This is Rodrigo, Enrico. We have always stated that the company had the operational capacity of growing from 10% to 15% a year. The scenario that we have set forth to define this already assumed a deterioration in the parameters of My House, My Life . We were getting ready for this to happen sometime before in the past, and the fact is that there is huge competition in the market, and most of the players are small in this program. Some players work with 400 units. We are working with 10,000 or 15,000 units. We do not have a very large share in the program.
Now we do have a higher quality and execution, and we would be able to continue to grow because of this. Our exit from Belém or our non-expansion to Belém, once again, was not based on funding. We decided that it would not be interesting to enter that city. We have several launches in Belém in the back, and it is our understanding that this is a market that does not have a good return and risk return at this point of time. It is not one of our priorities for the time being.
Enrico, this is Renan. When it comes to our expectation, you are quite right. The 1.5 has a completely different dynamic from range 2. When we sell development, only 3% of the price is pró-soluto.
If we look at range 2, 10% of the price comes to us, 8% when we deliver the keys, which is more risky. Therefore, at present, our operation is focused on 1.5 range, which works very well based on our business model. When this market becomes less attractive or more restrictive, we will return to range 2, and this is part of our business plan. Everything that we forecast in the company in-house has the forecast only for range 2, and the purchase of land is being done only for range 2. Nowadays, we are using range 1 as something beneficial for our business, and we will continue with it as long as it is profitable. Once it becomes less attractive, we will have more sales in range 2. On the other hand, we will also increase our provisions for any sale carried out by Tenda.
We create provisions based on the historical default levels in the last few months. This is a moving average every month. Because of this, our balance is quite protected for the case of non-payments in the future. We are not going to run the risk of bad debts. Once again, we do have good provisions for the case of defaults. If the participation of range 2 materializes, we also will increase our provisions as you observe in the balance at present.
Thank you very much and have a good day.
We would like to remind you that should you wish to pose a question, please press star one. Our next question comes from Luis Stacchini from Credit Suisse. You may proceed, sir.
Good morning to all of you. I have two questions. You spoke about the differences between range 1.5 and range 2 looking forward to 2019.
Let us hear some more numbers, which is the difference in terms of margins that you foresee at present in the operation of these two ranges, and if you believe it would be possible to deliver strong profitability levels above 20%, as you did in the third quarter 2018, if the company operates only in range 2. A second question, if you allow me. I would like to hear more details in terms of the performance share program. The target is defined based on a matrix, based on cost of capital, performance, and much more. If you could perhaps give us some more color in terms of the intervals that you are considering to be able to get to this multiplier that goes from zero to 500%, I believe. Thank you.
Thank you for the questions, Luis.
When it comes to the economic difference between range 1.5 and 2, the great difference for Tenda lies in the following. When we place range 1.5 in certain areas of activity, our sales increase by 30% or 40%. That is to say, many people are finally able to buy real estate because of this. If range 1.5 becomes less representative in our business, temporarily we will have a drop in speed of sales. In practice, this would be readjusted as part of the Tenda model. When we define our budget, we work with a land plot that we can sell in 10 months. In range 2, we're going to work with developments that are marginally larger. This is an important vision to mitigate risk and to optimize profit. We have a higher turnover of our assets by doing this.
In terms of absolute sales volume, there will be an impact in changing from range 1.5 to 2. When we speak about margins, there won't be great differences between 1.5 and range 2. In some of the developments, we did lose in terms of price, the price after we deliver keys, which is a risk we would rather not run. We're thinking about price, which is the price after keys, and range 1.5 does bring us benefits. The difference, once again, will be very marginal when we change from range 1.5 to 2. The great impact will, of course, be in speed of sales. When it comes to return, in the last 12 months, we delivered a return on equity of 62.5%. We were showing the market a normalization of our results in the last quarter. It would be at approximately 16%.
This normalization that we have shown you does not. Well, there is a limitation in terms of the information I can share with you at the company. Performing shares or stock options, if we deliver a yield during a period of three years in accordance with our capital parameters in the company and based on a benchmark, the indicator would be one, and this can vary from zero to 500%. So any significant deviation, or that is very low or very high to get to that 50% would be an absolute event above the cost of capital and with a profitability significantly above what we normally get. This would be the 50%. If it is below the cost of capital or significantly below the benchmark, this is where we would go to the performance shares. This is the mechanic.
And of course, there are several other considerations in this matrix.
Thank you, Rodrigo for your clarification.
We would like to remind you that should you wish to pose a question, please press star one. Please wait while we pull our questions. As there are no further questions, I would like to return the floor to the speaker for the closing remarks.
Thank you very much for participating in our results conference call. We hope to have a fourth quarter with significant challenges. Once again, because of the budgeting, this is what we put in our release and in the presentation. Tenda is very resilient. It will go through these moments. We have an adequate capital structure, and our developments are having a good percentage of transfers, so they do not need to consume cash. Let us go on to the fourth quarter where we have a great deal to do. Thank you very much for your attention.
Thank you. The conference call for the earnings result of Tenda ends here. We would like to thank all of you for your participation, and have a good day.