Good afternoon, and welcome to the Tenda's second quarter earnings conference call. Our conference call will be conducted by Rodrigo Osmo, CEO of the company, and Felipe David Cohen , CFO, and Investor Relations Director. We would like to inform that this conference is being recorded and all the participants will be listening during the presentation. Next, we will start a Q&A session. If you need any help, please press star zero. Before proceeding, let me mention that this conference mentions that the results are Tenda's second quarter 2017, and the currently available information. The information on board involves risk, uncertainties, and may refer to future events. Any changes in politics and macroeconomics and legislations and other results may affect the results and performance of the company. Mr. Cohen, you may proceed.
Good afternoon, and thank you for being here with us today. Tenda has another period and quarter of solid results. We have a record of good sales under the new model with a 20.9% year-on-year growth. Such performance is justified by the good sales performance of projects in the income level 1.5 and strong campaign of the area where we act. Clearly, the low-income market is very resilient. Besides record sales, we have record launches under the new model. The launches volume expanded by 7.6% year-on-year and rose by 50% when compared to the first quarter. It is noteworthy that the net, as always, under the new model reached 29.3%, reinforcing the quality of projects and sales efficiency.
Tenda also recorded a 37% increase in the transferred units compared to second quarter of last year, influencing directly in the strong cash generated this quarter, which totaled BRL 63 million. Another relevant highlight of the quarter was the 13% increase in the land bank, totaling BRL 5.1 billion. The highest level land bank since the implementation of the new model. Tenda acquired 36 phases projects distributed in the regions where we operate, representing a potential launch of BRL 1 billion. Such performance was only possible due to the reinforced structure concerned with the land acquisition and stronger regional focus, without altering the internal metrics to approve land acquisition. As to cancellations, we had a volume of 16.4% of gross sales, a reduction of 3.8 percentage points regarding first quarter 2017.
As already disclosed since the third quarter of 2016, the temporary increase of cancellation volume is a result of the review of unilateral cancellation process executed by Tenda for sales not transferred for a period exceeding three months. We expect to return to a stable level of operations as of the second half of this year. We still have evolution in our main indicators financially compared to the second quarter of 2016. Net revenues come 20.7% with the adjusted EBITDA grew 40.4%, and net income jumped 141.3% of the BRL 20.8 million in the second quarter. As compared to quarters, the profit virtually tripled from BRL 13.4 million to BRL 39.7 million in the first semester of 2017.
The strong cash generation in the second quarter made the company to have a solid cash position of BRL 353.2 million at the end of the period. 12 percentage points ahead of the second quarter last year, more than sufficient to cover our total debt. We highlight that the adjusted net debt on shareholders' equity ratio is negative 6.6% debt position to Tenda is one of the most deleveraged companies in the industry. I would now like to turn the floor to our CEO, Mr. Rodrigo Osmo.
Good afternoon to all. I'd like to talk about some important points on Tenda regarding the market that we've had this quarter. First, I would like to comment on some relevant movements for the release of the migration of our shares to the special segment of B3. As subsequent events, on July 26, we nominated our new board with seven independent members. We had Dulson Boss, Claudio José Carvalho de Andrade, and Flavio Uchôa Teles de Menezes. For the first time elected Mr. José Urbano Duarte, Mauricio Luiz Luchetti, Mário de Mello Freire Neto, and Mr. Eduardo Ferreira Pradal. They were elected the first time. All professionals have prior experience in other publicly held companies and have had executive positions in their careers.
We are very happy with the scope of this new board, which does not change the long-term vision and focus of the company, but it adds extremely relevant experiences to our main strategic decision forum. Finally, yet importantly, I would like to take the opportunity of this forum to communicate the exit of Felipe David Cohen from Tenda, effective as of September 1, 2017. This transition has been worked on for some time. Felipe joined Tenda three years ago and is closing a successful cycle crowned with all the results that we have been presenting. Positioning our company in the stock exchange was part of our turnaround process. Restructured the entire financial area, which was managed by Gafisa when he joined the company and implemented a series of extremely relevant processes throughout this period.
He was vital in building our business project and above all, a dear friend of mine. We wish him great success in his new challenges. When he leaves, I will be cumulating CFO and IR officer cumulative to the position of CEO of the company as of September. Our economic segment remains quite aggressive and for inflation in the interest and so as the matter, we continue with the vision of being the company of market enterprises of the country that delivers the best return to its shareholders. We are now available to answer your questions.
We now will start the Q&A session just for investors and analysts. If you have any questions, please press star one. If your question has been answered, you may leave the queue by pressing star two. Our first question comes from Alex Ferraz from Itaú BBA. You may proceed.
Good afternoon, Felipe. Thank you for your presentation. I have two questions regarding the margin of the company. The crude margin. It's grown quite a lot. I'd like to know what actually led to this growth margin and the land buying. I think it was a quarter that you've managed to increase your land bank quite well. I'd like to understand, is this replicable? Can we expect that for other quarters with the same volume of acquisitions? What has changed in this quarter for the company to have acquired almost BRL 1 billion in spend?
Hello, Alex, and thank you for your questions. I'm going to answer the right margin. We have a great REF margin for this quarter. The great driver for this improvement was the saving in projects that we have been observing. And that's what we've been observing in the margin. And the revenue that we have at Tenda that has part of this REF backlog margin, it's quite short. The turnaround of our products is quite fast, so it is not a good estimate for the long-term margin. Obviously, because we have a fast turnaround of products, the margin tends to fluctuate. In the recent products that have been launched have a satisfactory margin and helped us to actually drive our REF backlog margin.
B ut we follow the same conservative viewpoint that in the mid, long term, we envisage margins that are a bit lower than what we have now, considering market competition, more difficult plots of land to acquire in metropolitan regions, scenario of higher provisioning. The great motivator for this, we believe, is the temporary effect of this REF margin. I am going to give the floor to Osmo to talk about the land bank specifically.
Good afternoon, Alex. Actually, we have had a good quarter in terms of land acquisition, and this was quite necessary for the company because Construtora Tenda is growing in terms of launches, and it does not yet have a land bank that we consider healthy. In our viewpoint, we should be happy if we had in-house all the launches for the next three years. Today, we have for the launches of this year, we have everything in-house. For the next year's launches, we have we said 60% for 2020. We still have some to fill. Last year we acquired less than what we launched.
That was a result of first, the attitude of a company of not devoting so many resources to land acquisition because we had a commitment to pay the debentures with CPs that required BRL 300 million amortization last year. That reduced our acquisition capacity last year. At first, we did not have the appropriate structure for a more aggressive acquisition plan. This year, we do not have this restriction of debt amortization, and we have invested significantly to reinforcing the structure. Our wish we have been working towards this is that we continuously from the next quarters continue having more significant acquisitions than launches so that we reach a level of land bank that we consider healthy.
Okay. Thank you very much.
Our next question is from Daniel Gasparete from Merrill Lynch. You may proceed.
Good morning, everyone. My question is very much on the line of the previous question. I would like to have the view on disbursement for the next quarters in terms of land acquisition and try to understand the cash generation part, the expectations that you have, what you have seen in terms of non-recurrent effects, anticipations, more optimistic transfers. If that has been something specific, something in terms of the speed and/or better positioning. Thank you very much. That is it.
Thank you, Gasparete. As to cash generation in the past quarter, actually, we had a performance that was above our expectations, generated over BRL 60 million in cash in the quarter. This is very much regarding the best performance in the financial cycle. We have been able to reduce mid average term between sales and transfer. An important point to highlight, so as not to create expectations that are not realistic, is that we observed that we transferred this quarter 2,800 units, and we net sales, we had 2,700 units. It was an atypical case. We had a backlog of units to be transferred that ended up contributing to intensifying our cash generation. Looking ahead, we continue with the expectation of remaining at this positive level of cash generation.
At a pace that will be a bit smoother than we have had in this quarter.
Rodrigo, I think a reason for us to generate less cash is the point that you brought up. We must have a growth in terms of cash disbursement for acquisition of land or land acquisition. But on average, we had the number for that should decrease. We should reach BRL 45 million-BRL 50 million, more or less, by mid-next year. We should see a speeding up in this area within Tenda.
Wonderful. Thank you very much. Just to get a follow-up of what Felipe said regarding this pipeline, the volume that is in Tenda, but do you still have backlog units to be transferred that could favor this short-term cash generation or not? Or was it somewhat specific?
It's specific as the effect of working capital. It was a reduction of a period that generated cash that tends to last long but without any disruption. We thought about backlog, but actually we did not have a big backlog of units that had been sold a long time that had not been transferred. What we've had in the past two quarters was the reduction of time between sales and transfer. It's a gain of efficiency that actually allowed us to sell 2,700 and transfer 2,800 . So actually, we should transfer more than we said. So it's better that because we released working capital gaining efficiency, and we expect to operate at the same level without new releases, marginal release of working capital.
Okay. Thank you very much.
Our next question is from Luiz Garcia from Bradesco. You may proceed.
Hello. Good afternoon. Two questions. First, Rodrigo, you've mentioned this land acquisition, and I'd like to go into the severance payment of FGTS. It's an important point in the market. Now the companies are speeding up the land acquisition considering this scenario. It would be interesting for you to address not the challenges. Well, we know the challenges of FGTS in the market, but you should approach possible solutions regarding talks with the Caixa Econômica Federal, Ministry of Cities. Some things have been implemented, and others have not. How do you view this aspect of the government severance indemnity fund, the FGTS, and what results can actually help reduce the risk? And there is another thing. Well, today, there are lots of people on the market speculating on the exit of the CFO.
Felipe, I don't know if you can give some more concrete point so that this exit does not generate some kind of speculation that ends up having a negative connotation and affect the company in the short term until the rumors disappear. Tenda is not a large size company, cannot have a compensation of the board compared to large size companies. Perhaps the stock option program, I don't know if it is related to that. Maybe could you give, perhaps Felipe himself could give us some more concrete material positioning so that this exit does not generate rumors in the market as I have seen happening.
Well, only easy questions, Luiz. Thank you.
Okay, everybody wants to answer your question.
Okay. For the FGTS, my view specifically is that the period in which the FGTS had no restrictions, budgetary restrictions for the current year and ahead is over. I think there were two points to this. The withdrawal of inactive accounts that closed at BRL 44 billion, and that is actually BRL 50 billion that we consider people that, motivated by their inactive accounts, withdrew funds that could have been withdrawn previously and never had. We believe that we actually consider that BRL 50 billion. Then our interest rates has a greater impact to that and in the liquidity of the fund. What does that mean? The government will have to prioritize. They have to understand what are the segments where they should focus the FGTS fund.
Why do we not yet see any signals that concerns us from the standpoint of restricting the size of the company from now on? First of all, because our interest is quite small in this market. We launched 10,000 units, and Minha Casa, Minha Vida had 320 million units. We had 3% of market share. Minha Casa, Minha Vida program. Our game is somehow not following the market, but actually getting market share as we become more efficient. This is the game of the large companies. UNICA, ours. Another reason is because we believe this is something. We have reason to believe in this, that the government being forced to prioritize fund allocation.
The priority would be large constructed companies to the detriment of very small companies that belong to individuals and that have quality issues, do not have a balance sheet to support any kind of risk on the execution and cannot provide maintenance. We are a large company. They would prioritize allocating resources where housing deficit is more urgent and where the housing issues are more critical. Those are the large metropolitan regions, which is precisely the target market for Tenda. It would prioritize allocating resources in new property, not secondhand. They generate employment, actually withholding of FGTS, et cetera. We understand there are many protection layers within the budget of FGTS before budgetary restrictions to lead us to have to reduce the size of our operations. Obviously, FGTS is the most important medium for the housing industry.
We follow that quite carefully and closely. Today, with the information that we have at hand, it does not lead us to changing the direction of our management. With the exit of Felipe, I am already speaking for himself. He can add if he wishes. I believe that his exit, of course, it was a pleasant surprise for the market because we have communicated this just now. At some point, the market becomes aware.
We have to be careful as to how the information is disclosed so that people do not receive this before the newspapers. That was something we have been working within the company. It is a point that is absolutely personal, related to the end of a very successful cycle of Felipe in here. As a reminder, Felipe, when he joined, we had no financial department, and the financial department today is all structured. The company is listed in the stock exchange, and it has a healthy capital performance, and that is a very successful journey. Due to reasons that are not pertinent, he is moving on to another challenge. I think the concern that could actually be conveyed is what does this mean to others? Is this a sign that something is happening? Not at all.
I'll speak for myself, and I'm sure that the whole senior management and regional directors of the company have the same vision as I do. We still see great value to be created within Tenda. We are extremely motivated to taking part of this value generation and a vision both for the company and personal ones that are long-term. Speaking for myself, and certainly all the other senior managers, nobody here is thinking about taking a next step to other things. We are very committed to Tenda.
Okay. Thank you.
Reminding you that if you want to ask questions, you just have to dial star one. Please wait while we collect the questions. The next question comes from Nicole Hirakawa from Credit Suisse. You may proceed.
Hello, good afternoon. I have one going back to the cash generation. You had a strong land acquisition in the quarter. We look a lot at net land, and that dropped about BRL 20 million. If you could comment on that a bit. Have you made some refinancing of land refinancing you bought cash or something like that? The other point is on the margin, on REF margin, that increased quite a lot quarter-against-quarter. What can we imagine in terms of growth margin for the short term, some convergence for the next level of what we see in the REF margin or just the 12 months? Thank you.
Hi, Nicole. The first point regarding the REF margin, it has a clear difference regarding growth margin. Whilst we report REF margin, it does not incorporate some relevant expenses. Fees and co-op fees do not affect REF margin. Disbursement with incorporation, PDT, post-delivery service expenses. The trend is to have a reduction of REF margin as it is incorporated to our results. As I mentioned previously, we do not see REF margin as a good predictor of long-term margin. Obviously, it reflects the current products that we have in our portfolio from cost to be focused. It was mentioning that our income to take is quite low regarding the volume because the turn is quite fast. So we have a very short-term trend.
Two years ago, we talked about the fact that we wanted to reach a level between 28% to 30% of margin. We clearly have been able to exceed this level consistently over the past quarters. Today, we are more confident of actually projecting margins at a level slightly above 30%. At the current scenario, 28% remain behind, but not much more than this. As to land acquisitions, we in fact now have a better balance of land banking various markets where we have operations. We projected an increase of the percent of exchanges in land bank when we compare Tenda with the major competitors. So we have a mix of cash payments well above the market. This is considering the position Tenda acting in large metropolitan centers.
We have little bargaining power in this sense, and we have a greater burden in terms of cash in our acquisitions. But we seek to minimize this effect, negotiating long payment terms. Another way of doing this is by linking the payment to the approval of the project. So we have certain mechanisms to minimize exposure when we perform land bank in cash. That's what we have been doing since the beginning of the new model, as mentioned, and we had a performance that we consider weak last year, below our expectations. That was an attention point. We turned the year with a market that was concerned with the land bank volume we had. We've been able to respond to that with the measures Osmo mentioned in the beginning. We follow with a very sound pipeline.
The second quarter was the first sign of the results obtained, and we maintain a pipeline that is quite strong. We believe that this year our performance will be very good in this repositioning of our land bank and even considering Permuta do Terreno.
Thank you, Felipe. Good afternoon to you.
Our next question will be from Marcelo Motta, JP Morgan. You may proceed.
Good afternoon. Two questions. I'd like you to comment on the level of G&A for the first quarter. You have 5, 7, you had a bit G&A seems to be controlled. If perhaps this change in the executive can have some effect on the, or something on the stock option, et cetera. Second part, if you could talk about tax result this year. This quarter, you had it below the average. What do you expect for the level for the rest of the year?
As to taxes this quarter, we actually had an expense that was quite a specific one that ended actually having deferred taxes. The structuring of various projects within RET, and that led to the reduction in regards to tax. What's important to state that our total effective rate of tax is 4.1% in the accrued of the year, so the expectation that we have is to deliver by year-end. The tax line suffers fluctuations over the year, and this mix between projects within RET and outside RET is more in the long term, to stabilize at a level close to 4% in terms of effective rate. This encompasses not only social charges and income tax, and also PIS and COFINS. Do you want to say something, Rodrigo?
Felipe has not changed any perspective at all. Selling and G&A. And we believe that with the selling increasing regarding growth sales now, our expectation is that it tends to stabilize. And this based on what we have been seeing since the first quarter of this year. The actually conditioning level stopped deteriorating, and the greatest determinant of marketing is expanding, and sales is the conditioning level. And this should actually make the seven growth sales to be more stable from now. As to the G&A, we have two components. One which is the G&A that is recurrent to operate in the six metropolitan regions where Tenda is present today, and this should not grow more than inflation.
As we have more scale to gain in those regions, we should see some gains of scale from the standpoint of G&A by launch, G&A growth, sales, et cetera. But the company is also creating a certain investment of G&A to prepare for a geographic expansion. This leads us to reinvest in the structure before we acquire land, et cetera. Required revenue per se, our G&A net solution grows above inflation year after year now, without this representing a deterioration in major scale. Actually, much on the contrary, you should gain some scale for preparation for geographical expansion.
Thank you.
The next question is from Raul Grego from Eleven Financial. You may proceed.
Good afternoon. I would like to understand. You have a quite comfortable leverage level in regards to the market, and land acquisition that is speeding up. It is possible to see speeding up the indebtedness to have greater acquisition of land to see a sustainability that is more of long-term, or don't you think about speeding up the land acquisition? Another question would be new marketplaces. Would it be reasonable for us to think that you would go into new capital cities or the focus would be more those six that you currently have operations on?
Hello, Raul. Thank you for your question. As to the leverage land acquisition ratio, we don't see a direct relationship between the two. Our cash has been growing, and we have great generation, so we can speed up land acquisition with the business cash generation. We actually have a capital structure positioning that is very de-leveraged, and it contributes to de-leverage our structure in the company. We recently have had changes in the board. All the members were reappointed, and this is a discussion to be debated within the board as to what would be the optimal capital structure for the company to pursue in the mid, long term. Today, we have an inefficient structure because we still have accrued losses of BRL 100 million considering the past of Tenda to be able to pay dividends and cash generation.
We have to offset the accumulated losses. So this is a debate that will occur naturally within the forthcoming months. As to new marketplaces. Today, concretely, we have expected launch by year-end, beginning next year, the operations in Curitiba. We have been analyzing three other marketplaces to date, not the case to mention which they are, and depending on the end of the analysis for 2019, they may be a new focus in terms of our geographical operations.
Thank you very much. Great.
Once again, to ask a question, please enter star one. Please wait. To ask a question, please dial star one. To remind you that to ask a question, you just have to dial star one. We have no more questions. We would like to give the floor to the speakers for their final remarks.
Well, I would like to take the opportunity to thank all the Tenda team for the way I was welcomed, warmly welcomed here. It was a very special time to be part of the history. I have been working with wonderful people here, very competent. I feel very grateful for the opportunity, for being part of the success of the company, and I wish everyone great success. Thank you very much.
Thank you. This concludes Tenda's teleconference. You may disconnect your lines at this time, and have a nice afternoon.