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Edited Transcript of MRVE3.SA earnings conference call or presentation 13-Nov-19 2:00pm GMT

Q3 2019 MRV Engenharia e Participacoes SA Earnings Call

Minas Gerais Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of MRV Engenharia e Participacoes SA earnings conference call or presentation Wednesday, November 13, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eduardo Fischer Teixeira de Souza

MRV Engenharia e Participações S.A. - CEO & Director

* Rafael Nazareth Menin Teixeira de Souza

MRV Engenharia e Participações S.A. - CEO & Director

* Ricardo Paixão Pinto Rodrigues

MRV Engenharia e Participações S.A. - Chief Financial & IR Officer

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Conference Call Participants

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* André Chaves Mazini

Citigroup Inc, Research Division - Assistant VP

* Elvis Credendio

Banco BTG Pactual S.A., Research Division - Research Analyst

* Gabriel Mosquera Simoes

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Luis Guilherme Braga Stacchini

Crédit Suisse AG, Research Division - Research Analyst

* Marcelo Garaldi Motta

JP Morgan Chase & Co, Research Division - Research Analyst

* Nicole Inui

BofA Merrill Lynch, Research Division - VP

* Victor Tapia Migliorin

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Wilfredo Jorel Guilloty

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning. Thank you for holding, and welcome to MRV's Third Quarter of 2019 Results Conference Call. Today, we have with us Mr. Rafael Menin and Eduardo Fischer, CEOs of the company; and the Chief Financial and IR Officer, Ricardo Paixão. (Operator Instructions)

Now I would like to give the floor to Mr. Rafael Menin, CEO of MRV. Sir, you have the floor.

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Rafael Nazareth Menin Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [2]

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Good morning, everyone. Thank you again for taking part in our call. Well, I would like to highlight certain important points which make us very optimistic in relation to the future of the company and the market.

I would like to say that we have a unique geographical position in the market. We are at 160 cities in most of the states in Brazil, and this is where we have a potential market of over 300,000 households per year. It is an immense pie, and therefore, our product has a share of 20% of this market. For us to have this 20% market share, we need to broaden the scope of income bracket of the population that we aim at, so we decided to act on the base of the pyramid and also in the segment 2 and [SBTL]. So we have around people with an income of BRL 10,000 to BRL 20,000 a month.

Our market also adheres to this new interest rate scenario, a reduction of installment and to Minha Casa Minha Vida. All of these will enable us to grow in the future. We have made a very big investment, BRL 600 million, and this year, we expect to invest BRL 700 million. But this kind of investment positions us in a unique position to serve this new real estate market in Brazil.

Another point which is worth noting is that MRV has been demonetizing the economic products. If you know our projects and works, you will see we have a differential because we sell at a fair price. Our average price is BRL 160,000. It's a very high-quality product. The perception of design, technology, leisure activities and spaces really position us at a differential within the market. This will therefore enable us to take on a bracket with a higher income with no major effort. So 2 years ago, we started thinking of products in our land bank to broaden our scope in this market. This investment has already been done. But -- and now we're going to start reaping the fruit of the efforts that were started 2 or 3 years ago.

Another very important point is that this new movement that the Selic rate may be at 4%, 4.5% will change broadly the interest rate in the real estate market. We have already seen this. Interest rates were at 11.5% 2 or 3 years ago. It has been dropping every quarter, and there are banks offering SBPE interest rates at 9% -- or 6.9%, which is very competitive and very similar to the interest rate offered at Minha Casa Minha Vida. Especially, segment 2, the interest rates are very similar and subsidies are small.

Another aspect is that LTV has been above the market of Minha Casa Minha Vida. It's flexed to 85% in LTV, and Minha Casa Minha Vida LTV is 71%, 72%. So at the top of segment 2 and segment 3, SBPE in certain conditions are better than the entire market of Minha Casa Minha Vida.

And the IPCA is also another important movement. Caixa Econômica was the first bank to open this line. We believe that in the short term Caixa will increase the commitment of income to 25%, and this financing line and credit line will be more competitive. It's our dual-fuel car, we would say. There are many clients in our portfolio that could choose SBPE/TR, SBPE/IPCA and also Minha Casa Minha Vida. This is very positive. The client has the option of 3 different kinds of credit and funding. And if we think that SBPE/TR in interest rates can get at 7% and there are banks practicing 9% in special conditions, that maybe 7% will be the new normal. And IPCA at 25% of the income commitment, this will be even better.

The strategy that we planted 2 or 3 years ago has now proved to be a winning strategy. And I believe that looking to the future, we will serve this new Brazil very well. We hope we have a country with interest rates which are lower, inflation rates that are lower in the long term. So we are very optimistic.

[Leandro], this is not only a photo of the moment, but we think of the [film] that's coming. We have an addressed market which will be much higher, and our plan is highly doable. And we are very confident that all these preparation, the land bank dispersion, investments in tech -- so experience, digital, technology, everything, that lots of good things were done. And from now on, we'll be serving the market well.

Another important highlight is the gross margin. Our gross margin dropped. We have operational excellence. This has been going on for a couple of years. We have a very low variation in performance quarter-to-quarter. And I would say that in the last 4 quarters, we have lost gross margin, arriving at 30-something and now 29.5%. We have given the main reasons. Some of them are outside our control: Minha Casa Minha Vida, the financing bank reduced LTV, it's tougher to obtain credit. There has been a change in the social factor, so that has an impact in the lives of clients. This will not change. It's the rule of the program -- of the policy.

And part of this gross margin can be explained by the effort that we are having in increasing the quality of our products like solar panels, larger leisure facilities, landscape, Wi-Fi networks, safety networks. We have done a lot of things in LTV in order to demonetize our products compared to Minha Casa Minha Vida. In the first moment, this obviously pressures -- pressurizes the margin because Caixa Econômica when they assess the real estate property, they take a photo of the past. And to the extent that we have been able to prove to Caixa that we cannot compare our products -- they cannot compare our product to Minha Casa Minha Vida, the standard property, Caixa will be improving and has been improving more compatible assessment, evaluations of our products. And therefore, with our bigger apartments, we have increased the sales price, and the dynamics are likely to improve.

And the GDP next year will likely be better. The confidence index also is likely to improve. So we believe that next year -- as of next year, our pricing will be better than what we had in the last 12 months.

And lastly, we see 2 movements in the last 24 months. The first one was that we increased the aluminum sheet with up to 90%. And we also have changes in our manpower. In a very short period of time, we have made many important learnings. This curve has already happened. And what we see is that these new projects that are coming, they are performing better and in the medium run, we will be able to reduce costs and build efficiency in production. Therefore, having said this, gross margin will move sideways for the next quarters in the short term. But at some point, it will start picking up, and we will have gross margin back to 30%, 31%, maybe even 33%, which we think is a good level for operational efficiency, taking into account the size of the operation.

Another important thing is that our product is being accepted very well at good high rates. We have included [Shiba] has been -- has a leasing rate which is higher than we expected, and we expect to end the cycle of Luggo, which is to sell these 4 projects, 2 in Belo Horizonte, 1 -- 2 in Curitiba and Campinas and Belo Horizonte. We will be selling our [FI] as announced. FI is being marketed, and we're already closing the cycle, which we think is very important.

And we have a number of projects working. Luggo is going through exponential growth period. We have 7 to 8 projects. In 2021, we have 20 projects. And it's a product that we think is unique. So we'll be able to offer an extremely modern high-quality product with a leasing value at BRL 1,500, which is a product we see -- we do not see in the market. We believe that this will work, our application platform, which is Minha Casa Minha Vida, IPCA and now Luggo.

So we are very optimistic. This has proved that 2 or 3 years ago, we did what was right, and we will be the company that will be the best surfer in this new market where we see an employment rate getting better and interest rates getting lower.

And I will now give the floor for the other CEO to give the indicators.

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Eduardo Fischer Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [3]

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Thank you, Rafael. Good morning. I would like to give you some financial margin information, 15% [enrolled]. The net sales is 19% of these products. We also achieved the lowest volume in the last few years compared to 2018 and 51% differently from the -- these 9 months.

In terms of expenses, innovation and technology, which is a high volume of revenues, has increased. Our net operational in this quarter is 2.2 percentage lower than last year. As a result, our return, i.e. ROE, is in the 12 months compared -- in the 3Q of '19 up 3 percentage points for the same period of 2017 (sic) [2018].

To finalize, I would like to highlight the payout of extraordinary dividends as per announced in [GOE], at the General Shareholders Meeting. We paid out BRL 328 million, which is BRL 0.74 per share, and extraordinary will be paid in 2 different dates in 2019. The first payout is BRL 0.37 per share 14th of November. And then for -- the second part will be paid this year [timely]. So if we take extraordinary dividends and mandatory dividends, this will mean BRL 1.11 per shareholder if we divide this according to the price of the share. Within the last period, this corresponds to a strong payout.

I would also like to say -- I'll give the floor to -- back to Eduardo, and then we'll have questions-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Mr. Gabriel Simoes from Itaú BBA would like to make a question.

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Gabriel Mosquera Simoes, Itaú Corretora de Valores S.A., Research Division - Research Analyst [2]

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I have 2 questions. The first one has to do with the primarization of manpower. To what extent this can be achieved? Because we maybe have not looked at this very clearly. How can it be responsible for reducing the company's margin, which is something I do not understand very well?

The second question is the land bank which represents over 20% of the company, which is above the Minha Casa Minha Vida rate. And looking at the land bank information that you gave us through the quarter, 11% of the land are for units above BRL 200,000. So how much time do we have before we see this new scenario of the company, which is launching units higher than Minha Casa Minha Vida?

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Eduardo Fischer Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [3]

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Gabriel, this is Fischer. First of all, concerning primarization, let me give you more context. Within our consulting concrete factories, we understood that to have this primary manpower within MRV in the medium term, it brings increased quality and lower costs in the medium run. And as Rafael said, we have a learning curve to achieve. It takes one entire cycle to be able to meet the standards. This is natural. But yes, it's happened. We started in a major urban center. We went through this cycle. And now in the second cycle, we achieved the efficiency we were expecting.

Rafael highlighted is that we grew very quickly in terms of the implementation of the concrete walls in other cities, especially in inner states. This translated in the growth of primarization. And because labor now costs 50% of our total cost, this inefficiency or lack of full efficiency in the first cycle, which is natural, dilutes this number and translates in this inefficiency rate that we still have to overcome. To the extent we move towards the second cycle, we have seen and this -- you can see our productivity index can ramp up. It has got a little bit worse, but now it's better. We are able to see this efficiency being attained moving forward towards standard. So that's -- concerning the number of people, you will see headcount is no different. What we have from now on is efficiency gains. And as this takes place, there will be an improvement in our cost line and an improvement of the margin.

Concerning the land bank, it's BRL 200,000, more than Minha Casa Minha Vida, it's different according to the city. What I can say is that our land bank today is very much attached to what Rafael said, which is this new mechanism of costs and interest that we have in Brazil now. What we see now for the future and that -- what we gave disclosure of is a company that will have less exposure to the workers' compensation fund and more exposure to the market. And within this land bank, I would say that most of it already complies with this. In this new scenario, part of this land bank get the clients that is dependent on subsidies. And also, we take a client that is able to operate in other market offerings.

So looking at the future, all this around the workers' compensation fund gives us a privileged way of working. We have never lived through this. Our history has not happened. Especially for our segment, we are very optimistic, and around 50% of our land bank is already able of working in this new dynamic.

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Operator [4]

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Our next question comes from Luis Stacchini, Crédit Suisse.

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Luis Guilherme Braga Stacchini, Crédit Suisse AG, Research Division - Research Analyst [5]

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I have 2 questions. The first thing is concerning MRV. We have seen that the company has been acknowledging the income level higher than the sales level. We see that the backlog has dropped and strong production. I would like to know what is your strategy in order to readapt the speed of production to a sales period or time frame that is more compatible? Or is this strategy to speed up sales? And what is your strategy to this end?

The second question is that for the sales, can you -- do you have any more flavor on this in terms of the gross margin? What is the ceiling for the acquisition of the funds? Are you expecting a higher volume of operations until the company has a better idea of what the margin will be with more guidance from the market? Could you give me an idea of when this might happen?

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Ricardo Paixão Pinto Rodrigues, MRV Engenharia e Participações S.A. - Chief Financial & IR Officer [6]

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Luis, this is Ricardo. Okay. Concerning income, what happens

(technical difficulty)

first, and we will be increasing it in a sense in order to wait for sales to pick up.

In terms of the liquidation of the offer to keeping the funds, the liquidation within the month of November, but I would prefer to show you the gross margin and net margin and then the liquidation of the fund. But it's a margin, and that margin which is similar or higher than what we have sold we have already disclosed.

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Luis Guilherme Braga Stacchini, Crédit Suisse AG, Research Division - Research Analyst [7]

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Okay, Ricardo. Do you think in terms of income from what -- if the idea is to keep the cost of production, is it okay -- does it make sense that there will be a burn of cash which would be higher because of the part of the project which will not be as well sold as the rest? Or do you see -- or don't you see any risk in terms of revenue?

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Ricardo Paixão Pinto Rodrigues, MRV Engenharia e Participações S.A. - Chief Financial & IR Officer [8]

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Let's see. In terms of risk, this has not been on our radar yet. In our analysis, we do not see this. And cash has been impacted by a production which is higher than our net sales and transfer. So we don't think that we'll get any serious -- more serious in terms of cash -- in terms of affecting the cash.

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Operator [9]

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Next question comes from Victor Tapia, Bradesco BBI.

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Victor Tapia Migliorin, Banco Bradesco BBI S.A., Research Division - Research Analyst [10]

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Concerning the SBPE in your sales, it has been gaining a market share across all of your sales. Could you give some more color on this? How have the transfers taken place in the PCA (sic) [IPCA] credit line launched by Caixa Econômica bank?

And the second question, concerning the average income bracket which will probably gain more share at MRV. You say that -- more or less that the demand is focused in the Northeast and the Southeast, where you have 40% of the land bank which is prepared to be used. Is there any concentration of the land bank in this region, concerning that the largest demand is in the Northeast and Southeast? And what is your strategy for attacking, so to speak? Are you going to start by a specific region? Or are you going to measure all regions? How are you thinking about this in terms of this new segmentation of the market?

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Rafael Nazareth Menin Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [11]

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This is Rafael, Victor. Concerning IPCA, what have we noticed? Income above BRL 3,000 is higher than our TR. And if this rate goes to 25%, we expect a gain which is significant. Therefore, this financing line will be here to stay for the meanwhile. It's only Caixa that's doing this, but the private banks are likely to do it for a number of reasons. Because it's very competitive, it's becoming increasingly more relevant in our sales.

But before, there was a rupture. You had a market, Minha Casa Minha Vida, and you had a very high step to the next level. Now that step is no longer there. We have a zone which is intermediary, which is even eligible to qualify for the 3 possibilities of financing. So this increased option, in an interview for Valor -- with Valor Econômico newspaper, it's like a dual-fuel, bi-fuel vehicle. You can reduce -- if the interest rate reduces on this side, you can change -- it's like changing fuel within a hybrid car. So we have the possibility of financing with 3 lines. This is wonderful, and we believe this will grow even more.

If interest rates drop, if IPCA goes from 20% to 25%, these gray lines will grow very, very much. And we've read reports that analysts have said -- and they will be impacted by this new cycle of return on interest. What we see here at MRV, because of our size, the land bank, our geographical presence, we'll be the company that is the most one to be impacted in this new scenario.

Concerning the land bank, I can't say that this strategy is responsible, but the regions -- all of them, all the metropolitan regions, we have this -- 2 years ago, this was when we started. We have increased our land bank to be able to meet income brackets which are higher. And because we have a very large land bank for Minha Casa Minha Vida, naturally, the effort for purchasing land banks is more focused for clients -- with clients with an income BRL 4,000 to BRL 10,000 per month. In the medium run, we expect that in VGV, the SBPE products will be responsible for 30% of our portfolio, and the Minha Casa Minha Vida 30% of the portfolio and this gray area to 40%. MRV, taking into account SBPE and this gray line, which can be met by SBPE and Minha Casa Minha Vida, will be exposed to 60% as a market solution, which is very important if you think of a long life for a company that will go to 60,000 units per year, which is very, very healthy for the company.

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Operator [12]

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Our next question comes from [Paolo Picardo].

[The translator cannot hear this question.]

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Unidentified Analyst, [13]

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I would like to know if there is any chance for more operations such as the incorporation in the U.S. assets such as [LOG 3].

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Rafael Nazareth Menin Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [14]

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I'm not sure I understood your question. I will speak of AHS. AHS is -- we're still in the process of building the model. We have accepted most of the suggestions made by investors, and I believe that you have a unique model for the capital market. And we think this is a winning proposal for [VMV]. And then we took a step back, and we also have very good suggestions that were incorporated at the moment of disclosure. And this will be -- what we will do is to disclose the new governance aspect and I believe that all of this flexibility to give voice to minority shareholders. I believe that minority shareholders have had an important weight. They almost designed the proposal that will be discussed with the shareholders. So we're very confident that we will be successful in approving this transaction, and the relation with AHS will be very advantageous for the company in the long run.

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Operator [15]

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[The audio is not coming through for the translation.]

Our next question comes from Jorel Guilloty from Morgan Stanley.

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Wilfredo Jorel Guilloty, Morgan Stanley, Research Division - Equity Analyst [16]

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I have 2 questions. Have you identified several factors that impacted the gross margin? You have material costs, social factors. I would like to understand better. What -- which one of this factor had the largest impact? Was it a specific one?

And my second question is what do you see in terms of cash generation? You see that the first -- the third quarter was weak. I would want to know what do you think. If this will go back to another level, in general, what do we need or should expect to move forward?

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Eduardo Fischer Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [17]

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This is Fischer. Okay. Your first question, gross margin, yes, this has been affected by all the factors that we have seen. If I were going to give a weight to one, is that what we have is -- it's in our hands to go back to the margin that we had outside the external factors. This is what pressured the margin.

Concerning cash generation, our cash generation occurs automatically because, in September, we had a very high impact of these transfers that -- to a part, and this affects our cash generation. However, we will see if this will happen -- I believe that in 2020, there may be a rupture that was generated in the company. So I don't see an important thing that may happen. We generate cash according to our nature. We can use this. We can go back to our normal operation in 2020 as well.

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Operator [18]

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Our next question comes from Nicole Inui from Bank of America.

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Nicole Inui, BofA Merrill Lynch, Research Division - VP [19]

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My first question is concerning the competition environment. How do you see the purchase of land? Are there regions where -- that are becoming more competitive? Can you say anything on this? And how about the impact of the cash transfer? How can this impact the fourth quarter? Can you see this?

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Ricardo Paixão Pinto Rodrigues, MRV Engenharia e Participações S.A. - Chief Financial & IR Officer [20]

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Nicole, this is Ricardo. Thank you for the question. Let's ask -- about the cancellations determinations, because we took away the insured sales in September and then we go -- went back to the past, because the time of the transfer and the sales is short term, we don't believe this will be very negative on the termination rate.

In terms of the land, we see some competition, especially in São Paulo, in the city. And I would like to highlight, because of the distribution of MRV geographically, leads MRV to have a concentrated competition in a very small number of cities. And in the number of the cities, we see the competition for land bank is very small. The second point is, because we already have a land bank that was formed 2, 3 years ago and we have over 50 billion in -- many thousand units, we are prepared. We are not buying the land bank now to launch the product. We already have the land.

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Nicole Inui, BofA Merrill Lynch, Research Division - VP [21]

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This is just a follow-up. In terms of land bank, do you think the rate for purchasing will go down? Or will it be at the same rate?

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Ricardo Paixão Pinto Rodrigues, MRV Engenharia e Participações S.A. - Chief Financial & IR Officer [22]

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Nicole, this has increased compared to what we have already seen, especially in SBPE and Luggo.

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Operator [23]

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Our next question comes from Marcelo Motta, JPMorgan.

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Marcelo Garaldi Motta, JP Morgan Chase & Co, Research Division - Research Analyst [24]

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I have 2 questions. If you could go back on the types of products that you have commented just to see if I understood this correctly. The ones which are high quality, higher technology, are you changing them in terms of land? Are you incorporating it to a new land? Or what is your idea? Is there a change in terms of the construction, of layout that may be done? And when you speak of picking up purchases for land bank, do you expect BRL 800 million, BRL 900 million per year? As in 2018, you mentioned BRL 600 million. You expected BRL 700 million for this year. Is this pickup that will indicate a disbursement of cash or not necessarily?

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Unidentified Company Representative, [25]

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What we said is that we have 2 products specific to a market segment: segment 2, had an income of BRL 2,500 and is a group that goes to Minha Casa Minha Vida; and the group which is exclusively under SBPE, which are units of up to BRL 300,000. And as we always say, the building technology is the same. We do this -- it's different where, in SBPE, we can use cash and private banks, as we have done, okay? But the building model is exactly the same. The apartment has suites and leisure facilities, more parking space on some occasions, but the products, the execution technology is the same.

And the product line, you can see it's more expensive, the metal work. Our supplier is, used for this case, a level which is higher than Minha Casa Minha Vida, but we have a product that has better features in SBPE. And today, we have around 12%. We're going to go to 30% of our portfolio of products that can be sold by Minha Casa Minha Vida. This product is the top of segment 2 and top -- and segment 3, but also through [LBPE]. Because of the reduction of the interest rates, we'll have an increase to 25% in terms of the capacity of client financing because of his or her income. We will be able to sell the same product for the top tier of Minha Casa Minha Vida or SBPE. I have used an analysis several times, which is the hybrid car. You can either fill the tank with ethanol or gasoline. So we can already change -- People can go from one to other and so can we, and therefore, this will give us more flexibility. To have this flexibility in such an important segment, which is 30% of our portfolio, is very significant. And why is this possible? Because our product Minha Casa Minha Vida is different than the traditional Minha Casa Minha Vida. The investments that we did in terms of products, solar energy, everything has been putting the MRV product in a unique class in the competitive market for Minha Casa Minha Vida.

Concerning the expenses of land bank, what we see is that we have a lot of lands that we paid -- that we bought last year, expensive units, BRL 150 million in land. And next year, we're going to buy a little bit more than we bought this year. But looking at the annual disbursements, it's probably going to be around BRL 720 million. It's more than we have spent, which is BRL 600 million, per year. There will be a growth but in line with 2017 (sic) [2018]. It's important to see that the company is growing. So we want to arrive at 6,000 units per year. Therefore, naturally, we have to invest in this area. But this will be in due proportion with the income of the company. I understand that you want to project our cash burn, but I don't see there will be percentual modification. I don't know if I made myself clear.

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Marcelo Garaldi Motta, JP Morgan Chase & Co, Research Division - Research Analyst [26]

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Yes, you are very clear.

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Operator [27]

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The next question comes from Elvis Credendio, BTG Pactual.

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Elvis Credendio, Banco BTG Pactual S.A., Research Division - Research Analyst [28]

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I would like to hear from you if you could, which is -- what is the expectation to pick up launches? And with -- a follow-up. Because Minha Casa Minha Vida has been normalized and concentrated in Caixa, what is your expectation with this amount that has been retained in the previous quarter? Will this be reallocated?

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Unidentified Company Representative, [29]

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I don't understand your question very well. The first one, you asked about the launches. We have a forecast for a launch, which is very strong for the fourth quarter. Traditionally, this is where the market launches more businesses and transactions. So certainly, we believe that this will be our strongest semester, just as in the previous years. And when we launch more, we sell more, and this obviously strengthens the following quarters. The client fee transfer which has been done, made an effort towards it. The liabilities that we had in these quarters, we are transferring it to something that is commercialized now. We hope to go back to the standard level. I hope I understood your question.

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Elvis Credendio, Banco BTG Pactual S.A., Research Division - Research Analyst [30]

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Yes, that was it.

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Operator [31]

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Our next question is André Mazini from Citibank.

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André Chaves Mazini, Citigroup Inc, Research Division - Assistant VP [32]

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You had somewhere which said that you can see that -- how is the volume of sales work for this quarter? And in AHS, could you give us more flavor in terms of the feedback process that you gather from the shareholders to incorporate?

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Ricardo Paixão Pinto Rodrigues, MRV Engenharia e Participações S.A. - Chief Financial & IR Officer [33]

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The sales -- conventional sales, because we don't have the insured sales for September, I can't give you precise information, what would have happened if we went back to the former scenario, how much there is there. I can give you a projection for the future. As I explained in the previous question, with Nicole I believe, because we have a time span between the sale and the transfer and that is very short, we expect a termination rate which is much lower in comparison to the traditional sales. So you can estimate that what we are saying is sales reported in this quarter will be fully transferred and then being same volume of insured sales.

In terms of AHS processes, we have -- as Rafael said, our minority shareholders made fabulous contributions. I can't give you more details on this at this point. This will be made public at the shareholders' assembly, which will be carried out probably at the end -- the beginning of December.

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Operator [34]

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We are now closing the question-and-answer session for the final remarks. Mr. Eduardo Fischer, please, you have the floor, sir.

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Eduardo Fischer Teixeira de Souza, MRV Engenharia e Participações S.A. - CEO & Director [35]

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Thank you again. Thank you for your participation. I would like to reinforce what we've said, and we have been experiencing a very special moment for the Brazilian market. We see this with a lot of optimism. And in our strategy, we're very well positioned to capture all the gain that will be coming from this.

And therefore, we think that there will be an explosion of a higher demand in our segment of our core business today with the segment that goes from BRL 2,500 to BRL 7,000. And a major number of these families will be serviced by a market solution which mitigates our risk of being attached to a federal government program. So we are very optimistic, and we believe that the year to come will enable us to capture these opportunities.

As said before, our land bank and our product portfolio is very well prepared to capture this entire population and advantages and opportunities. We have guided a new line of products which are houses that we have informed in the release. We have launched 2 products with a very high sales rate. We are reinforcing our land bank in inner states because they are expensive in the inner state cities, and we want to achieve this product because it is -- has a higher average price than the average price bracket by MRV, and this is something you should follow up on because it will be a complementary [flag] for us.

So thank you so much for attending this call, and I hope to see you all next quarter.

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Operator [36]

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The conference call for MRV Engenharia is now closed. Thank you for taking part, and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]