PDG REALTY S.A. Good morning, ladies and gentlemen. Welcome to PDG's conference call to discuss the results of the 3Q15. Today, with us are Mr. Márcio Trigueiro, CEO, Mr. Mauricio Teixeira, Vice-president and IRO, Mr. Rafael Espírito Santo, IR Director and Mr. Antonio Guedes, director of Operations.
We would like to inform you that this presentation is being recorded and that all participants will be on listen only mode during the Company's presentation. Later, we will begin the Q&A session for analysts, when will further instructions will be given. Should you require assistance during this conference call please, press *0 to reach the operator.
We would like to inform you that questions can only be asked over the phone. I you are connected at the webcast, your questions should be sent directly to the IR team of PDG at ir@pdg.com.br. The audio and the slides of this conference call are being broadcast over the internet at www.pbd.com.br/ri. You may also find the presentation for download from the webcast platform.
Before proceeding, we would like to clarify that any forward looking statements that may be made during this conference call, relating to PDG's business outlook, financial and operational targets and projections are based on the Company's beliefs and assumptions, and on information currently available to the Company's management. They involve risks, uncertainties and assumptions, and have to do with future events, which depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, industry conditions and other operational factors may affect the future performance of PDG and conduct the results to differ materially from those expressed in such forward looking statements. We would now like to turn the floor on to Mr. Márcio Trigueiro, CEO.
Good morning to all. Thank you very much for attending this conference call. We are going to make a very brief presentation to leave more room for Q&A. we are going to talk about the scenario and the strategy related to changes. The Company, for some time, has been working on a different scenario, a scenario with more liquidity in terms of corporate debt and in terms of credit for customers to buy real estate. And it was not a brilliant macroeconomic scenario, but it was stable. So, demand was also stable.
In this scenario, our strategy was to continue to deliver our projects, do the transfers, generate cash in the short term, and we have been able to roll over corporate debt via extension of terms or new money. The scenario, however, has deteriorated in the last six to nine months, and there was less liquidity in terms of corporate debt and in terms of customers also, who needs funding to buy our real estate. The macroeconomic scenario also has deteriorated and there is decrease in consumer confidence.
We, then, have to adopt a new strategy. We want to restructure the Company's debt. We continue to focus on accelerating transfers. We are focusing more on the sale of assets and we will continue to sell all those assets which are non-core, and we are going to focus
on completing the on-going projects. In these projects, what we see today, in terms of assets and liabilities is an expressive defense of R$4.4 billion, which is how the market understands the cost of caring, inventory, lawsuits, SG&A, debt service and any discounts that we may have to give on receivables, inventory or landbank.
Market cap is about R$100 million and this is the cost estimated by the market for the Company at this point in time. On the presentation, basically, we are not going to focus on accounting numbers, because this is detailed in the release, but we are going to talk about our vision in terms of managing the assets and liabilities of the Company. This is what we are talking about.
Moving on to page seven, we see that the Company has been able to have consistently received in the last few quarters R$1.2 billion in cash that inflow into the Company and a monetization very expressive of its receivable and inventory. In the last 12 months, we decreased the receivable by 2.8 billion, and we received R$3.5 billion. We expected to receive faster and to decrease the receivables and inventory balance at a greater speed, but given the scenario, the pace is now slower.
On page 8 we see that this decreased, because there was an increase in the number of cancelations. There was R$250 million in cancelations and may now approach R$500 million per quarter. With this increased number in cancelation, as you can see on page 9, this has to do with three main reasons. First of all, we delivered a lot of projects, we lost a lot in our delivering of these projects and, whenever you deliver, that is when we know whether people have credit or not.
So this is a clear reason for the volume of cancelations that we have seen now and there is nothing we can do about it. Also, there are more cancelations, as I said before, because there is less funding available to customers, especially because of Caixa Econômica's share and other banks were stricter in terms of analysis. We have been giving actions; when we analyze a client, we try many banks and we maximize, therefore, the chances of getting credit.
We have also mechanisms and promotions to help clients mass their income with their intended real estates, and we have other actions also that we keep under close control to mitigate that effect. Also, another very important effect is that in 3Q15, 74% of the cancelations occurred for units sold before 2015 when our criteria for analyzing credit was maybe less strict than the ones we have today.
And from then on, even though clients have very good quality of credit, some of these clients have their capacity to buy deteriorated. And this also has to do with the increase in the interest rate. So, those clients who have no income to buy, there is nothing we can do anything about them. We are going to cancel those contracts and resell the units. We have units which are ready and we have been able to sell the canceled units very fast.
On page 10, I would like to highlight that, unlike what some people think, the cancelations, at least for us at PFG, with a large portfolio over projects which are ready or almost ready, cancelations are very good for generating cash. Of course, we want to receive the receivables, but if the cancelations come up they allow us to generate a lot of cash. And why is that? That is for two reasons.
First, because we cancel and we pay the client in eight installments. The first one within 90 days. And since we have many units which are ready, we can sell them very fast. And the transfer is fast as well, because the unit is ready. So, not a lot of time elapses between the sale and the receipt of the total value of that project; so cancelations actually generate cash for us.
On page 11, we see why we believe that, given that we have a lot of clients who do not have enough income and we have to go through cancelations, we are confident that we will be able to resell those units very fast. In the last five quarters, on average, we have been selling 40% of these canceled units within the same quarter and 90% in up to twelve months.
This is easy to understand. We are selling units which are ready and are more liquid. It is easier to analyze and obtain credit and do the transfer to banks. Relative to the price for canceled units, we too give a discount and, if we continue the PSV, if we take into account the PSV updated by INCC, that is 15%. And this is very similar to those prices that we give when we have discounts campaigns or other actions.
I would like to highlight again that the resale of canceled units is final. There is no cancelation of these sales. And this is because we are selling ready units. So clients then are transferred to banks and there is not much uncertainty there. Our credit analysis also is a lot stricter now.
Moving on to page 12; we have gross sales, cancelations and net sales. It is very important to separate these. For me, as someone who manages the Company, I mean, managing sales is one thing, and managing cancelations is a different thing. Managing sales has to do with discount policies, incentive to the sales force, PDG Facilita and so on. When we manage cancelations, we have to try to match the projects available to those clients, we have to persuade clients who are insecure, which are not really certain to buy in a safe condition so, it is two different things and two different moves.
Additionally, the cancelations, gross sales and net sales, if you think about a company that launches projects consistently throughout the year, net sales is a good indicator for the financial health of the company. But in the case of PDG, where we have the concentration of large launches some years ago, and then no launches practically in this year and we are not projecting to launch anything in the next few quarters, this figure does not mean a lot, the net sales.
Cancelations have to do with the inventory that has been sold, and sales have to do with our sales performance in a quarterly basis. We sold almost 700 million in this quarter. We were very successful in our sales campaign and there was a slight drop relative to 3Q14, but the volume of sales is still very expressive. On a quarterly basis, we have been selling R$600 million or more. So, if you look at our inventory of 3 billion, we are talking about five quarters to sell the inventory.
This is not the whole truth; we still have receivables. There will be cancelations amongst the receivables, no doubt about that. It is difficult to estimate the volume, but the number of quarters which are needed to sell the inventory and the units that will be canceled is
smaller than if you thought in terms of net sales over inventory. Net sales are 100 million for an inventory of 3 billion. This would require 30 quarters, and this has no relation with reality and the real scenario whatsoever.
On page 13 again; net sales and gross sales. We are focusing on gross sales and on resale in the case of cancelation. Our gross sales are healthy, very robust despite the difficulties of 4Q. Gross sales were 24%, with a lot of uncertainty in the market lack of funds available. The commercial tem has been performing very well and today more than 65% of our sales are conducted by our team. So we managed that fully and to end.
On page fourteen, you see that because of the portfolio of the ready units that we have, the Company grew strongly in terms of cash sales. And we also has 'Na ponta do lápis' sales campaign in August. It was very successful. The conversion rate was 37%. More than one out of three clients ended up purchasing our units and we sold a lot in this campaign. We gave discounts which were consistent. With the discounts given in the campaign in 1H, some 15% in discount, which also is consistent with the discounts we give when we sell cancellations.
Moving on the inventory. On page fifteen, we gave you some more details about the quality of our inventory. More than half of our inventory today has been delivered. And 56% of our inventory is ready. 75% are residential products. On page sixteen, there is information that we did not use to give before. So I would like to highlight those. 72% of our residential inventory is made up of units where 60% of the units have been sold. So these projects are very successful and they have a lot of liquidity.
Half of our residential inventory is located in São Paulo and Rio. And unlike what some people may think, our VSO outside Rio and São Paulo has been very healthy. It has been above the VSO in São Paulo and Rio. 34% outside São Paulo and Rio and 26% VSO in São Paulo and Rio. VSO has been low in the commercial segment.
The demand is different for those products at this point in time. And also, our commercial products are not yet ready. They will be ready at the end of 2016 or at some point in 2017. So it is more difficult to sell this kind of product which are not ready, but we are going to finish the projects and then see what we are going to do.
And to complete the part about our asset management, as I said, we are intent on continuing to sell assets and accelerate as much as possible. We have sold some lots, some plots (?). We are looking for partners in some ongoing projects. And we disposed our 25% stake in Jardim das Perdizes. We got R$160 million, which were used to amortize our debt.
Looking at the liabilities on page nineteen. I would like to talk about the restructuring. First, the breakdown of our debt. 77% of our debt is owned by large banks and the market and small landers. In relation to smaller creditors, we have been successful in rolling over the debt, some amortizations or giving something in payment. So this has been addressed and does not put a lot of pressure on the Company's cash. And this something of an achievement for us.
Relative to the more substantial debt that we have, which is held by large creditors, large
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