DIRECIONAL ENGENHARI

DIRR3
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3Q21 Earnings Release

11/08/2021 | 05:33pm

EARNINGS RELEASE

3Q21

Belo Horizonte, November 8th, 2021 - Direcional Engenharia S.A., one of the largest homebuilders and real estate development companies in Brazil, focused on the development of low-income and medium-income projects, and operating in several regions of the Brazilian Territory, discloses here its operating and financial statements for the third quarter of 2021 (3Q21). Unless otherwise expressed, the information in this document is expressed in the national currency (Brazilian Reais - R$ or BRL) and the Potential Sales Value (PSV) demonstrates the value consolidated (100%). The Company's consolidated financial statements are prepared in accordance with accounting practices adopted in Brazil, which are based on Brazilian Corporate Law and on the regulations issued by the Brazilian Securities Commission (CVM).

3Q21 EARNINGS RELEASE

  • NET INCOME GREW 65% IN 3Q21 AND 59% IN 9M21 WHEN COMPARED TO THE PREVIOUS YEAR
  • 36.0% ADJUSTED GROSS MARGIN1 IN 3Q21
  • ANNUALIZED ROE REACHES 16% IN 3Q21
  • RECORD-BREAKINGIN LAUNCHES IN 3Q21 (BRL 1.1 BILLION), GROWING 88% OVER 3Q20
  • NET SALES RECORD IN 3Q21 (BRL 643 MILLION), A 40% INCREASE VERSUS 3Q20

HIGHLIGHTS

  • Launches in 9M21 grew 129%versus 9M20, totaling BRL 2.4 billion.
  • In 9M21, Net Sales reached BRL 1.8 billion, a growth rate of 53%versus 9M20.
  • Net Sales Speed Ratio (VSO) of 17%in the quarter.
  • Adjusted EBITDA1 reached BRL 101 millionin 3Q21 and BRL 268 millionin 9M21.
  • Adjusted EBITDA Margin1 of 22%in the quarter, 4 p.p.above 3Q20.
  • Net Income of BRL 47 millionin 3Q21, resulting in a Net Margin of 10.4%.

RIVA

  • Launched PSV reached BRL 621 milhõesin 3Q21, the largest volume in Riva's history.
  • 281%growth in Net Sales versus 3Q20 and 33%growth versus 2Q21.
  • In 3Q21, Riva's sales accounted for 37% of the total sales by Grupo Direcional.
  • Riva's VSO reached 21%in the quarter.

1 Adjustment excluding capitalized interest for financing of production.

1

EARNINGS RELEASE

3Q21

TABLE OF CONTENTS

HIGHLIGHTS ............................................................................................................................................................................................................

1

RIVA ..........................................................................................................................................................................................................................

1

TABLE OF CONTENTS ............................................................................................................................................................................................

2

MESSAGE FROM THE BOARD...............................................................................................................................................................................

3

MAIN INDICATORS ..................................................................................................................................................................................................

6

LAUNCHES...............................................................................................................................................................................................................

7

CONTRACTED SALES ............................................................................................................................................................................................

8

NET SALES SPEED (VSO) ......................................................................................................................................................................................

9

Canceled Sales......................................................................................................................................................................................................

9

INVENTORY............................................................................................................................................................................................................

10

TRANSFERS...........................................................................................................................................................................................................

11

PROJECTS DELIVERED........................................................................................................................................................................................

11

LANDBANK ............................................................................................................................................................................................................

11

Land Acquisition.................................................................................................................................................................................................

11

ECONOMIC AND FINANCIAL PERFORMANCE ..................................................................................................................................................

12

Gross Operating Revenue..................................................................................................................................................................................

12

Revenue from Real Estate Sales .......................................................................................................................................................................

12

Revenue from Services ......................................................................................................................................................................................

13

Net Revenue ........................................................................................................................................................................................................

13

Gross Profit .........................................................................................................................................................................................................

14

General and Administrative Expenses (G&A) ..................................................................................................................................................

14

Sales Expenses...................................................................................................................................................................................................

14

Other Operational Revenues and Expenses ....................................................................................................................................................

15

Financial Results ................................................................................................................................................................................................

15

EBITDA.................................................................................................................................................................................................................

16

Net Income before Minority Interest..................................................................................................................................................................

16

Net Income...........................................................................................................................................................................................................

17

Deferred Results from Real Estate Sales .........................................................................................................................................................

17

BALANCE SHEET HIGHLIGHTS ...........................................................................................................................................................................

18

Cash, Cash Equivalents and Financial Investments .......................................................................................................................................

18

Accounts Receivable..........................................................................................................................................................................................

18

Indebtedness.......................................................................................................................................................................................................

19

Cash Generation (Cash Burn)1 ..........................................................................................................................................................................

20

SHARE BUYBACK .................................................................................................................................................................................................

20

RIVA - Operating Highlights ................................................................................................................................................................................

21

CONSOLIDATED BALANCE SHEET ....................................................................................................................................................................

23

CONSOLIDATED INCOME STATEMENT .............................................................................................................................................................

25

CONSOLIDATED CASH FLOW STATEMENT ......................................................................................................................................................

26

GLOSSARY ............................................................................................................................................................................................................

27

2

EARNINGS RELEASE

3Q21

MESSAGE FROM THE BOARD

Amid the complex moment that leads the economy in Brazil to uncertain tracks, it is evident we should adopt responsible strategic planning that might fully reflect our values and focus on operational efficiency.

As the year 2021 is ending, we can see the materialization of what we had planned for Direcional and Riva, despite the challenges faced by the market.

Our Operating Preview last month featured some metrics that exceeded the best milestones already reached in the Company's history and that led to the financial results shared with our shareholders in the present document.

We had again the best quarter in launches in Grupo Direcional's history, with a total PSV of BRL 1.1 billion, 37% above the results we obtained in the previous quarter. When compared to 3Q20, we had a growth rate of 88%. In 9M21, we had BRL 2.4 billion in launches and an expressive growth of 129% compared to 9M20.

We emphasize Riva's protagonism in 3Q21: BRL 621 million in launched PSV, a milestone for our mid-low income segment, distributed in products located in all regions we operate. In 9M21, Riva already reached an expressive amount of BRL 935 million.

For the fifth time in the last six quarters, we had a record in net sales, reporting a contracted PSV of BRL 643 million in 3Q21, a growth rate of 40% when compared to the same quarter of the previous year. In 9M21, total net sales reached BRL 1.8 billion, a 53% growth when compared to the results of 9M20, which indicates the resilience of the demand for our products.

As shown in the launches line, Riva's role in net sales is also noteworthy. The segment accounted for 37% of the total sales by Grupo Direcional in the quarter, a 3-figure growth rate when compared to 3Q20, reaching expressive 281%.

The evolution of those metrics is an evident demonstration that Direcional's operational deliveries are at a higher level, as illustrated below, considering the last twelve months:

Launches Track Record

Net Sales Track Record

(PSV 100% - BRL million)

(PSV 100% - BRL million)

3,142

2,295

1,680

1,905

1,946

1,763

1,451

1,320

1,109

914

832

494

502

389

2015

2016

2017

2018

2019

2020

3Q21

2015

2016

2017

2018

2019

2020

3Q21

LTM

LTM

The breakdown of our landbank is an important factor that makes feasible the growth for the following periods, with PSV of BRL 25 billion and a construction potential of 148 thousand units, with a well-distributed profile among the regions where we operate. Our strategy in purchasing lands, the essential work of the approval committee, and the governance framework concerned have shown assertiveness throughout the process, supporting the improved operational metrics mentioned above and the maintenance of a superior gross margin when compared with peers.

We should highlight other important numbers we reached in 3Q21 and 9M21: (i) consolidated VSO of 17% in the quarter, with

Riva reaching VSO of 21%, even in a quarter marked by the highest number of launches in the Company's history; (ii) Adjusted Gross Margin¹ of 36.0% in 3Q21 and 36.6% in 9M21, despite the increased costs of the inputs; (iii) Adjusted EBITDA¹ of BRL 101 million in the quarter, with Adjusted EBITDA Margin¹ of 22.2%; (iv) Net Income reaching BRL 47 million in 3Q21, a growth rate of 16% when compared to 2Q21 and 65% to 3Q20, resulting in a Net Margin of 10.4%; and (v) annualized ROE of 16% in the period.

3

EARNINGS RELEASE

3Q21

As expected, real estate sales were predominant in our Gross Revenue mix year to date, and revenue from services accounted for a low portion of the total revenue, as shown in the graph below:

Evolution of Gross Revenue per Segment

(% and R$ million)

799

1,241

1,541

1,639

1,387

15%

12%

4%

4%

28%

85%

88%

96%

96%

72%

2017

2018

2019

2020

9M21

Services

Real Estate Sales

Adjusted Gross Profit¹ reached BRL 163 million in 3Q21, with Adjusted Gross Margin¹ of 36.0%. In 9M21, Adjusted Gross Profit totaled BRL 472 million, with a margin of 36.6%. The high level of the gross margin reflects our strict operational efficiency and our insightful, granular operation in our product pricing policy. Moreover, the changes in our product mix, as occurred in recent periods, played a major role in the breakdown. We could handle the inflation on our budgets by transferring costs, whenever possible, always paying attention to the demand.

We had a solid REF Margin of 39.0% in the quarter, and our Deferred Results from real estate sales reached BRL 821 million in the period. This increase is mainly explained by the sales mix - with greater relevance of units closer to the launch than units completed or in an advanced stage of construction -, leading to an increase in the balance of revenue to be appropriated. Since it is a volume of sales already contracted, the scenario shows us that we will have a significant increase of Net Revenue in the following quarters as the products will reach higher percentages of completion.

In 3Q21, our Adjusted EBITDA¹ reached BRL 101 million and went up by 12% when compared to 2Q21, and 45% to 3Q20. Adjusted EBITDA Margin¹ totaled 22.2% in the period, 1 p.p. above the previous quarter and 4 p.p. above the same quarter of 2020, ratifying the operational efficiency we are so proud to show.

We reached BRL 47 million in Net Income in 3Q21, the highest result we have had in a quarter since 4Q14. In comparison with other periods, the growth rate was 16% when compared to 2Q21 and 65% to 3Q20. The resulting Net Margin was 10.4%, 80 bps above the previous quarter, and 280 bps above the same quarter of the previous year. Annualized ROE in 3Q21 reached 16%, confirming the importance of performing our work strictly to achieve the goals set for the Company.

Cash, cash equivalents and financial investments at the end of the quarter totaled BRL 935 million. The weighted average maturity of our indebtedness was 38 months, with about 87% of the debt balance as long-term debt. The leverage ratio - Adjusted Net Debt² over Equity - ended 3Q21 at 19.6%, confirming our commitment to responsible, long-term management.

As a subsequent event, after the end of the quarter, we concluded a new issuance of debentures, raising an amount of BRL 100 million, maturing in 5 years, at a cost of CDI+1.65% per annum, which allowed us to further reinforce our cash position and lengthen the duration of the debt.

In that sense, we should point out the results of the two swaps we contracted in 1Q21 and disclosed in our earnings release. At the time, we explained that the operation was carried out to protect our balance sheet and minimize the volatility of the financial result arising out from the indexation of part of our indebtedness to the IPCA. In 3Q21, the accounting of a derivative, carried out via mark-to-market (MtM) since its contracting, is now carried out via hedge accounting. Thus, in addition to protecting our balance from the behavior of the price index, we took another step in order to protect our results from the fluctuations and uncertainties that hover over the macroeconomic environment, and that have been impacting the market in general.

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EARNINGS RELEASE

3Q21

Once again thanking the efforts by the entire Direcional and Riva teams, we praise the coordinated work of our employees, which allowed us to achieve the results presented in this Message from the Board and which we will detail further in the pages below. Thank you to everyone who makes Direcional a company that has been fulfilling important goals and reaching higher levels continuously.

We believe we are well-positioned to identify and take the opportunities that arise in such challenging moments. We will keep up on seeking continuous improvement in the upcoming quarters.

Thank you,

The Management - Direcional Engenharia S.A.

  1. Adjustment excluding capitalized interest for financing of production.
  2. Net Debt: adjusted by balance of interest swap operation agreements.

5

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Direcional Engenharia SA published this content on 08 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 November 2021 22:31:03 UTC.

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