Direcional believes its business model places the Company in a privileged position to benefit from growth prospects in the development of projects targeting the low income segment. Direcional‘s competitive strengths include:
Direcional has more than 30 years of experience in development and construction of projects targeting the low income segment, merging a successful track record and in-depth knowledge of this market, the customers, the products and the competitors. Direcional‘s experience enables to develop products that meet the needs of target market, with competitive high-quality projects and attractive prices and payment terms. Such experience has also allowed the Company to participate in, and generate substantial income from, the construction of units targeted to the low income segment through PAR, sponsored by the CEF and the BNH. Direcional has an experienced and highly trained team, led by its chief executive officer, Ricardo Valadares Gontijo, who has been responsible for the development of more than 40,000 residential units through over 175 projects targeting the low income segment throughout approximately 26 Brazilian cities.
Direcional operates in 18 cities and seven administrative regions in the Federal District, located in eight states and the Federal District of Brazil and has a strong presence in the North and Center-West regions of Brazil, which are underdeveloped markets with fewer competitors. These regions have high housing deficits and substantial potential for growth and economic development. For example, the city of Manaus has an above-average per capita income (R$18,900, compared to R$12,700 in Brazil). In 2006, began operations in the North region of Brazil, and believes to have reached a leading position the low income segment in housing development in the cities of Manaus, Porto Velho, and Marabá. In the Center-West region of Brazil, Direcional has operations in the Federal District since 1989 and has a strong presence there. From January 1, 2006 until December 31, 2012, 100 projects were launched in the North and Center-West regions, corresponding to more than 56,200 units launched. Direcional believes it has a competitive edge in most areas in which company is operating because most of the competitors in these areas do not possess the size or market coverage that Direcional does. In addition, the success in entering these markets allowed Direcional to acquire the expertise to facilitate opening new markets to its products.
Direcional efficiently develops large-scale lower-middle income residential projects, incorporating certain degrees of standardization in the construction process, in each case according to the needs in each region where Direcional operates. The development housing projects in a large scale model allows to: (i) optimize construction processes, making it easier to maintain control over the management, logistics and operations of each project; (ii) perform the industrialization process of raw materials at actual work sites, such as concrete and pre-molded mortar block factories; (iii) obtain operating leverage, resulting in the dilution of the fixed costs; and (iv) develop completely urbanized projects, with full utility infrastructure, increasing units’ attractiveness to the customers.
The launching of large-scale housing projects targeted at the low income segment is accomplished in phases. This phased approach enables Direcional to make adjustments in the project when needed in order to respond to the velocity of sales, and also to implement improvements in the construction process even after the launch a project. The large-scale projects targeted at the low income segment launched in the year ended December 31, 2012 represented approximately 70% of both the PSV. In addition, Company has a land bank that enables to develop approximately 66,400 units of additional large-scale housing projects targeting the low income segment with an estimated potential VGV of R$8.9 billion (of which R$6.7 billion corresponds to Direcional‘s proportional share) as of December 31, 2012.
As a result of Direcional‘s vertically integrated business model, the Company is able to coordinate and integrate all phases of the process of real estate development and construction, from land searching for and purchasing, through the construction stage, to selling and delivering units. The standardized and efficient construction process is based on rigorous construction goals that are attained by teams of own workers organized into specialized teams for specific activities. The division of workforce into different, specialized teams enables Direcional to standardize its construction process and, in particular, to replicate the process efficiently on a large scale. The use of own workforce facilitates ability to meet deadlines, optimize worker productivity and have lower costs and higher quality control in the projects. As a result, Direcional is able to concentrate its PSV in fewer projects, further facilitating the effectiveness of the project management efforts and allowing to benefit from economies of scale.
Direcional believes to have a differentiated position to operate in the program Brazilian federal government‘s Minha Casa, Minha Vida Program. As of December 31, 2012, more than 75,1% of the PSV in the land bank were eligible to families with monthly income range of up to 10 minimum wages, representing about 49,800 units. The Company has a history of successful experience in implementing similar housing programs, such as PAR and BNH. This experience enables Direcional to operate profitably in all income brackets of the Program, including the segment of family monthly income of up to three minimum wages, the main benefit from the program.
Direcional maintains a disciplined approach to the use of capital and the purpose of integrated business model is to optimize returns on shareholders’ equity. The financial planning is based upon the following guidelines: (i) exchange housing units for land when possible as an alternative to the disbursement of cash for the purchase of land; (ii) provide financing options for units pursuant to which we receive a significant portion of the purchase price prior to completion of the project in which the sold unit is located; (iii) obtain pre-approved credit facilities to finance construction, decreasing cash exposure during the construction period; and (iv) efficiently transfer receivables to financial institutions. In addition, standardized construction process enables us to reduce and optimize the construction cycle of projects, while increasing efficiency.