Tecnisa S.A. (TCSA3) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the second quarter of 2020 earnings conference call. Today with us, we have Joseph Nigri, CEO; and Flavio Vidigal de Capua, CFO and Investor Relations Officer. We would like to let you know that we are simultaneously presenting through websites of TECNISA, www.tecnisa.com.br/ir and through MZiQ platform, where you can also see the presentation. We would like to inform you that this event is recorded [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of TECNISA management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. It should be always taken into consideration. Now I'll turn the conference over to Mr. Joseph Nigri, who will begin the presentation. Mr. Nigri, you may begin the conference.

Good afternoon, everyone. Welcome. Before going into the presentation, I would like to share with you that we are very optimistic with the market. Our sales are doing fine. If we analyze just the quarter, April and May were difficult months because our sales stands were closed. We were not very uncertain about the pandemic. June was a good month. July was the best month as you were going to see. In August, we are doing fine as well. We have a highly committed team aligned with our long-term compensation model. And considering the value of all our shares, we are generating more business, focusing on more land plots, and I'm going to go into details in our presentation. But in general, we are very optimistic. The interest rate helps a lot in our industry. So we are all very optimistic. So now going to Slide 4, reinforcing our strategy to work on the land bank in the City of São Paulo, different metropolitan region to produce home products or residential products between 2 and 4 bedrooms with a PSV of BRL 60 million to BRL 140 million. Our first launch in the year, will be a project in Mooca, a 4-bedroom apartment, and we're able to have 2 more projects to the end of the year. And next year, we are going to get to the level that we consider to be ideal, BRL 1 billion per year, and we are going to have land plots to reach that. We are also working on strengthening our cash position. Because of the pandemic, we decided to strengthen our cash position, just to be safe. We've also been monitoring the development of COVID-19 pandemic and continues with the disposal of nonstrategic land. Even though we have not made any sales, we have a number of discussions going on. Now Slide #5, we can see that all the lands that we have acquired and also put options on them. This was the strategy during the pandemic. We would have bought them if they were offered significant discounts, but the owner of these land plots were not offering discounts. So we prefer to work with put options with some pre-COVID amounts, so to speak, to be executed eventually. In the meantime, we worked on projects and the legal and the environmental issues concerning these lands. Now that the market is back on track, we are probably going to purchase all of them. They are all good and they seem to be viable to us. Of the BRL 500 million that were already acquired, we've also had put options on 957 PSV -- BRL 957 million additional lands, all districts of São Paulo, some of them in key areas of the city; others, a bit more on the outskirts, but all within our strategy. Next slide, we can see the result of the follow-on of our strategy. We have reduced our indebtedness. Our corporate rating was reaffirmed. We've had an additional issuance of debentures amounting to BRL 74 million at much lower rates than what we used to have before the follow-on. And we also had a reverse split of the shares at 10:1 ratio. But what really matters is that our financial result in the quarter was nearly 0 -- 200,000 negative. But if you compare over BRL 16 million loss in the second quarter '19, it represents a huge benefit to the company. Let me now hand it over to Flavio, who's going to talk about the operating performance, and then I'll be back for the questions.

Thank you, Joseph. Good afternoon, everyone. Let's talk about our operating performance now. As Joseph pointed out, this is a very interesting slide. We are going -- we are sharing with you some monthly data, showing you our performance on a monthly basis so that you can understand the effect that the interest rate had on our business. Total numbers, gross sales of BRL 51 million, 15%. Net sales were at a level of BRL 48 million, SoS of 14%. So we still have a good speed of sales considering our inventory levels. And now going through monthly by -- month by month, we have seen a significant difference in amount of sales once we opened our sales stands. So first half of the year, BRL 23 million. In April, the volume was BRL 11 million because the sales stands were closed; May, BRL 10 million. And when we reopened the sales stands, we've observed the progression, so BRL 26 million in net sales. In July, we had the best volume on sales, BRL 32 million, showing that all the effects we had of interest rate reductions, of the interest in real estate were confirmed in July where we had more sales. The next slide, where we can see our inventory position in the second -- the end of the second quarter, we closed that with BRL 86 million -- BRL 286 million divided into São Paulo and also Brazilian Federal District, maintaining a very comparable volume of sales within São Paulo, 36%. BRL 79 million is our inventory in Jardim das Perdizes. In terms of level of construction, 96% are concluded units and 4% are units still under construction. Now let's talk about land bank, Slide 10. Our current land bank's BRL 4.2 billion. BRL 2.2 billion are the TECNISA's share within Jardim das Perdizes project. And as Joseph pointed out, between June and July, we've put options in 8 plots in the city of São Paulo with a potential PSV of BRL 957 million, but still not considered in the map. As we start executing these options, the plots would then be part of our land bank. But as you can see, significant volume where we've put options, showing that we are preparing our land bank to resume growth and more launches involving not only Perdizes, but other regions of the city. Nonstrategic assets are still to be sold, some nonstrategic areas such as Curitiba, Fortaleza and Manaus. And within the acquisition of new areas, we are prioritizing the metropolitan region of the city of São Paulo. The next slide. We can see a significant reduction of transferred units. Because of the sales in Brasilia, these are units which are not transferred, and they use to add to our portfolio, but it has contributed to our financial results. BRL 90 million were transferred, 156 units. Now let's talk about financial performance of the company. It's important to point out that as a result of the lower volume of sales in the second quarter, our net revenue was BRL 34 million, but adjusted gross income of BRL 7 million. It's important to highlight, though, 2 things here. Even if it's growing, we've maintained our administrative expenses, SG&A within the expected amount of BRL 16 million. And as Joseph pointed out, the reduction in financial performance has led to a reduction in losses that we've been facing. And as we have new projects, these numbers will get even better. If we compare half year over half year, there was a reduction of BRL 50 million in our losses, which is what we had shared with you in previous earnings release calls. Now the next session where we have received many questions from you in terms of financial position, and we've been working very closely with it. Our shareholders' equity, BRL 847 million. Our total receivables went from BRL 120 million to BRL 139 million. Excluding the provision for cancellation, in the end of the quarter, our total performed receivables was BRL 135 million. In a situation of cash stress, for example, it can be easily transformed into additional monies to the company. So this is why we wanted to share it with you. The next slide, we can see our balanced position. We closed the quarter with BRL 287 million in our cash. Our total indebtedness, BRL 335 million. But on top of that, we should look at the debt amortization schedule for 2020, 2021. If you look, the volume of that in the short term is BRL 58 million for 2021. So almost 6 -- we have 6x the same amount in cash, which really reassures us that we can execute our business. Please remember that we still have receivables also to be used in a situation that we would have to generate additional cash. In addition, we have delayed or prolonged somewhat our liabilities. We had issued debentures of about 5-year period. On average, it used to be 3 years. Now it's 5. So we've been trying to work on higher maturity products. As you can see, in the chart where we can see different debts and the due dates. Next slide, very important as well. For the past 12 months, we've had adjusted cash generation of BRL 142 million, with strong position. And in the last half year, BRL 10 million were generated in terms of land acquisition, first quarter, BRL 57 million used for acquisition of land and so BRL 19 million and BRL 32 million. Now the next slide, we also emphasized that the company has had an expensive reduction in its operational leverage of BRL 825 million, especially for the second quarter of '20, BRL 48 million of TECNISA and BRL 14 million of cash in Perdizes getting to BRL 61 million of operational leverage. The idea now is to increase, as Joseph pointed out, as we are going to have new launches, we are going to have new constructions, and we are very positive and looking forward to what we expect to have in the next quarter. On the next slide, we can see net debt over shareholders' equity. In the second quarter '19, we had 69% and we maintained the same position in the first quarter and second quarter, 5% and 6%, which is a very low indicator for the industry. If we add receivables, performed receivables, we can see that this indicator would be minus 10% in the end of second quarter. As we've reduced our level of SFH, we have maintained the same performance in the first and second quarter of '20 over '19. Now let's talk about market price and equity, shareholders' equity. We still have got a high discount rate, 0.95 as our indicated, whereas the market average is 1.86. We can see opportunities here. The company has a low leverage index. We are acquiring additional land, and we are getting ready for new launches, which are going to reinforce the position of the company. As you can see, it is an opportunity, considering what is the industry average. With that, I'm going to close and now we are going to go for the Q&A session.

[Operator Instructions] There are some questions here being sent by the webcast. First, [ Victor Tapia ]

Anything about the bill, it's a bill that is involved Agua Branca, the likelihood of having it approved in your own consideration?

Well, this is Joseph speaking. The project was all based in -- this bill was discussed in our city council here in São Paulo, but it was postponed. It had been included in the agenda yesterday, but some additional discussions were addressed, so going back to school and others and it was the last item in the agenda and it was not voted. Next -- so on Tuesday, the Secretary of Urban Development was asked to explain the project, showed all the benefits of the project that it has to real estate, to the city, to the district, everyone would benefit from the approval of this bill in the city of São Paulo. So I think it's very likely that it's going to pass. I think it's going to go back into the agenda. And I believe the city representatives at council will approve a bill that would be very beneficial to everyone. The area would really get very -- would get a boost in terms of economic development.

Great. The next question by [ Rodrigo ]. He would like to know more about the receivables from 1 month to the other. It went from 120 to 140 receivables, right?

Well, it comprises the sales that we made in Brasilia, we are providing direct funding lines to the clients. So most of them are from Brasilia. The trend is that we would keep on making the -- our sales funded by ourselves because the level of CDI that we have, it is a substantial amount above CDI. It has been a good business, really.

One more question, and then I'll give to the webcast. [ Paolo ] would like to understand more about what's happening in the second part of the -- in terms of JDP and all that.

But from mid up, so we have really delivered excellent products along these lines. And also mid-high level, we have had a number of projects with this excellent level. The only thing that we are not very focused is on high premium. If you remove the 2 extremes, we have a very wide range of products. Considering the situation of the pandemic, what we've discussed and we've observed is that larger apartments are getting benefit. Jardim das Perdizes, we are selling a lot. There are a few of units in inventory, only 5%. And why is that? Because of working for home -- from home. We know people are inevitably going to stay more at home. Nobody is going to work, of course, 5 days a week at home. This is not good. Yes. People tend to be productive at home, but there are just so many problems, noise at home, not the ideal conditions. So we think people are going to go back to the office but in a hybrid kind of setup. Maybe they are going to work 1 day from home, then 4 days back. There's going to be savings in the rental of buildings, commercial buildings, less spend on -- less time and money spent on commuting. And there is going to be an advantage. So larger apartments will be preferred. Of course, we will need a space for reserved offices and all that. The main trade-off of real estate market is location as opposed to size of apartment. If I have to go to work every day, I cannot live very far from the office. So you tend to live close where you work can be more expensive. Therefore, you're going to find a smaller apartment. If you just have to commute work twice or 3 times a week only, you can work far from work because it doesn't matter. It's okay because there will be fewer days in a week. So I think there will be a trade-off. People will prefer larger apartments with a view, more comfortable. So the project in Mooca, which is a traditional district, 150, 180 square meter apartments, that's an idea. It follows this idea. This is what we have in mind, and this is where we are focusing on acquiring more lots. But we also believe in apartments that have 2 to 3 bedrooms at low interest rates. It's going to be more affordable than paying rental, for example or 2-bedroom apartments with newlyweds or with young children. We do not focus, though, on small studios, 2 small apartments. This is not our main focus, okay?

[Operator Instructions] If there are no further questions, I would like now to hand it over to the company for the closing remarks.

Well, I think we have covered also, I'd just like to reinforce that we are here, working hard, working with dedication, really confident that we are going to reach our goals and objectives. Thank you all very much. Have a nice day.

Thank you. The conference call of TECNISA is finished now. Please disconnect now, and have a good afternoon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]