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

Good afternoon, ladies and gentlemen. Welcome to TECNISA's Third Quarter 2020 Earnings Conference Call. We have here Dr. -- Mr. Joseph Nigri, CEO; and Flávio Vidigal De Capua, CFO and IRO. We inform all the participants that this will be simultaneous transmitted via the web at TECNISA's IR website, www.tecnisa.com.br-ir (sic) [ www.tecnisa.com.br/ir ] and also in our MZiQ platform. And to this platform will be -- or better this presentation will be available for download. [Operator Instructions] Before you go on, we would like to clarify that statements are based on beliefs and assumptions of TECNISA management and on information currently available to the company. The future things are not guarantee of performance and they involve risks based [ on premises ]. They depend on circumstances that may or not happen. Investors should understand that general conditions, macroeconomic scenarios, industry and other factors can affect the future results of the company and may lead to results that are materially different from those expressed in future considerations. Now I will turn the conference to Mr. Joseph Nigri, who will begin his presentation. Please proceed.

Good afternoon, everybody. Welcome. I hope everybody is well, optimistic about the market. This quarter, our sales were quite strong, above our expectation. We have seen the banks with the loans made available for new investors, and this contributes a lot for the market reaction. And we also believe that this is going to be a cycle that's going to be positive and promising for the real estate sector in spite of the uncertainties. But generally speaking, I think it's going to be quite promising. Starting on Slide #4, talking about strategy. Always many changes. Basically, we're still buying land in São Paulo plots, and we are still looking for opportunities, preferably with trades. And these products that TECNISA has the know-how, 2-bedroom up to 4 bedroom better situation. Besides that, we want to resume launches. And unfortunately, we could not launch anything in this quarter, but we are really confident for the end of this year in 2021. And also cash flow assured that we want to reinforce operations that may reinforce that among them, I would like to mention operation. That involves the exchange fund. We are working on that. And we go on in spite of the COVID pandemic that impacted the market at large. And unfortunately, this new wave has come strong, but we believe that it's going to be controlled. And we focus on plans that are not so strategic in places that we do not act as much anymore. Slide #5, I talked about launching. We are -- we really trust the projects that we have, 4 projects. Some of them have been already approved as far as documents are concerned. So continue this project until the end of next year if we can project guidance that goes from BRL 1.2 billion to BRL 1.5 billion. And that would be between today and the end of next year, the PSV to launch. And the pandemic impacted in the approval of our projects, so we ended up not being able to launch anything this quarter. But we will resume growth, we want to buy plots and launch, work and do what we know how to do and what we have always done. Next slide shows what we're going to be launching this year, 3 that are open already. 1 in Mooca, the PSV is [ BRL 4 million ], 4 dorms or for 4 bedrooms. In Vila Romana, the 96 square meters. In Campo Belo, Campo Belo's 58 square meters. 100% TECNISA projects within our scope, our niche, it's going to be done by our team. On Page 7, it's important to comment that we focus a lot in the projects and the changes that the pandemic brought to the project. One item that we mentioned here is well-being that Fitwel is the [ CEO ] we got and this Mooca project received it because it has many factors that give quality of life for their owners. In the next page, we have Campo Belo project, a little bit smaller, more urban-like, but also with comfort concept. And more importantly, innovation that we have in this project, considering this phenomenon of home office, home office came to stay. I don't want to say that everybody is going to be 100% remote. I don't believe on that. But at least once a week, researchers say that 80%, 90% of the companies will go remote. So the person will need a place to work at home. If you live on a large apartment, you have an environment where you can work. But in a smaller apartment, especially if you live with family, children, et cetera, it's not always that this environment is available. So we projected in the common area of the building, on the ground floor, what we call booths, booths. It's not a lounge or a co-working area. It's a place for you to work all day long with acoustic comfort. It's private. There's going to be a system for the reservations for that, and the person can use that to work and stay there for some time to work in silence, with adequate temperature, ergonomic, et cetera. And on the next page, the Vila Romana project with wellness concept. We are -- have opened for sale. So investors who want to buy, with good conditions, we'll have a pleasure to talk to you. On Slide #12. We talk about the Land Bank. From July to October, we have added BRL 545 million in our Land Bank: Pinheiros, Vila Clementino, Chácara Klabin, Jardim Paulista. We bought more in our [ Jardim ] and we have over BRL 1 billion of PSV acquired. And we have other lands that -- in Chácara, Ipiranga, Jardim Prudência, Mooca, Saude, Vila Mariana, and that's a PSV of BRL 893 million. It's the option we have to invest. And the idea, the plan is to go forward with that. With that, we have enough land for our pipeline until 2023. As I said, we are still are keeping an eye on new opportunities. On Slide 13, some on the capital increase. It's a little bit better than last quarter, BRL 8 million more. It's still not the best position. If you compare it to the debs for the next 12 months, it's more than 5x the value. So we are comfortable to go on operating and reducing cost. As we have already done, we reduced a lot, the cost and financing in loans. And more importantly than that, we reduced losses that we had, had in last quarters, BRL 35 million vis-à-vis BRL 52 million as compared to last year, 3Q. We also had debentures issuances, BRL 123 million at lower rates and hence the financial gain in this quarter or better. Last year, 3Q '19, and we had BRL 10 million in financial expenses. In this year, BRL 5 million. The company still has a rating AA-, brAA-. Now Flávio, our CFO, will provide you with more information, and I will be here to answer questions at the end. So Flávio, please.

Thank you. Good afternoon to everybody. Now going to the operating performance, page 15. As was commented in the opening, we had a gross sales, BRL 98 million on this quarter. It was the best quarter of this year in terms of gross sales. Net sales, BRL 88 million, and excellent results in this quarter. So we're quite satisfied with sales and that contributed, when we go to Page 16, with an inventory reduction. Our inventory closed at BRL 201 million, 42% of that, about BRL 86 million, in São Paulo. And of those BRL 86 million, EUR 55 million [ are in industrial ] business. We reduced inventory in the Federal District and closed the quarter with 31% of inventory in Brazil in the Federal District and 26% Paraná. In terms of stage of the jobs. We have 86% concluded. And 4% -- 96% concluded and 4% under construction. Now Slide 17, Land Bank. We incremented, our acquired Land Bank was BRL 1.1 billion until the month of October. We acquired in October in Chácara Klabin the potential PSV of BRL 179 million; in Perdizes, BRL 2.2 billion. And we have 68% acquired in money. As mentioned in the opening session, we're still focused in our strategic assets when we talk about Curitiba, Manaus and another place. And we are focusing more and more in metropolitan region in São Paulo. So in the next quarters, we want to decrease what to invest in the other regions, and we will focus in São Paulo. Slide 18, a PSV transferred. We had a higher volume of sales in this period. So the PSV transfer increased from BRL 19 million to BRL 41 million. 181 units were transferred. So BRL 104 million and 554 units. In terms of financial economic performance, Slide 20. We had a sales increase for BRL 59 million, BRL 8 million last quarter, and we control the administrative expenses. We are having huge inflation in this period. And even so we're able to keep G&A under control. And we are, hence, decreasing our loss at every quarter [indiscernible] that this happens for the coming months. It's expected that we're adjusting, we are quite optimistic about the coming quarters. We have [ these tenants ] already organized. So we are living through a very special moment right now. We're going to improve all this for the coming period. In terms of financial position, we have -- our financial position, we had -- we prepared ourselves for this moment. We prepared to grow to -- we have BRL 811 million, and we -- especially in Brasília, we have a portfolio that we have organized. We are maintaining this receivables, and that's BRL 164 million for performed receivables, and we can use this when we go to Slide 23. We have maintained a strong cash position to allow us to use the opportunity of plot purchasing, and we maintained discipline in the way that we contracted new [ debts ], aiming at a decrease in our indebtedness. So when we compare what we had in 2020, what we foresee for '21, we're talking about BRL 60 million as opposed to EUR 70 million as we had before. We have this forecast for next year. In the gross [ indebtedment ], we went from the BRL 335 million to BRL 400 million and some. So we closed the period with BRL 140-plus million. Slide 24, the cash generated -- adjusted cash generation in the quarter was quite active in terms of land buying, and we used BRL 70 million of our cash to acquire plots. And simultaneously, we generated BRL 29 million that is connected to the sales volume that we had. When we do this type of adjustment in acquisition, our cash generation was BRL 8 million in the period. And looking at the last 12 months, we're doing new adjustments. We have BRL 98 million. We invested BRL 135 million in acquiring plants. Now Slide 25, last slide. I want to present net debt. Our -- we are at 17%. It's raising. What's natural, it's important to emphasize that when we look at the operations, we said that as we buy plots, we would increase the net indebtedness. So this is as forecast. Net corporate debt also at BRL 17 million because we have used a few lines of private plants since the customers are paying what they have to pay. But we want to show something that's important, which would be this period here. Net corporate debt plus receivables, as you saw, over ITR, we are negative, minus 3%, which is quite comfortable for our parameters. So I would now like to thank you and open for Q&A.

[Operator Instructions] The first question from Gabriela Moraes from Itaú.

Just a quick question. We saw your expectation of releases for '20 and '21. But we wanted to understand your expectancy on the acceleration of Jardim das Perdizes launching. This is my question.

It's Joseph. It's good that you ask that because maybe we should have explained this. Within this guidance, we count on the launching of Jardim das Perdizes. For that, besides the review of Água Branca law, we are expected to be approved. It's been -- it's almost approved. And so we have the expectation that's going to be approved by the end of this year. But we -- this is why we were waiting just to add BRL 1.2 billion to BRL 1.5 billion is TECNISA's percentage -- TECNISA's share. We did not include the other shares just to make this clear.

Our next question from Ygor from Santander.

I would like to understand a little bit more the cost dynamics have seen the sector as a whole of that the prices are pushing. So how do I understand this? What's the potential image impact for the company? Because on the positive side, we have the option of prices. Thank you.

Ygor, yes. This is something that concerns. We are focused on that. What can I say? First of all, the jobs that we have ongoing were not impacted in costs or time frames. And we -- for a few months already, we had some agreements with suppliers and we were able to maintain that. And also the cost increases and [ ITT ] usually reflects that. But it reflects cost assessment. We -- if you look at the balance, we have much more to receive and to expand. Of course, this is not how we want to earn money. We want to earn money producing. But since as -- if the index reflects, we are comfortable. The problem is that from now, the plots that I have not bought or the cost structures that I have not launched, I have to project that inflation. And I have to repass this to the customers. I won't work with the lower margins. I'm not interested on that or rather not do some businesses than lower the margins. And the developers were not [ loud ], so we have to do that. And that will be transferred for the buyers. We have to compensate with low taxes, for instance. So sometimes the installment increases, but the taxes are lower, but this is what we have to juggle with. We -- it's not going to change our plans or have adverse reactions for us, okay?

Sure. If I can just ask again about the guidance -- of launching guidance. You -- are you -- do you intend to incur prices or not?

No, the prices that we are considering to calculate PSVs that we have been calculating for Land Bank, et cetera, are current prices and possibly a little bit back because, let's say, I bought a plot 6 months ago, 12 months ago, and it's been updated by inflation. Maybe when I launch, it will have impact. Jardim das Perdizes, for instance, we have a calculation of PSV, a price around BRL 10,000 and BRL 10,500 per square meter. And of course, it depends. So if it's higher for or lower for, et cetera. But I would not be impressed if -- when you get a unit, a ready unit like that launched. Well, we'll have to provide facility and payment, et cetera. So I would not be impressed if we have a good tools on this toolbox.