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

Good afternoon, ladies and gentlemen. Welcome to Tecnisa's Fourth Quarter of 2020 Earnings Conference Call. Today, we have with us Mr. Joseph Nigri, CEO; and Flávio Vidigal De Capua, CFO and IRO. We inform all the participants that this meeting is a live webcast and is being transmitted. You may assess it at www.tecnisa.com.br/ir and MZiQ platform. The platform -- sorry, the presentation will be available for download. [Operator Instructions] Before proceeding, I would like to mention that forward-looking statements are based on beliefs and assumptions of Tecnisa management and on information currently available to the company information -- and also on information currently available. And this involves 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 macroeconomic scenarios, industry and other factors can also cause results to reform materially from those expressed in such forward-looking statements. Now I'd like to call Mr. Joseph Nigri, who will begin the presentation. Please, Mr. Nigri, you may proceed.

Thank you. Good afternoon, everybody. Welcome to our 4Q '20 conference call. This year was marked by the pandemic many changes -- and many changes that, in our view, came to stay somehow. Among them, we emphasize that people are looking for larger apartments that have a good view and also remote working. Today, everybody is working at home office, but in the future, this will remain somewhat and hence the city will be decentralized. And if you want to ask anything about that, it's going to be a pleasure to comment on that. I would like to highlight the sales we had that were beyond what we expected, 68% of SOS. And we also picked up our launches, 2 projects. We also acquired 8 new land plots, and I'll give more detail on that. 2021, in the very short run, where the economy is living to a very complex moment with more restrictions, more unemployment, health problems and inflation, inflation that reaches every sector, and really reaches the construction sector. And there's no way out but to repass the costs to the buyers. There's no other way out. The constructions are more expensive. So everybody will have to launch in order to earn when you have to launch at higher prices. And we'll have to see what the market is going to do in relation to this increase. But with the vaccination, we expect that this scenario will improve, and everybody will go back to normal. Also to 2021, a combination of factors, I believe that will favor our sector, which is availability of credit. Many lines with new indexes and the taxes rate that although has increased recently and will probably go on increasing, it's still a rate that we consider reasonable for loans, for opportunities in our activity. We have lived through situations of interest that were much higher, and still we could navigate, so I believe that, that's good for us. Talking now about the presentation, Slide #4. Our strategy remains very much focused on the land bank. We have acquired quite a lot land bank, but we always pay attention to opportunities in the metropolitan region of São Paulo, in neighborhoods with good infrastructure, especially focused in 2 to 4 bedrooms, PSV BRL 60 to BRL 140 million, square meters 10,000 to 12,000, that our flagship, maybe some more expensive, some cheaper. And we'll go on with the strategy of increasing the number of launches, we're not changing that. Although we have this short-term with the booths closed. But for the year, we still will keep the figures. We promote measures to strengthen the cash position, and we monitor the development of pandemic. And about nonstrategic land, we actively look for way of somehow sell them or maybe swap them. On Slide #5 that you have, BRL 1.2 billion. We already have 22% of that. And we are confident that by the end of the year, we will get the rest. We have 8 projects to be approved by the municipality. And on Slide #6, we show you the 2 developments that were launched last year in December and the next launch's highlights. Campo Belo that would be launched by the end of March, but because we have a red flag here, it's going to be difficult to do that. So we have to wait a little bit. But the agents are still on presales with digital material, et cetera. Slide #7, we show you the land acquisitions. Until February 21, BRL 1.8 billion on land bank. And we still have almost BRL 100 million to our options. So I'm talking about BRL 98 million. And this map will show the neighborhoods where we are at. Slide #8, I would like to explain to you. I think it's an important movement that we took. A very positive business. We acquired a land plot in Jardim's neighborhood, Lorena Street which comes to sale, a plot that maybe even -- we may acquire some more and we'll develop 2 towers, one with 4 bedrooms residential and the other one using nonresidential benefit. We'll have flats and studios. And what we did with JFL and AW that are companies that are in real estate, we have an agreement where they are our associates in that project. And in the future, we're going to have a fusion of that where they will have the flat and studio tower and we'll have the 4 bedroom tower. Why is this movement so interesting for ourselves, although it does not generate any result in the beginning? We did participation sales at the cost of the plot. But we know that the studios and flats will be sold lower than 4 bedroom. So the margin is higher, one in subsidiary of the other one. When you buy the land, you calculate the mean and then you buy or not the plot. So when we do studio and flat tower, we concentrate the margin that we have is larger than what we operate traditionally. This is why I think it's a good movement for us. It's a very good project with nice margin above traditional margins. And the building will be operated by them because they have experience on that, they offer services. And we understand that this will generate synergy and will add value to our residential development. I'm very glad with that partnership with JFL and AW. So it's going to be -- it's going to bring benefit for us. Now I call Flávio Vidigal, our CFO, who will give you details of the quarter and of the year. And at the end of the presentation, I'll be here for questions. Thank you.

Good afternoon. Thank you, Nigri, for your words. Now, operational performance. We talked about sales. Nigri has talked about that. But just to reinforce, we had the best quarters in sales for last year. We had a gross volume of sales of BRL 120 million. The net sales you can see here. I am glad, it was the best quarter of the year, as I mentioned. On the 3Q '20, we had sold BRL 88 million net, and now we increased to BRL 112 million in the fourth quarter. Now on Slide 11, you can see the reflects of that on stock. We intend to show you the reduction that we had on stocks on general stocks and on finished stocks from BRL 1,027 million in the end of 2017, and we get in the fourth quarter of '18 BRL 838 million and now BRL 359 million. And of that, the BRL 300-something million are of launches in 128 unfinished units. As you can see on the pizza graph, there was substantial improvement, a change in the finished development. In the third quarter, we had 96% finished; now we have 64% of stocks that are finished -- or pardon me, 64% under construction, 34% concluded, I'm sorry. In terms of geographical breakdown, as Nigri mentioned in his strategy, 78% of our stock is in São Paulo, according to our strategy. And the other geographies represent about 10%, each one Distrito Federal and Paraná, as you can see. Also coming from a third quarter in São Paulo 42%. On the following Slide #12, there was a substantial change in our land bank from now BRL 4.3 billion (sic) [ BRL 5.3 billion ]. And of those, BRL 2.6 billion is in Jardim das Perdizes Tecnisa part, and we highlight the acquisitions that were done in 4Q, we acquired land in Chácara Klabin, Ipiranga and Jardim Paulista, Jardim Prudência with a potential PSV of BRL 647 million. And we put here the information of the first Q '21. We acquired up to now and BRL 218 million (sic) [ BRL 208 million ] in PSV with 2 land plots, one in Chácara Flora, the other one Saúde neighborhood. And we maintained the strategy of monetizing strategic assets, especially in geographies that are marked in dark gray Curitiba, Paraná, Fortaleza and Manaus. Slide 13, very quickly, BRL 29 million represented by 152 units on this quarter. And in the year, BRL 133 million and 706 units. It's natural that the repays for the banks decreases a little bit because we have our own backlog. Now, we also did a transaction on that. Now Slide 15, where we approach the financial indicators. Our net revenue was BRL 37 million. Gross income, as you can see there, in the year, BRL 24 million. We would like to highlight how vigorous we are with G&A in spite of the inflation. IGP-M was close to 30% in the period in the last 12 months. We still have maintained our G&A around BRL 17 million, as you can see. And the net result, our loss has decreased. In the third quarter, we had a forecast of BRL 35 million and now BRL 31 million for this quarter. And here, we have not considered to take out that we did in 4Q '20 because we are waiting for the results of those launches, maybe in the second quarter. Now next slide, financial position, Slide 17. We have net equity, BRL 791 million, and we improved to BRL 192 million total receivables and that had increased since last year or since the previous year. And to maintain a receivables is always healthy because you may have cash at any time. So we did a session of receivables in February of BRL 80 million Tecnisa part. And of that value, we have received 80% of that and 20% will be received when CCIs are registered. Now Slide 18, financial position and indebtedness. We see that we maintained a strong cash position, BRL 300 million to face a BRL 52 million in 2021. We do not have a huge volume, BRL 82 million here. And indebtedness was BRL 519 million. If we discount cash, we closed with net indebtedness of BRL 219 million sort of. And also after closing the year, in February 2021, we captured BRL 112 million with forecast of 5 years. Slide 19. In the last 12 months, we generated BRL 37 million in cash with the adjustments with acquisition of direct acquisition in the 4Q, as mentioned. We had a very active quarter in land acquisition. We invested BRL 71 million in land plots. And in terms of direct backlog, we had quite a good evolution. Now the last slide of our presentation, Slide 20. We show our indebtedness here, very comfortable, 28%. And considering net indebtedness as well as a corporation, we don't have FSH indebtedness. And here, you see net corporate debt plus performed receivables over shareholders' equity, 5%, quite healthy. And what would be the effect of the transaction that we did in the first quarter, up to now, the receivable session, it's a cash entry in the company. If we consider the cash of this transaction in the first quarter, the net corporate indebtedness would be 18%. And part of the transaction is pending because of some registries that are pending. So that may vary in relation of when we close the first Q '21. So we now go to Q&A.

[Operator Instructions] Gustavo Cambauva from BTG Pactual would like to ask a question.

I would like to ask 3 questions. The first, could you comment whether this partnership that you mentioned with JFL and AW, I would like to understand whether there is a possibility of having more projects like that? If you're just testing the model to see what happens, or is there any further discussion on that? My second question has to do with the land bank that you acquired just recently. Looking at the plots here, we can see that these are traditional neighborhoods, medium and high income. I would like to understand what is the rentability, margin on this new development? And my third question is about the guidance. What's the guidance projection that you have? If you have a new launching or is this guidance hit by it?

I'm sorry, but his sound was not, let's say, perfect. This is Nigri. I'll start with your first question. The agreement with JFL AW is punctual. It does not include other businesses. However, the model is win-win. As I explained, our margin, we have a higher margin. But for them, it's interesting because they are entering at the cost, they're going to buy the land, and we are going to do the construction. So it's good because they will rent it. They have returns on the cost, so it's win-win. We are interested in having more things like that. They are very much focused in so-called novo neighborhoods. And as you commented, we are in a neighborhood that's not in the outskirts of town, but it's also not Jardim or Itaim. So there may be other players that would be interested on that. So we'll actively look for it. But we only have this for the moment. On the land bank, those neighborhoods actually, we have a margin. I don't know if I'm giving your guidance or not. We'll think about margins. And no matter where we are at, what happened is that we were able to make more business on those regions because of the construction that is higher. So the economy that people call medium and low is more difficult to begin. This, obviously, I have commented, we have -- we will have to adjust prices. But it's a lower percentage variation. So profitability is the same, more or less. And on Jardim das Perdizes, we have that law of Água Branca. I have talked about it last year. I had expectations that it will be approved. Unfortunately, it was not. This -- we were so disappointed because it's a law that's good for the whole city, everybody would gain on that. And for us, of course, it's interesting. However, it's your remuneration, new politicians, we have 23 new representatives, some have been reelected. But the law is at the same state it was. So it was voted for the first lot. There were some public hearings and now they have to have the second vote. We don't know what's going to happen. So we still believe that the law will be approved. It's good for the city, for the market, for the municipality. It's money, it's employment. Even if it's not approved, we have 2 options. First, big lands have the basic quotient. I think I have explained that. But I'll repeat, not a problem. The land part is one we will have 4x the area with the CPAC conditions. We are developing products to launch 1/4 with the basic quotient. And when CPAC appears, no matter how long it takes, we buy the difference, and we launched the others with the other 3 parts. So this is a way out, and we are counting on that for this year, okay? I hope I answered everything. But if you need any more -- any further explanation, just ask me.

[ Mr. Pedro Fernando ] from [ Condo ] would like to ask a question.

I would like to know now with this worsening pandemic getting worse and worse and the government getting worse, whether the launching timetable will be affected somehow? This is the first question. And the second about comparing to the other companies, you were a little bit slower sales. Is it accelerated now in this first quarter of '21?

This is Nigri. First question on the timetable for launches, it will affect. It has affected. As I commented during my presentation, we had a launch for the end of March, and we know that's not going to happen. If it's going to be in April, end of April, it all depends on how long the situation will last? We hope it goes away soon. So although it's going to change the timetable. We believe that's not going to be so much. And by the end of the year, we will reach our goals. But we don't know, second wave, how long; third wave, I hope it doesn't come. But for what we're seeing now, the goals to stand and only the short-term timetable will have to be a little bit controlled. On sales speed, actually, we sold our stock very well. If you see the Jardim das Perdizes, almost finished, the last units were sold by BRL 13,500 per square meter, which is very good. That indicates that the next ones will be better sold and the launches that were to the end of the year when we launched on December 18. So we didn't sell much along the year and throughout this year. Now this first quarter, they sold, but it was not very fast. We believe that the products are good. They will sell. We don't really want to sell as it is. It's not that we don't want to sell, but since we see that the prices are going to go up, the costs are going up, so it may be even better to sell throughout time, capturing the price. For instance, we have a budget in Mooca and our price referential is hindering the price, now that's more expensive. So throughout the year, we're going to have launching in the region. In my opinion, the prices will be updated. And we will sell. It's a good land part, traditional neighborhood, 4 bedrooms, 150, 180 square meters. So I'm comfortable. So really, the sales speed is okay within our curve. But personally, I had a higher expectation. But all in all in 2020, we we had a good SOs and the trend now is with the launches. We have some projects in the land bank that are quite special. I won't be mentioning one by one, but throughout the year, as we launch, I believe one of them I commented. It's the one at the corner of Lorena Streets. But there are others. I really believe that our products will sell, the commercial area will fly.

Mr. Altero from Santander would like to ask a question.

Two things. First, I would like to understand the strategic estates as have been commented, larger apartments lost, et cetera, how do you see that? Is it more punctual? What do you see in the future? Is there going to be a structural change? How is this going to impact your projects? This is the first question. Second question is more in relation to margin dynamics because steel keeps going up, for instance.

I had a problem here. And could you repeat the second question, please?

Can you hear me now?

Yes. Mr. Nigri had a site problem.

So second question about the margin. What we have been seeing is a strong increment in steel. How much do you think you can compensate that increasing the prices? This is the second question.

Ygor, first question is something that really interests me a lot. We have been studying home office from the beginning of the pandemic and how that impacts on our business. For residential development, we understand that we believe that remote working came to stay, not as it's done today, not at home, not 5 days a week, but maybe once or twice a week in a place close to your house because you know the reality of Brazilian people for home office, it's not the best. Maybe the bored will live on a nice apartment, has an environment, but a family that lives in a 50-square-meter apartment will not have an environment for home office. Number one, what did we do in our new development? On the ground floor, we did some workstations, so people work from there. Everybody was talking about space, for home office. We said, no, the client will not pay for that. Let's put it on the ground. And it's going to be shared. They can use when they need. And also, it's quite clear that most companies will no longer have this model of 5 days a week. This hybrid model according to the surveys will prevail. So the last time the week, the person needs to go to the office, she or he will live more far away and by a larger apartment. This is why we are focusing on larger apartments in more traditional neighborhoods, away from the commercial access. And also what we think. Now I'm talking about residential product. What we always do to benefit the zone, and this is an item that every developer is concerned about, most will have flats, low permanent flats. But first, there are many flats being launched in the market. And second, according -- depending on the neighborhood, it's different, Jardim, Itaim, Pinheiros and it's different being in Ipiranga or Mooca. I have nothing against that, but it's not where better are will live. It's more like a family neighborhood. What did we see for the INR for those neighborhoods to have a co-working there for people to be able to work remotely, especially the companies will give subsidy for their workers there. And we are seeing -- we are looking at that. We are partnering with some companies with co-working to -- for them to acquire those areas and explore the profit of those working stations. I will tell you about that as they become more true. But this is what we see as far as changes that will impact our business. And about the margin, I'm going to give it to Vidigal.

On margin, we have a situation that we came from a moment that the construction -- that we had under construction have been -- the services have been higher. So there is no impact on that. We are in a peculiar situation in the market. We did not have many projects that were under construction. On the previous ones, we understand that it has no effect. And over the new ones, Nigri has tackled that. We consider a new reality of costs. And probably there's going to be a reflex on price as commented. So we don't expect to lose margins right now when we think about gross margin because of the increase in what we need. And we see more pressure in the low-income segment.

Gabriela Moraes from Itau would like to ask a question.

Two questions. First, about launching and margin. I would like to understand how the margins were on those 2 launches? And also if you have accelerated sales on this project in the first Q '21? And second, in relation of cash and leverage, would like to understand if leverage is going to be more stable because you have increased your land bank? Or should we still wait for the cash to be used because of construction? That's it.

Gabriela, okay. Let's start with your second question. You talked about leverage. It's a bit of what you mentioned. We should decrease because we will no longer acquire as much. We will be stabling our level of indebtedness. And as you could see, we also have a volume of our own cash that we can use for that. In relation to margins, you asked about the projects that we have launched. They are aligned with the market. But we cannot say what's exactly the margin, but it is aligned with our forecast. About sales, as we have commented, yes, we launched at the end of the year, and we had this end of the year effect. And January, traditionally, is a month that's weaker. And this year, many people did not travel, but it's a month of pay your bill. In February, we have carnival. For some people, it was carnival; for others, it was. And in March, we have a lot. So it -- so the first quarter was kind of bumpy. We are selling, we are operating. Sales of these 2 developments that we launched are below our expectations. But again, I say the product is good. In case of Villa Romana, specifically, we have the nonresidential that we have not yet opened officially the sales. We are attempting a solution, maybe we have and maybe not. We'll see what happens. So that also pushes down the sales aspect. We had a quarter that was below expectation, was not to very bad. And we believe that we will be selling. And the next product, they can't to be even better sold, something that we did. This project in Mooca and Vila Romana, we launched only with our own agents, without other agencies. We were optimistic thinking that it will be enough, but since it was not, then we decided to invite outsource companies, real estate agencies, so they will help us on that. And I'm sure that we will sell.

[Operator Instructions] This is Anderson. I'm Manager from Tecnisa on Investor Relations. We have some questions from the webcast. The first one is from Casa Guerrero from Condo. And he asks about the result of this quarter, this current quarter. And how do we see the effects of the second wave on the result of 2021? And what we expect for the year?

Sales have been commented. We approached -- in the release, we gave some information of things that happened in the first quarter. We mentioned the sales of the projects that we have launched. We also mentioned what we capture through the three. And also the backlog that we understand, that's what we can anticipate regarding the first Q. And we also approach the second wave. It has been commented, but just to reinforce. We are monitoring the -- because the booths have been closed, and we hope that it's going to be open in April, so that we can go on. I think an improvement that we had in closing the first quarter would be buying 800 in CPAC that are enough to maintain our level of launching for 2021. And we will have to monitor the situation of the pandemic.

Enrique Rabas has a question. Based on the guidance, when do you expect the turnaround from losses to profit?

We don't have a precise date about that. But I'll tell you about the dynamics. Usually, when we launch a project, we start seeing the results of it. It starts usually after 6 months because we start -- we begin the construction and then we count those launches. So as we have more launches, after these 2 that I mentioned, that's usually 6 months, we'll start to see the results of each development in our balance, our statements. So we have to see what happens. And Enrique, I think we have many good things to happen. Maybe when you look at the result of the quarter, you don't have a good impression, but we have all the costs, in financial. But in time, on top of the launches that we have, and this will generate gross profit, it will generate results. We have Jardim das Perdizes. The price there is overvalued. It will represent a very good margins for us. We have this partnership that we have with JFL and AW that will generate a PSV that's quite high with high margin, much more than the traditional one. And we also have those 3 projects that we have that was [Technical Difficulty]. I have no sound here. Let's see if it was a problem with them or with me. They're back. Almost half of the profit in that project. So with 20%, we can get to has the project. These projects are very well sold. The developments are running. They are at cost. They are according to the timetable. No delay in the horizon. So everything indicates that we'll be okay. This is the good news that we have, but they will come in time. Unfortunately, nowadays, the picture does not seem very good, but the whole movie is excellent.

We have one more question from Marcos Elias, Empiricus. He's asking about the volume of sales of the launches, something that has been dealt with. So we have finished the questions in the webcast.

[Operator Instructions] Thank you. Since we have no further questions. I would like to give the floor to the company for their final remarks.

This is it. Thank you. We are available for any questions, and I wish you a good afternoon. I hope to see you again in our next presentation. Be well and healthy. And I hope God help us for this pandemic to finish well and things go back to normal. Thank you all.

So the conference call by Tecnisa is closed. Please disconnect, and have a nice afternoon.