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

Good morning, ladies and gentlemen. Welcome to the Third Quarter 2021 TECNISA's Earnings Conference Call. Today, we have with us Mr. Joseph Nigri, Vice Chairman of the Board of Directors; Mr. Fernando Tadeu Perez, CEO; and Flavio Vidigal Capua, CFO and Investor Relations Officer. Today's live webcast is being recorded and simultaneously translated by tecnisa.com.br/ir and at the RI webcast platform where the presentation is available for download. We would also like to inform that participants will be in listening mode only. Afterwards, we will start a Q&A session where further instructions will be given. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of TECNISA's management and on information currently available to the company. They involve risk and uncertainties because they relate to future events and therefore, depend on circumstances that may or 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. Now I would like to turn the conference over to Mr. Joseph Nigri, who will begin the presentation. Mr. Joseph, you may begin your conference.

Good morning. It's a pleasure to be with you this morning. I would like to open today's conference commenting on the change of CEO. I was in that position since 2017 before as Vice President of the company. And in our Board meetings, I've been saying that I needed to focus more in strategy, innovation, ESG, et cetera. And to boost that, we proposed to Fernando Perez, a switch of positions. He would take over as CEO and I would go to the Board of Directors as Vice Chairman. He accepted and we carried out this change. Fernando Perez is a very experienced leader. In addition to have deep knowledge about TECNISA, he's been working at our Board since 2016. He also spearheads several committees in the company and promoted several workshops as well. He knows not only the company, but all the important people who work there. He has proven management skills and people development that qualify him for the position. He already was in high management in large companies such as Itau Bank and Volkswagen. I will continue as Vice Chair of the Board. I want to be very active, especially on the topics that I mentioned. So now I would like to pass the floor to Mr. Perez for his comments.

Thank you. Good morning. This is a recent change, but I would like to introduce myself. First, I would like to thank Joseph for his kindness. And I would like to point out that this change only happened because he wanted it. At the Board, we wanted him to continue spearheading the company and taking care of strategy. But we concluded that it would be timely for Joseph to have more time to use his great skills and strategy, developing new businesses, new products and new ways of doing business. So several things that Joseph will have more time to dedicate himself to. And as he said, I've been a Board member for a long time. I have been acted -- invited by Meyer to come here to help in reorganizing the company. For that to happen, that Joseph spearheaded for the past years, I needed to meet people and learn a lot about the company. So it would be convenient to join efforts, if we change positions. That's what happened. I'm here from now on, spearheading the company with the high management and talented people we have. If you want, after the call, I will be willing to answer any questions. Thank you very much.

Thank you, Fernando. Welcome. Definitely, Fernando and I will work very well together, and I think I can contribute in many fields in which he is not that knowledgeable about. So I'm very excited. I think for the company, it's very good. And I will be with you in the conference until the end. And from the next one on, it will be conducted by Fernando. One more piece of information. In addition to my commitment as a Board member, the Nigri family also rearranged its position in the company. So that doesn't mean that we're abandoning anything. On the contrary, we're increasing our position in the company. So starting the presentation with Slide #4. Our strategy is the same. Our land bank is very consolidated. We have good plots in-house. We don't have the need to acquire others. The launches, although the challenging times that some indicators worsened for us, like interest rates, inflation, GDP. On the other hand, we had good news as well. Construction costs are more balanced now. The pandemic, to what we've been seeing, is much more controlled. Thank God. I hope this is the end of it. So activities might resume to normal. We are also taking measures to strengthen our cash position following what is happening with pandemic. And also continue in disposal of nonstrategic land. And lastly, Fernando will be able to contribute greatly in optimizing the administrative structure. Slide #5. We talk about the guidance, which we published in November. We want to launch BRL 1.2 million to BRL 1.5 million, considering 2020, 2021. We launched 3 projects, highlights Dr. Moretti, Residencial Florear, BRL 288 million; and in October, we started 2 other projects with a PSV of BRL 364 million. So we reached 91% of the minimum point of the guidance. And we have another launching soon in the neighborhood of Ipiranga with approved projects. So in guidance, we're very confident that we will achieve. Slide #6, you can see some images of the launchings. Always privileging, the facade, the blueprints and innovation in the common areas. So we even place the beach tennis court, which is a hotspot, endless pool. You can swim against current, you have a bike room, a work pod for people to work remotely in the common area. This building has SoS and 87, 86 square meters. On Page 7. We have Mont Klabin, which is a 4-bedroom building. We were able to also put a large building in the area. We also have a studio and flat tower. This product is lacking in the market, very few offers with this size. The common area also is very well done. Page 18 (sic) [ 8 ]. The first image of Unik, which is our next launch at Ipiranga, very close to Chacara Klabin. We're calling it new Klabin area. Our share is 80%. I would like to pass the floor to Flavio to talk about operating performance.

Thank you, Joseph. Good morning. Before starting our presentation, I would like to thank -- [Technical Difficulty] I am sorry. I'm going to resume my talk. We have an audio issue. So I apologize once again. I was thanking Joseph for the work we've done together and wish him success at the Board and success to Fernando in his new position and I hope we have a great partnership. As to the operating performance, we increased the number of launching. So we increased sales, BRL 82 million for gross sales and BRL 79 million in net sales. Now for the next slide, we closed the quarter with BRL 597 million in inventory. And with the launching of October, increased the inventory in Sao Paulo. So the representativity of Sao Paulo is increasing. And for the work progress, I would like to congratulate the team. It's important to say we launched 6 launchings and BRL 159 million in inventory. We delivered 2 of them in the quarter. And now for the next quarter, we will launch a few others and we don't have any issues. We have 75% of our work that haven't started yet. That's important to say. In 2022, we will have 6 ongoing construction work. And this generates also very important dynamic in our revenue. For the next slide, our land bank, in 3Q '21, we have BRL 5.5 billion. 82% was acquired in cash and the remainder was a swap in hybrid structures. We have BRL 2.9 billion of TECNISA share in the Jardim das Perdizes project. That's a very important launching here in the region. On the next slide, this is the land bank. It is highly diversified in the West region. At the end of the third quarter, BRL 3.4 billion, of which $2.9 million is at Jardim das Perdizes, as I said, with 10 plots. We already launched [indiscernible] in the South region, BRL 1.4 billion. We also launched in October at [indiscernible]. In the East region, we had BRL 227 million in one plot. It's important to say that we have 4 projects that are approved, 2 were launched, but 2 are already approved. And the project for the fourth quarter is already approved. And the 6 projects under approval by the City Hall, totals BRL 1.8 billion. So it also helps us throughout 2022. Now the next slide. The transferred receivables, it was higher in this quarter, BRL 78 million, 400 units that were transferred. What caused that was the securitization process we went through in the amount of BRL 67 million, and we already received 90% of that amount in the third quarter. Next session, the financial performance. We've been saying that revenues depend highly on the number of launchings and the construction work performance. So as we increase our construction, that will increase the revenues and consequently, the gross income and that increases our net income. The quarter ended in BRL 46 million negative, but as I mentioned, due to the new projects, we will have a better performance next quarter. Our financial position, our shareholders' equity was BRL 678 million, total receivables BRL 113 million. BRL 51 million were performed receivables that will turn into credit in the future. And as I mentioned, we had a reduction of BRL 60 million in the portfolio due to the securitization that we had in September. This is our receivable schedule and the new launchings are contributing in gray, especially 2022, 2023 will help with our receivables. On the next slide, financial position. As mentioned, we have a more challenging financial landscape. And also because of our financial liabilities, we increased BRL 30 million in our free cash going to BRL 184 million, maintaining the volume that we had. And now with the new launchings, we will lower our indebtedness. We closed BRL 370 million. We have 7 year debentures and we also paid a debt that had a shorter maturity date so we could extend our indebtedness. I think it's worth mentioning 3 more points. With that short debt -- short-term debt maturing in [ BRL 53 million ], we have a cash that is higher than that. That makes the company very comfortable. And we won't have any surprises so that we can continue conducting our construction work without any issues. And the amortization coincides with the delivering of the launches. And a question that we always answer about the projects that were already launched, all of them have approved funding, including those that were launched in October. Cash generation in the quarter, we had approximately BRL 14 million of cash generation. And we had minus BRL 89 million for the past 12 months, but it was also the payment of BRL 160 million in the court action. This is net debt over shareholders' equity. Even with a negative number, we continued stable. And we considered a debt over shareholders of 54%. And when we consider net corporate debt plus performed receivables over shareholders' equity, we achieved the figure of 46%. This quarter, we also decided to include this slide so you have all the information. This is the accounting result of the number of total shares achieving. So we had BRL 10.19 of net asset value. So the tendency is for this number to increase. So the plots of land turned into projects that will be launched. So this amount tends to increase. But again, that's the projection of the company. So that's my part of the presentation, and we open for Q&A.

[Operator Instructions] Our first question is from Elvis from BTG Pactual.

I have a few questions about the sales of the launchings. I would like to -- all the launches you had in the company now. So the demand and sales of the launchings in the fourth quarter at Klabin and how you see the interest of your next launching? My second question is about Perdizes. The inventory is low. The company intended to increase that. We had approval of the law. So do you have any update about the evolution of the court decision? And also the expectation to launch in Perdizes.

This is Joseph. First of all, about the launchings. In fact, we've been noticing a reduction in sales. Our average was 11 but we had a much higher expectation. And in practice, we sold less because -- I think because of market conditions. And I'm going to answer your next question about supply and demand. I think that market is a bit saturated. And there are several reasons to postpone purchases. People are concerned about inflation, the economy, if they're going to keep their jobs or not. But what I wanted to answer is that I'm confident in the quality of our products, the facade, blueprints, common areas, very good quality products. And obviously, price -- we are priced a little bit higher because the cost of construction increased and the buyer is not assimilating that increase. So what we've experienced many times before is that the price of properties hardly ever drops. The buyers, the market won't go away. They have -- people need to live somewhere. If they don't buy it in the neighborhood they wanted, they might have to buy it in whatever neighborhood foots fits into their pockets. And this demand will adjust and will come back. So I think the market tends to balance. Of course, we would love to have our sales at a much higher level. But I'm confident that with time, throughout the construction, we've been noticing that week over week, sales are increasing. And at the end of the construction, it will be totally sold or almost about Jardim das Perdizes. It's funny. The market as challenging as it is, we have a line of people wanting to buy at Jardim das Perdizes. We have the brokers, a whole list, anything we launch, we will be successful there. But as you mentioned, the law was approved, and we really thought that was a good thing. And then the Court of Justice consider it unconstitutional, and then there was an injunction. So we're disappointed and frustrated, not only because of our project but because of the city. We could be developing -- generating money and jobs for infrastructure development. And the region is stopped because of that issue. And our opinion is that if you read the arguments, in our opinion, they're very weak and stiff. They challenged the people being part of the discussions and the City Hall is also complaining. So we have to happen -- to see what happens. And price, the price is higher than it should be. We have the study of feasibility, but any company -- development company the price that was approved in the law is even higher than we expected. And we're waiting for City Hall to respond, and the courts will -- I think, will let that law go. So if you have any other questions, I'm here to answer them.

No. It's very clear.

[Operator Instructions] Without further questions, I would like to pass the floor to the company for the closing comments.

I'm not going to say that this is goodbye because I'm still going to be very active. But I'm very happy and motivated by this change and I'm very confident in the new management. And if you do have any additional questions, we're here to answer them. I wish you all a great afternoon and I hope we can meet without this pandemic. Thank you very much. Have a great day.

Thank you. This concludes today's TECNISA earnings conference. You may disconnect your lines and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]